Contractor Fraud: What It Is and Tips To Help Avoid It

When you experience home damage, especially to critical areas of your home like the roof, you probably want a contractor to come out and fix it immediately. However, there is good reason to hold off until you find a trustworthy and reliable contractor. Why? Although most contractors aim to provide quality services, you still run the risk of encountering a few who may engage in contractor fraud.

Here we explain what contractor fraud is, warning signs of contractor fraud, as well as give you tips to help you avoid common scams.

What Is Contractor Fraud?

Contractor fraud occurs when individual contractors or contracting firms hired to repair, renovate, or build residential or commercial properties knowingly offer misleading services, such as charging more than a contract is worth or performing unsatisfactory work. This usually results in negative consequences for homeowners and could lead to additional repairs and expenses because of poor workmanship or fraudulent charges.

Tips For Avoiding Common Contractor Scams

Here are a few common contractor scams and how to avoid them.

1. Requesting Full Payment Upfront

This is one of the biggest giveaways when it comes to contractor fraud. Your contractor asks for full payment upfront to order the materials and equipment needed for the job. After this, they go missing with your money, continue to delay your project for months or perform unsatisfactory work.

How To Avoid This Scam: Never pay more than the legal maximum in your state upfront. Usually, this will be no more than 10% of the contract total. The only purpose of an advance is to establish you as a serious customer and the contractor can work you into their schedule. As for material and equipment costs, remember, if your contractor is reputable, their suppliers will provide materials to them on credit.

2. Encountering Unforeseen Problems and Requiring Additional Payment

Another warning sign of contractor fraud could be your contractor encountering serious, unexpected issues like plumbing problems or termite damage - after they've started the job. Your contractor then requests significant payment to fix the problem, leaving you with no choice but to pay to keep the project going.

How To Avoid This Scam: Before you sign a contract, make sure it includes a process for change orders, which are mini contracts containing a project description and a fixed price for any tasks you add to the contract. This extra work should only occur after both the homeowner and contractor both sign off on the change.

3. Using Materials Leftover from Previous Jobs

You should be wary of contractors who claim they can offer you a great deal by performing the job with materials leftover from previous jobs.

How To Avoid This Scam: Do not hire contractors on the spot. Be sure to check your contractor's background to make sure they are reputable and perform quality work.

4. Offering Free Inspections

Many legitimate contractors won't charge you for an estimate, but you should still be on guard. Especially with the elderly, look out for contractors who perform inspections in areas of your home you can't easily access, such as attics or crawl spaces.

How To Avoid This Scam: Be sure to pay extra attention to your contractor's assessment. Also, it's a good idea to get more than one estimate.

5. No Contract

Never agree to a job if there is no written contract.

How To Avoid This Scam: Always require a written (not verbal) contract including all the details of the job you want and agree to. You and your contractor should sign a written contract agreed to by both parties.

6. Lack of Permits

Significant construction and renovation projects require you to have a building permit to ensure your work meets safety codes. Fraudulent contractors may try to get past this requirement, so they don't have to deal with building inspectors, by not obtaining the required permits or requesting the homeowner apply for the permit with their own name.

How To Avoid This Scam: Always ask your contractor to get a building permit, if required. This will result in your local tax assessor being informed about your upgrade, but it filters out unlicensed contractors.

More General Tips For Avoiding Contractor Fraud

1. Verify insurance

Make sure to verify if your contractor has the necessary insurance to work in your area. Check with your contractor's insurance carrier to confirm they have coverage for worker's compensation, property damage, and personal liability should there be an accident.

2. Prepare for future service issues

Be sure you are well-informed about your warranty coverage and how to deal with future service issues.

3. Get your lien waiver

In the U.S., a lien waiver is a document from your contractor stating they received full payment.

4. Keep your contract

Stash your contract in a safe place just in case you have any questions after the work is finished.

Before Hiring a Contractor, Contact Your Insurer

Doing your due diligence by researching your contractor is the best way to avoid fraud. Be sure to ask for references and trust your gut if you feel anything is off. It's also important to talk to your insurer before any work is commissioned to make sure it's within your policy.

If you're not happy with your current policy, be sure to contact Edison Insurance. We can help to customize your homeowners coverage so you have peace of mind.

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