While attending a social event at a friend’s home, the topic of conversation turned to contractors and renovation projects, specifically how to find a qualified and trustworthy contractor.

Our host had recently installed a beautiful in-ground swimming pool. As we marveled at its beauty, he shared the torment he endured from his general contractor during the installation of the pool, which took several months. As the evening wore on, other guests ruminated on their own sagas dealing with incompetent contractors or projects that never seemed to end, or ended up costing significantly more than the budgeted amount. This, unfortunately, is an all-too-common experience with major home improvement projects.

How do you choose a quality contractor for your renovation project? Here are our recommendations that we believe will help protect you from hiring unscrupulous contractors, and will help you mitigate risk when entering any construction agreement.

1. ALWAYS CHOOSE A LICENSED CONTRACTOR

Always choose a locally licensed (state, city or county) contractor with an active license required to perform the work involved with your project. Contractor licensing requirements vary by state, with some states ceding licensing responsibilities to cities and counties. Examples of renovation-related work that commonly require professional licenses include: General Construction & Remodeling; Plumbing; Electrical; HVAC; Roofing; Demolition; and Hazardous Waste Removal.

Licensing programs ensure that contractors must possess a minimum amount of experience and knowledge within their given area of practice. Applicants also can be subjected to a criminal background check, may be required to take a trade examination, and must not have any outstanding unresolved contracting complaints.

We can’t over stress the importance of this recommendation, especially if your project starts to go sideways. When problems surface, you will need legal protection as a property owner. In most states, California being one, you are protected by the malfeasance of a contractor, only if the contractor is state licensed. Most state licensing boards (usually an extension of the state’s Department of Consumer Affairs) protect consumers by regulating the state’s contracting industry. The licensing board will act as your advocate, should the contractor not follow rules of the Business and Professions Code for the state. The licensing board will also help to arbitrate claims.

Many property owners may be tempted to choose contractors based on the lowest bid. Beware of low bids, as they can be an indicator that the bidding contractor: is unlicensed; does not have an active license; and/or is planning to use unlicensed subcontractors. Conversely, to be a licensed contractor in good standing requires: capital investment; stable financial health; and persistent professional commitment. In other words, low bids may mask cost-cutting that is illegal or risky, while more costly bids may reflect the true cost of professionally and legally performed work.

Make sure your contractor is licensed by asking to see his “pocket license” and by verifying his name, company name and license number with the state’s licensing board. The contractor should be in good standing with the licensing board and the license must be “Current & Active”.

Should you choose an unlicensed contractor, you will have little recourse should a dispute arise. An unlicensed contractor is unconcerned about losing his license and could be difficult to pursue for any type of legal remedy. Unlicensed contractors in many states are required to include, in their advertisements, that they are NOT state licensed. Simply put – an unlicensed contractor is not worth the headache or risk. The money that you think you are saving by hiring a professional impostor, will be easily lost should a problem arise or if your project is halted. Keep in mind, however, your state may have dollar maximums for what an unlicensed contractor can perform, such as small painting jobs for less than $500.

2. VERIFY THAT YOUR CONTRACTOR HAS ADEQUATE INSURANCE

Ask for proof of insurance (also called a Certificate of Liability Insurance, COLI), specifically general liability insurance, in case accidental damage occurs during your project. Also verify that your contractors have workers’ compensation insurance for their employees. This can be verified on your state licensing board’s website or by calling the state licensing agency. It is imperative to remember that contractors with employees MUST carry workers’ compensation insurance. Roofing contractors must have a workers’ compensation policy EVEN IF THEY DO NOT have employees. Also, it is vital that a contractor carries valid, active insurance in excess of both the cost of your project and the value of your home.

3. CONDUCT THOROUGH DUE DILIGENCE ON CONTRACTORS

Get at least three bids with references from contractors who have completed similar projects as yours. Usually, a contractor will be very forthcoming with names and reference information of his satisfied clientele. We recommend asking clients for examples of how challenges were handled within a project to judge both the credibility of the source and the approach to resolution by the contractor.

