How to Spot Contractor Fraud

Amid all of the uncertainty that the COVID-19 pandemic created, one thing became very clear – Americans were itching to update their homes. With millions of families spending much more time at home over the past year, there has been a significant increase in the number of households taking on renovations. However, 36% of homeowners say that fraud is their biggest concern when searching for a contractor to lead their renovation projects. Disclosure1 If you’re updating your property and plan on hiring a contractor, be on the lookout for the following red flags to avoid contractor fraud.

Avoid hiring a contractor who is hesitant, or unable, to provide references. Ask for references from jobs within the past 12 months. If you can’t verify their references, they probably can’t be trusted to complete your project. Look up the contractor through the Better Business Bureau to see if there have been any formal complaints. Don’t allow any contractor to inspect your property until you have verified that they are reputable and have all proper licenses required by your state.  Disclosure2

Accidents happen on a job site – make sure you don’t have to pay for them. Verify that the contractor you want to hire has valid business insurance, so that if anything gets damaged on your property (whether it be a crew member, a window, or flooring), you don’t end up footing the bill. Ask for proof of insurance from your contractor before you sign anything. 

Do some research to find out what the average price for a project like yours would be. Call different contractors in your area, ask friends and family who have hired contractors before, and search for information online.

If the estimate you get from a contractor seems too high or suspiciously low, it might be best to take your business elsewhere. Be wary of deals that seem too good to be true – they’re probably too good to be trusted. And if a contractor doesn’t provide a detailed written estimate, asks to be paid in cash, or requests payment in full up front, don’t sign a contract.

Pay close attention to not only what’s outlined in the contract, but how the contractor acts when presenting it to you. Your contractor should never pressure you into signing a contract or an Assignment of Benefits. Be on the lookout for vague language – your contract should include a full description of the scope of work, start date, estimated completion date, itemized budget, and payment schedule. Disclosure3 A trustworthy contractor will let you review the contract and will provide a copy before any work begins.

While it’s not uncommon to run into unforeseen problems when conducting home renovations, your contractor should give you a thorough explanation of any issues that do pop up. Your budget most likely includes contingency funds (a percent of the budget set aside to cover unexpected costs), but your contractor should not be using these funds without first giving an explanation and getting your approval.

If your contractor is regularly running into unforeseen problems that eat up your budget, they might be misusing your funds. Remember to ask questions if you’re ever confused or apprehensive at any point during the project.

Before you hire a contractor or start a big project, it’s important to make sure you’re properly insured. To find the right coverage, talk to your Family Risk Manager today. If you aren’t currently working with one of our professionals, please click below to read more about our Private Client services and to find a specialist near you.