How to Protect Yourself from Contractor Scams

Posted on September 29, 2010 by

Beware of Contractor ScamsYear after year, home remodeling fraud costs consumers thousands of dollars and considerable stress and aggravation. Another scary thought is that a big part of the people targeted for this type of scam are elderly persons. Contractor fraud is a criminal activity pulled by scam artists on consumers. They tend to prey on senior citizens and singles, taking advantage of their willingness to trust others who sound believable. Sadly, it’s a different world today. It is best to be cautious when seeking workers. Among some fairly obvious tactics, here are some things to watch out for.

  • When a person is soliciting door to door for repair work. Though they may seem quite knowledgeable and appear friendly, this is not a common tactic of a pro contractor.
  • They may claim to working in your neighborhood and just happened to notice some sort of repair needed on your house, such as roofing, painting, or cracked portions in your driveway.
  • A special price or discount may be offered as they claim we are in the area and will knock off a portion of the cost due to excess materials from other contracts.
  • You may also be told you must act right away to get this special discount pricing And you may be asked to give them money up front before starting the work.

More times than not, after receiving a substantial amount of money, these so-called contractors just disappear with the cash. By the time you figure out that they are not showing up, they are long gone, and so is your money. On the other hand, sometimes a contractor will start some of the work and then continuously try to raise the cost of the job causing consumers to be grossly overcharged. See, most people think that since they already signed a contract, they are at the mercy of the contractor. This is why it is so important to screen contractors before you hire them.

Here are some other things that a disreputable contractor may use to scam people.

  • They offer you a discount price if you allow them to use your home to advertise our work. This makes it sound as if they are doing you a favor for a favor.
  • Door to door soliciting leaves very little evidence to track down scammers.
  • Be cautious when someone offers you a lifetime warranty, or long-term promises.
  • Some scammers offer a “free inspection” that always turns up a major repair job.
  • Never fork over a large down payment for materials. 1/3 down is the max.
  • Always insist on a properly written contract, typed, not hand written and signed.
  • Avoid any suspicious contractor whose address is listed as a post office box.

The most important factor is to make sure to thoroughly check out each contractor and to get a contract in writing that spells out even the smallest details. As in several of my other articles, you can’t do too much background checking before making a decision. Now don’t get me wrong, I am not saying that all contractors are crooked because I am not. I was a reputable contractor for 20 years and most contractors are honest, hard working ladies and gentlemen, however there are thousands all over the country giving good contractors a bad name. Weather you are a senior citizen or a concerned citizen you can get information on how to protect yourself from scams by contacting your local police and there is a great deal of info on the internet.

Some scam artists posing as contractors prey on disasters, such as the recent tornados that devastated many southern states very badly. All of the people who had damaged property are struggling to get their homes repaired and are at great risk of contractor fraud. Workers from all over the country flood areas of disasters hoping for desperate people to let their guard down, knowing that a contractor at your door may be better than waiting weeks to get a contractor to help stop the home from further damage. It is in these situations that most people are scammed. You are vulnerable and desperate, and that’s when the scammers are most likely to come in for the kill.

Follow the techniques I stress in my Rehab 101 system to “Cowboy Up” to scammers.

Always get the contractor’s full name, address, business phone and cell phone number. I have been telling people to ask for 5 references from each bidder. The usual 3 that most people ask for but the fourth is the contractor’s material supplier. If the contractor told me he had been in business for 10 years and I call his supplier and he has only been buying from his supplier for 3 months, this indicates a problem. The 5th reference is someone they had to return to fix something for. And if the workers say they have never had to go back to a job, don’t believe them. Ask this reference how the workers handled themselves, as they had to come back after the job was finished.

Call the better business office in your local area and inquire about the person or business. You should always get at least three estimates to compare from. Never hire the first person that shows up until you have compared pricing and references. Make sure that they have enough insurance and liability coverage. If you use people without it, make sure to get liability waivers and lien waivers to protect yourself. I never pay more than 1/3 down for a material deposit. This amount should be enough to get the job going. Asking for more is a red flag and should be avoided.

To summarize this article on how to avoid scam contractors, here’s a great portion on what things should launch a huge red flag when dealing with contractors.

If the person does not have a listed number in the phone book, and also goes door to door looking for on the spot work requiring money right away. If special prices or discounts are offered but you must act fast. This deal is so we can advertise our work using your home as part of our advertising. If the worker asks you to pull any permits required for the job. And my favorite is, if you pay me in cash I can give you a great discount . Remember the part about having leftover materials from another job and we are passing the savings on to you. More red flags are low-ball offers, sub standard materials, and any funny sounding payment plans. Stick to using contractors whose references check out and remember…IF IT SOUNDS TO GOOD TO BE TRUE, IT PROBABLY IS!!!

Pete YoungsAbout the Author: Pete Youngs, aka Mr. Rehab, is a successful real estate investor, business owner, author, and lecturer dedicated to helping others to achieve their goals as investors and real estate entrepreneurs. Pete’s specialty is teaching people how to rehab properties for 50 to 75% below retail costs. He has authored many courses, books, CDs and videos on the subject of rehabbing as well as termite and property inspections.

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