How to Avoid Being Ripped off by a Contractor

Many Americans decide to remodel or build additions to their homes in the summer as the weather is more accommodating to that kind of work. 

But when summer starts, scammers also come out of the woodwork and it's not uncommon for homeowners to be ripped off by an unscrupulous contractor. 

The most common scam is to ask for money up front and then abscond, never to be seen again. Also, many shoddy contractors will underperform, providing poor workmanship at an exorbitant cost and try to illicit more money from you in the process.

If you are planning a remodel, you should look out for these common scams.

Up-front payments
A typical job will require about 10% of the cost up front, just as a good faith payment that you are scheduling the contractor's time. 

But the scammer will ask for 30-50% of the project price up front, saying that he has to order materials and/or rent machinery to get the job started. Then the scammer will disappear and not be seen from again, or they will start the project with shoddy workmanship. 

Or the contractor is not financially stable and may plan to skimp on the work later.

Reneging on terms
When a homeowner and a contractor discuss a project, it's common for the contractor to suggest decorative details that will make the work stand out. But what often happens is that those details never make it into the final contract and … surprise! … they don't make it into the final project either.  

When you see that the contractor isn't adding those details in, you confront them and they tell you they didn't include those features in the price. They'll then try to elicit more money for that extra work. 

Being told no permit is necessary
In most jurisdictions you have to get a work permit for any large construction project. Building officials want to know about all projects so that they can check on safety practices. 

Sometimes unlicensed contractors may try to avoid pulling permits by saying they're not necessary for this particular type of job. This would be typical for an interior project. 

If they want to avoid pulling permits for an outside project, they may tell you it's the homeowner's responsibility. But it's not. A permit must be obtained by the party doing the work. 

So what can you do to avoid being ripped off? Angie's List and HouseLogic.com, a site run by the National Association of Realtors, has the following advice to avoid getting ripped off:

Do your homework - Solicit at least three bids for your project and check Angie's List, industry associations and previous clients' references before hiring. Visit the contractor's completed projects during the bid review process, particularly when it's a big job. 
You should also talk to friends who have had done work recently to get recommendations.

Check status and references - Check your state contractor's board to see if a contractor is required to have a state or local trade license to do your job, and then verify his or her status with the appropriate licensing agency. 
Ask for proof of liability and workers' compensation insurance and bonding (if applicable). Ask for and check references for past jobs, and also suppliers they often use.

Negotiate a detailed contract - It should specify the various responsibilities of both the contractor and the homeowner, start and completion dates, terms that tie payments to job progress and completion, details of the work that's being performed, itemized materials and any warranty information, and whether subcontractors will be used. 
Also require that the contractor is responsible for obtaining all of the required building permits. 

Ask for a detailed outline of costs - Never prepay more than $1,000 or 10% of the job total, whichever is less. That's the legal maximum in some states, and enough to establish that you're a serious customer so the contractor can work you into his schedule - the only valid purpose of an advance payment.