Originally published: January, 2016
Everyone has heard at least one horror story about unscrupulous contractors taking advantage of homeowners. There was even a television show about it on cable called "Catch a Contractor." Contractors who performed shoddy or incomplete work were lured back to the "scene of the crime" to face an angry homeowner and fix the job.
I've worked with a few sketchy contractors who were hired by the client before I came on board. The client reasoned "Theirs was the lowest bid."; or "So what if they are unlicensed, the whole neighborhood uses him/her and love their work"; or "They are licensed, but he/she is willing to work without pulling building permits which will save the me both time and money!" Whatever reason, it all boils down to a homeowner trying to get remodeling work done cheaper. Of course, they always expect to receive quality workmanship and/or knowledgeable building code compliance even though they paid far less than what others would have charged.
Remember the old adage..."You get what you pay for?" In most cases it proves to be true. When problems arise and money begins to pour out, or all your money is gone and the work still isn't complete, it's not necessarily the contractor, but the homeowner who gets stuck. Especially if they are unlicensed.
Most licensed contractors are competent, honest, hardworking and financially responsible. According to the California Contractors State License Board, most problems which are reported could have been prevented if homeowners knew their home improvement rights and took responsibility for their project from the start.
A responsible and informed consumer can work more effectively with reputable contractors, and avoid being victimized by unscrupulous or unlicensed workers. Finding a qualified and licensed contractor to handle your construction project may seem overwhelming, but it is extremely important to protect your investment -- your home.
Did you know that in the State of California by law, a contractor cannot ask for a down payment of more than 10% of the contract price on a home improvement project or $1,000, whichever is less?
Shop around before hiring a contractor:
Get at least 3 bids in writing. Make sure you compare the bids based on identical plans, specifications, and scope of work.
Ask to see contractors pocket license, along with a picture I.D.
When a contractor comes to your house to give you a bid. Make sure the person you're dealing with is the same person whose picture appears on the license. If it is a sales person representing the company, they are required to have a photo id as well.
Contractors must have their license number on their business card and on all bids and contracts.
Seeing a license number doesn't necessarily mean the license is valid.
Always check contractors license status
Although an unlicensed contractor may give you a low bid, the risks of possible financial and legal consequences outweigh any benefits a lower bid may seem to offer.
Ask for Personal Recommendations:
If you've hired an interior designer or architect to design your project, they are usually an excellent referral resource for contractors.
Friends, family or business colleagues who have completed similar projects recently are resources if they are pleased with the results of the job. Odds are if they were satisfied, you will be, too.
Local customers, material suppliers, subcontractors, and financial institutions are good reference sources to check whether the contractor is financially responsible.
A client of mine paid her contractor upfront all the money to purchase/install new windows in her home, however, he never paid the window supplier. The window supplier went after my client, successfully. She paid for the windows twice. This contractor had a history of financial flakiness with suppliers and had no credit. His current license status is suspended.
If you are still unsure about the contractor, check with your local building department, trade association or union, consumer protection agency, consumer fraud unit, and the Better Business Bureau. There are also a variety of on-line ratings services like Yelp, Angies List that have consumer reviews. Check them out, then you are in a position to make an informed decision.
Do not automatically accept the lowest bid:
"....Beware of any bid that is substantially lower than the others. It probably indicates that the contractor made a mistake or is not including all the work quoted by his or her competitors. You may be headed for a dispute with your contractor if you accept an abnormally low bid. It also is possible that a low-bidding contractor may cut corners or do substandard work to make a profit.
I have a client who seemingly did the correct things, she checked references, license status, got bids from 3 contractors. However, she made the mistake of going with the lowest bid because I knew the contractor and she liked/trusted him and his past clients loved his work. Neither of us were aware of financial issues he was experiencing at the time, nor did we check.
It was later discovered that he intentionally low-balled the contract to secure the job, then added almost $100,000 in change orders for "unforeseen" problems. As if that was not enough, my client expected building permits. It wasn't until the project was almost completed that she discovered he never pulled permits. She had to hire an attorney to the tune of $7000.00 to get the contractor just to pull building permits for the completed job.
All the work performed by the contractor was not disclosed to the building inspector. He failed to mention the exterior concrete work and replacement of sinking footings which support the second floor balcony.
If that insult was not enough, we just discovered, because of a serious leak, that not all his work was to done to building code. The building inspector did not require the contractor to open any walls or show pictures to prove how the work complied with code. Upshot of this story, had my client checked into his financial background while doing her research, she might have discovered some financial difficulties he was having at the time. Every professional is only as good as his/her last job. Although this contractor had a great track record in the past, he needed money and her job badly.
Ask the contractor to see a copy of the Certificate of Insurance, or ask for the name of the contractor's insurance carrier and agency to verify insurance. If a contractor in California has employees, he/she is also required to carry workers' compensation insurance.
Homeowners often fail to realize that if a worker is injured while on their property and the contractor doesn't have insurance, they could be financially liable to pay for injuries and rehabilitation. Homeowner's insurance may or may not cover those costs. Check with your insurance carrier to see if the workers' compensation coverage provided by the contractor is adequate.
Commercial general liability insurance is not required, however, it covers damage to your property. If the contractor doesn't carry G.L.I. he/she should be able to explain how damage or losses will be handled. In California, a licensed contractor is required to provide you with information regarding both types of insurance in your written contract.
Learn about Contractor's License Bonds
In California, licensed contractors are required to have a contractor license bond. It's important if you planning a remodel, to know what bonds do and don't cover. Some bonds are designed to protect you against substandard work that does not meet local building codes. Bonds do not assure the financial or professional integrity of competency of a contractor. Institutional lenders such as savings and loans, insurance companies or commercial banks generally require licensed contractors to secure bonds for large jobs.
NOTE: The information in this article pertains to the State of California. Although every State requires contractors to be licensed, check your region for specific rules and regulations as they could vary from state to state.
Information about whether your contractor holds a valid license is easily accessed by a consumer on-line in all 50 states.