Warning Signs of a Home Improvement Scam

In the gardenMore people are remodeling their homes today because of the credit crunch. Unable to continually buy and “move up,” it’s a natural step because people seem to love to improve their surroundings. Having worked in the building materials industry for 25 years, I have seen more than my fair share of scams, some of them whoppers. Home improvement is an area that is particularly susceptible to scams and con artists because of the mystery that surrounds the proper licenses, permits, building codes, and home contractors in general. People are worried that they will not have the skills to perform many of the home improvement tasks themselves, despite having watched it on HGTV 100 times!

The best defense against a home improvement scam is information.

I remember in particular, one couple that moved to the South to retire. They had dutifully saved their money and had bought one of the most beautiful lots I have ever seen. They planned to build a home and pay cash for everything. After getting several bids from home contractors, they selected the one that was the lowest. He was significantly lower, too. I think a little greed took over.

This guy insisted that the couple pay him a chunk of an advance up front, get the permit themselves, and personally pay the lumberyard for all materials — with him as an authorized purchaser.

He was the king of home improvement scams. He didn’t make off with the first advance, though they wished he had. He so totally botched the building of their home that the entire structure had to be demolished and started over. He was long gone by then. It was horribly sad to see that little couple have to get a mortgage and part time jobs to make extra money and pay for their home that was to be completely debt free.

Never select the lowest bid.

There’s a reason the bid is low. There may have been something left off, intentionally or unintentionally. There may be a different quality of materials quoted. There may be different warranties, different methods of building, or different sub-contractors performing the work. The lowest bid isn’t the cheapest in the long run!

Knowing the proper questions to ask will go a long way in helping you avoid getting conned in a home improvement scam.

1. Never allow yourself to be forced to make a decision right away. Any time a contractor puts pressure on a homeowner to act quickly about making a remodeling decision, that’s a red flag. These decisions should be made carefully, hot hastily.

The signs of a scam:
A hurried demeanor and a contractor that wants you to sign a “standard” contract without reading it.

The defense: Tell the contractor that before beginning any home improvement project, you have a rule of checking references and having your attorney read the contract.

2. Ask for references from everyone that will work on your project. But references are worthless unless you call them and physically inspect the work. Always ask the reference how the contractor resolved any problems…there are always problems. While you’re checking, check that the contractor has adequate insurance (including worker’s compensation and liability) and that the policies are in force and will cover anyone working on the job site. Verify this! Ask for the name of the insurance agent or company that handles his/her policies. Also check that the contractor’s license is up to date, in force, and that he/she isn’t under review for violating ethics or building codes.

The signs of the scam: A contractor that won’t willingly give you this information is one you should avoid. He may insist that homeowners are the ones that get the permits and that he doesn’t because of the added cost to the job. Hogwash. Move on.

The defense:
Check references before you sign anything.

3. Make sure the contractor performing your home improvement project has credit at local suppliers.
A good business person will have trade credit available to him/her and won’t need you to pay for the materials up front.

The signs of the scam:
Look out for home improvement contractors that have material left over from other jobs and want you to pay him/her for them up front. Also, watch out for those who insist that you pay for the materials separately from labor costs. There’s a good chance that this contractor is less than honest in his/her dealing with suppliers and doesn’t keep his/her word. If that’s the case…

The defense: Ask where the contractor plans to buy the materials for the project. Then call the materials dealer and simply ask if this person has a good reputation. You would be amazed at how much information people will give you if you only ask. You can also deduct quite a lot of information from body language and tone of voice. Trust your gut.

4. Never agree to pay cash up front.
There is a very good chance you will never see the contractor or your money ever again. This is a very simple idea, but it never ceases to amaze me that in the 21st Century, people STILL fall for this and pay a guy in a beat up pickup truck a large amount of cash…and then never see him again.

The signs of the scam:
A home improvement contractor that is in such a desperate need of cash that he/she has to get an advance “up front,” is a very poor business person. Don’t, please don’t, do business with anyone that has a cash flow problem.

The defense: Again, references are your best friends. Ask where the contractor banks, ask if he/she would mind if you spoke with their banker about how the contractor’s bank account is managed. If he is suddenly dodgy or gets angry…move on.

Don’t be afraid to ask lots of probing questions. This is YOUR HOME we’re talking about. You need to know everything possible about the people who will be in your home and their character and work habits. Don’t let embarrassment keep you from asking for references!

To really find a good home improvement contractor and avoid becoming a victim of a home improvement scam, check with several locally owned and operated lumberyards. These guys know who pays their bills on time and also know who has the best reputations. But be prepared to wait for a really good contractor. They’re busy…for good reason…and that’s a good thing!

photo credit: ravik694

[tags]home, improvement, home improvement, home improvement scam, remodeling scams, choosing a contractor, home remodel scam, real estate, diy, pergo, installation, consumer laws, money[/tags]

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