But would your contractor provide you the names of dissatisfied clients? Enter third-party review sites, like Yelp, Google Reviews and Angie’s List. Search these sites for people who had complaints and reach out to them to ask about the nature of the dispute. Ask if they have filed a complaint with the state licensing board. Then ask the contractor (face-to-face, if possible) about the dispute and if a claim was filed. If the stories differ, stay clear. If you have not yet signed a contract and the contractor is already being dishonest, imagine what would happen should a disagreement arise with your project.

Also beware of blind “Request a Quote” services when using online review sites. This is when websites literally sell your contact information, with limited information on your project, to several contractors. This type of marketing service provided to contractors is referred to as “lead generation” or simply “lead gen”. Websites that have both business reviews and “Request a Quote” features have economic incentive to persuade you to submit your contact information to receive quotes. Though these websites may claim that they only deal with reputable, licensed, and fully insured contractors, assume so at your own risk. We especially recommend conducting thorough research into any “blind” inquiries you may receive on your project.

While investigating the online reputation of a contractor, also be mindful that this person may be operating under a different company name. This may be why you are unable to find sufficient information on a contractor that claims to have been in business for many years. Though the stated years in the industry may be accurate, the current business may be very new, due to needing to disassociate from a less-than-stellar track record of a prior company name. Therefore, be sure to ask how long the contractor has operated under the current business name.

4. WRITE A CONTRACT THAT PROTECTS YOU, THE HOMEOWNER

Your due diligence does not end with the general contractor, but must extend to subcontractors, as well. Make sure that you add contract language to protect yourself against the use of unlicensed subcontractors. Before signing the contract, request and verify the roster of subcontractors that will be used, with their corresponding specialty area and license numbers. In many states, using unlicensed subs is classified as “aiding and abetting unlicensed contracting”. This practice can be prosecuted as a crime and/or subject the licensee to disciplinary action by many state licensing boards.

A contractor can, in theory, use unlicensed subs if he hires them as his employees. However, in that case, the contractor would need to hold the necessary licenses and be required to have worker’s compensation insurance. If the general contractor is not paying workers’ compensation insurance for his employees, his license can be subject to suspension.

If a prospective contractor is not receptive to your inquiries into subcontractors, take this inconvenience as a blessing. It is far better to have a disagreement prior to a signed contract, such that you can simply walk away. Any hostile pushback to legitimate due diligence is likely a sign that this is not a contractor you should trust. On the other hand, reputable contractors will be happy to address your concerns and demonstrate that they operate clearly above board.

Depending on the state law, unlicensed contractors cannot be subcontractors, and the general contractor cannot validly charge you for their work or record a valid lien covering their work. If your contractor uses unlicensed subs, you may have an argument for “disgorgement” or the return of all funds paid to the contractor.

There are even risks when reputable licensed subcontractors are used, if, for example, a disreputable general contractor fails to pay them for their completed work. This can happen even when homeowners have fully paid the GC for all work completed. In this scenario unpaid subcontractors may file a lien against your property. The best way to prevent such situations, is to have subcontractors (and suppliers) sign a waiver of lien rights against your property, prior to the project commencing.

In many states there are Business and Professional Codes which dictate how much a contractor can demand as a down payment at contract signing. Requiring a non-compliant down payment, of any amount, is another red flag to catch prior to signing an agreement. Furthermore, homeowners should document each phase of the project, clearly stating what amount is to be paid upon mutual agreement that that milestone has been met. Always pay by check, and never use cash.

In summary, be sure to verify the qualifications, reputation and status of your contractor, and know your rights as a homeowner. And do not sign that contract if you are distrusting or unhappy with any of the terms.

Related Articles

How to Increase Your Chances of Hiring a Good Contractor
Signs of a Bad Contractor Before You Sign a Contract
Essential Elements of a Home Renovation Contract
Your Rights to Post Negative But Truthful Reviews Online
How to Deal with a Bad Contractor and Reset Your Renovation