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Trust Your Gut: 13 Red Flags to Avoid Hiring Bad Contractors

May 13 2024

construction house toolsHelping a client undergo renovations for their home project is exciting, but it's also a huge undertaking. The contractor you choose can make or break the renovation – not to mention affect your client relationship and chance at future referrals.

Hire the wrong person for the job, and your go to market date could be pushed out much longer than you ever planned. In addition, the budget might double or triple, and you could still end up having to hire a second contractor to finish the project or fix the one that was botched. That's why you need to know when to walk—or better yet, run—from a contractor who is about to turn your listing into a money pit or burn a hole in your client's wallet.

We spoke with Michael Alladawi, CEO of Revive, a national company that helps real estate agents and homeowners maximize the value of their homes through guided renovations. He shared his insights on the 13 red flags that should have you running for the hills if you ever come across them.

1. The contractor wants a large down payment

No one expects contractors to work for free. On the other hand, your "spidey sense" should start tingling if they ask for a large down payment before they start doing any work. "It is typical to collect an advance toward securing large-ticket items such as cabinetry and countertops, but in certain states, it is illegal for a contractor to exceed a certain down payment cap," explains Michael. With or without those regulations, your client should expect to fork over a down payment of no more than 10% of the total project cost.

2. The contract is vague

The contract presented by your contractor should be detailed enough that you need to put your reading glasses on to view it. "Be wary of a contract that is devoid of details—or the language is vague at best—regarding the scope of work for the project, responsibilities, payment schedules, and start and stop times," says Alladawi.

In fact, he says the scope of work and every single detail must be included in your written agreements. Why is this so important? You don't want to make assumptions regarding what you thought you signed up for. And every time you say, "I thought you were going to…" Michael explains this is what's referred to as scope creep, a "change order," which will cost additional money. For example, you might assume that paint would be included in the cost of painting the home or debris removal is included in a demo, but if it's not in the contract, your client will be paying extra.

3. The contractor had bad or zero reviews

You can give the contractor the benefit of the doubt, but you still need to see if there's any dirt on them. These days, everything is online, and if you see bad reviews, take them seriously. The adage that you can't please everyone is true—but multiple bad reviews are usually a smoke signal. And where there's smoke, there's fire. "If you don't see any reviews at all about a company, chances are they have dissolved previous companies and reestablished under a new name," Alladawi explains. When contractors can't clean up their brand or reviews, they often start over.

4. The contractor doesn't have references

In addition to reviews, contractors should also have references. Also, if this person has great reviews for painting but they're offering to install a new kitchen, you need examples of the latter. Renovations are significant investments of both time and energy for homeowners. Alladawi explains, "The best way to understand a contractor's work is to review photos, reviews, and references from their work." Contractors should be eager to share the contact information of happy customers who can answer questions about their performance.

5. The bid or estimate is extremely low

Usually, consumers are concerned about prices being higher than necessary. However, Alladawi also warns about a low-ball bid. "Contractors know that homeowners will be fixed on costs and the bottom line, and unethical contractors will leave out some scope of work details just to obtain the job," he explains. "You need to review bids against your scope of work to ensure it includes everything you expect."

6. The contractor doesn't have proof of insurance

Don't just ask a potential contractor for insurance—ask to see a copy of it. You should also be sure it includes workman's compensation and general liability. "If the project is large in scope, you may want to also check and see that they are bonded," Alladawi recommends.

7. The contractor is a poor communicator

We're not saying your contractor needs to have a BA in communications. However, if they fail to return phone calls or address your concerns, Alladawi says this is a preview of what you'll get if you hire them—and he says they may end up abandoning the project. Written communication skills are also important. "When a contractor is hesitant to provide information in writing or engage in proper digital communication, this is a definite red flag that he or she doesn't want a paper trail of evidence or isn't legally licensed to do the work requested," says Alladawi, "A running paper trail is a normal expectation when you're dealing with a contractor."

8. The contractor doesn't mention permits or suggests the homeowner obtain them

"Each municipality has different ordinance requirements for various home remodeling projects, including outdoor spaces," Alladawi warns. "Many projects—including retaining walls, driveways, fireplaces, and outdoor kitchens—need to be permitted and engineered and require a substantial amount of expertise to execute properly." And he says your potential contractor needs to address this as it can affect timelines and costs to pull permits.

Even worse is a contractor who asks you to pull the permits. Alladawi says this usually means you're dealing with an unlicensed contractor or someone whose license has been revoked. "Never obtain the permit as an agent or homeowner because whoever obtains and signs for the permit is responsible for everything, including fines and fees when things go wrong," he explains. "You want the contractor to carry the burden of doing the work."

9. The contractor doesn't address materials or lien waivers

If the contractor is executing draws, and the project is large, Alladawi says you may want to ask about lien waivers. "This is an extra step that will ensure that nobody, including a contractor's supplier, can place a lien on the property," he says. "For example, if a contractor doesn't pay their dealer, the dealer can issue a lien directly on the homeowner, which must be satisfied to receive clean title or deed" if there is ever a sale. In other words, you can't sell your listing until this debt is paid.

10. You're unable to verify the contractor's license, or the names do not match

There's a reason you should always verify the contractor's license. Alladawi says this is how you can find out if the contractor is unlicensed and using someone else's license. It's possible this individual's license has been revoked, and they got someone else to apply for one. "It may even be a corporation, but the principals do not match the name of the contractor," he says.

11. The contractor asks for cash payments

If the contractor asks if you can pay in cash, it's quite possible this individual is trying to avoid paying taxes on the business or for employees. Alladawi says this is a sign that you're dealing with a dishonest person. But there's yet another reason why you shouldn't pay in cash. "It's important to have proof of payment using a canceled check, receipts, and lien releases upon payments made to the contractor in the event he or she claims they weren't paid," Alladawi says.

12. The contractor is under the influence

What people do on their time is their business—but what they do in your home is your business. It might go without saying, but "when it comes to deciding on who you want to work with, a major waving red flag that says, 'don't hire me,' is a contractor who shows up to the job site, and you suspect they are under the influence," Alladawi warns.

13. Bad gut feeling

Finally, if you get a bad feeling about a contractor, it's worth considering other options. Your intuition can be a valuable tool in making a decision.

Revive Real Estate partners with real estate professionals to provide the funding, guidance, and contractors needed to get strategic pre-sale renovations done fast and for maximum value. Discover more at www.revive.realestate.