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How to Avoid Home Contractor Scams

Written by Than Merrill

Individual homeowners can take several precautions to avoid becoming the target of home contractor scams.

Encouraging signs within the housing sector suggest that homeowners will continue to enlist the assistance of independent contractors. New housing starts have reached 1,036,000 (seasonally adjusted annualized rate), indicating a 47 percent increase from the previous year. Trends suggest that construction starts are now 55 percent of the way back to the normal level of 1.5 million.

Russell Price, a senior economist at Ameriprise Financial Inc., has estimated that the recent demand for housing may generate as many as 500,000 jobs in 2013 and 700,000 in 2014. Many of those jobs will be attributed to the growth of the construction industry, which has already accounted for 15 percent of the overall job growth in the last six months.

However, a dramatic increase in construction rates may be associated with ample home contractor scams. To prevent yourself from becoming a victim of potentially devastating home contractor scams, it is imperative to take the necessary precautions. So what should you do if you need a reputable home contractor, but want to avoid falling prey to those with malicious intentions?

The Washington State Department of Labor and Industries offers a helpful tool for hiring contractors, but for more comprehensive advice, reference the following:

Taking the initiative requires an acute attention to detail. The first step in preventing home contractor fraud is to conduct research on the party in question. Familiarize yourself with the individual you intend to hire, as an extensive background check could reveal any red flags associated with them. According to Tom Burnett, a spokesman for Wymoo International and former private investigator, the following steps will go a long way in preventing home contractor scams:

  • Contact the Better Business Bureau to see if the contractor in question has been the recipient of numerous complaints. Lack of the contractor’s presence within the BBB’s database will also serve as a red flag, as they are not a registered affiliate.
  • Ask for references and be sure to contact several of them.
  • Check to see if the company is registered with its state or your state’s division of corporations.
  • Request the contractor’s license number so that you may verify their business is recognized by your state’s Department of Professional Regulation or an accredited licensing board.
  • Search the internet for any information pertaining to the contractor.

After conducting extensive research, continue to practice caution, as home contractor scams can often be elaborate and deceiving.

“In many cases, we see a person posing as a licensed or reputable contractor, and all checks out until the first payment is made to begin the job, and then the subject disappears. We see fake business cards and websites being used, and criminals can assume the identity of a real contractor, register a company or use an alias. The goal is always the first payment,” says Burnett.

Be wary of paying any upfront costs. More often than not, large upfront costs are a tell tale sign of fraud. According to Amy Matthews, a home contractor who has hosted numerous DIY Network and HGTV series, large upfront costs are indicative of fraud. It is common practice by reputable contractors to request approximately 30 percent up front. “You should never pay at the completion until you’ve really looked it over,” says Matthews.

In addition, she acknowledges that paying with a credit card is preferable. It is wise to use a traceable source of funds, such as credit cards or checks. This will give you a record of the payment for the authorities and improve the odds of getting your money back if you fall victim to a home contractor scam.

Once a proposal has been established, it is important to evaluate any plans or blueprints made available. Fairly elaborate jobs will most likely require similarly elaborate plans. Make sure the job matches the contractor’s intentions.

“The less gray areas there are, the better off homeowners will be,” says Nicholas Iarocci, owner of a home contracting company that services the New York City area. According to Iarocci, detailed plans can “make the homeowner aware of possible additional expenses,” which serve to determine whether or not the contractor uses ethical practices. It is not uncommon for contractors to purposefully overcharge for their services.

Even ethical contractors can serve to ruin your financial standing unintentionally. “If an insured contractor brings a day laborer or an employee that’s not on the books, and they get injured, the property owner is directly affected,” says Iarocci. “I collect certificates of insurance from my subcontractors.”

With the following in mind, never allow yourself to be rushed into a project. Home contractor scams deliberately take advantage of the confused and impatient. The speed in which they promise to complete a job acts as incentive for potential victims.

Says Matthews: “If someone offers to do a really quick job on your house for a really low price, and it sounds too sound to be true, it probably is.”

As home development reaches a key milestone, it is important to familiarize yourself with these individual tips. By doing so, you can save yourself from a myriad of headaches and potentially unwarranted costs. Mitigate the risk of home contractor scams by educating yourself and others.