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How To Protect Yourself From Hiring A Bad Contractor

I’ve hired a TON of contractors and sub-contractors in the last 10 years, and when I worked for a builder (way back in the day) it was my job to hire all of the subcontractors.
 
I learned a lot by working with so many different contractors, and made so many mistakes that I could probably write a book about it. Most of my mistakes have been in miscommunicating expectations, not getting materials to be used in writing, and not providing enough direction. While I have never been a victim of a contractor scam, I know many who have. In this article I want to share with you all of the tips on how to hire a good contractor, ways to protect yourself when hiring anyone to do work on a property you own, and some general tips with best practices to make sure all goes smoothly.
 
Interesting point to bring up: I too, am a general contractor! Which brings up something I think you should know – not all states require people who register as contractors to take classes, or prove their experience.
 
Yep, you read that right. All I had to do to become a general contractor in the state of Washington is pay for a bond ($130), insurance ($2500 for $1 million policy for a year) and complete some paperwork.
 
You would NEVER want to hire me to do any work, because I’m not qualified (on occasion I paint a little but that’s about it). My husband, on the other hand, is quite amazing but he’s not for hire and we do not do work for others. So why do we have our general contractors license? Because we typically only hire subcontractors instead of general contractors, so we act as paper contractors for additional liability protection against other subcontractors we hire for our renovation and new construction projects.
 
It really is so easy that any average Joe can get licensed as a contractor, and with the construction industry so busy right now, I guarantee you there are a lot of bad contractors out there right now.
 
What’s the difference between a general contractor and a subcontractor?
 
Typically a general contractor is a person or a company who oversees the entire renovation or building project, and often times hires specialty subcontractors to do specific work. A few examples of subcontractors include; plumbers, electricians, HVAC. That type of work requires specific licenses that some general contractors do not have.
 
Anytime you pay someone to do work on your property, you are putting yourself at risk of them getting hurt and suing you. So my goal is to share with you some tips, tricks, and questions to ask to protect yourself when having work done on your properties.
 

Red Flags To Watch Out For

  1. Someone who is too available. Let’s assume you call a contractor, and they offer to come look at the job same day. That’s a big red flag to me. Most good contractors are booked out a few weeks, so if they are available same day that’s concerning. There may be an exception to this, like if they just to happen to have another job in the same neighborhood and can pop by at their lunch, though this is really rare.
  2. A contractor who wants to be paid up front in full. We’ve all heard those horror stories of people who saved up a lot of money to remodel their house, and the contractor demands payment up front, which they do, only to never be seen again. Don’t let this happen to you.
  3. They are really pushy. This falls into the not busy – desperate for work category. If they are really pushy to start and that you hire them, that’s a red flag.
  4. They want to be paid in cash only. I’ve had a lot of contractors ask to be paid in cash, and I always say no. They are likely trying to reduce their tax bill, but their could be an ulterior motive as well. If they refuse the work unless they are paid in cash move on.
  5. The avoid answering your questions. I ask a lot of questions, to the point that I’ve gotten feedback that people feel like they’re being interrogated (I did use to want to be an attorney so maybe that’s why). If a contractor (or really anyone I’m hiring for a job) skirts my questions I move on.

 

Where To Find Good Contractors


First things first, you need a way to find good contractors, Here are a few ways (in order of preferred method) that I’ve used to find good general and subcontractors:

  1. Referrals from other investors
  2. Referrals from Agent & Property Manager
  3.        Online reviews – Yelp & Google
  4.        Thumbtack, Porch, Angies List, Bigger Pockets

 
 

Once You’ve Gotten A Few Names, Here Are Some Questions To Ask

  1. How long have you been a contractor?
  2. Do you do the majority of the work yourself, have employees or subcontract out? – If its a big job and they’re a one man show you can expect things to take a lot longer. If they have employees that is better.
  3. What is your timeline for completing this job?
  4. How will additional charges be dealt with?
  5. Do you offer any warranties on your work?
  6. What will this project cost? – always ask for a detailed, written bid that is to be accepted in writing.
  7. Will you be pulling permits for this project? Some projects may not require permits, others may not. I suggest doing your own research first, and then asking them. Permits may take longer, but having a city or county inspect the work reduces your risk of it being done wrong.

 

How To Reduce Your Risk When Hiring Contractors

 
Always look them up on your state’s website to make sure their license is active. Several times I’ve gone to hire a contractor, only to find that their license is inactive on my state’s website. If their license is inactive, it is the same as hiring a non-licensed person to do work on your home, and that puts you at risk. Also look on your state’s website to see if they have any violations.
 
Request a completed form W-9 up front – At the end of the year you will have to send a 1099 to the contractor that the IRS will use to match up what has been paid to them. Save yourself the time and hassle and ask for one up front.
 
Request lien releases once they’ve been paid – a lien release is an extra precaution that ensures you are protected from mechanics liens from subcontractors and their suppliers. The contractor should provide you with a lien waiver showing the supplier/subcontractor has been paid, or you can pay them directly. 
 
Pay on a draw schedule based on milestones for completed work – Until you have a history with a contractor you do not want to pay up front in full. They may require that you pay a small deposit for them to get you on the schedule, but I recommend that you determine a draw schedule based on the project milestones. This could be a weekly or bi-weekly schedule depending on the job. Do not make the final payment until you or someone who works for you has inspected the work and they have completed a final punch list.
 
Get everything in writing and make sure it is detailed – Always make sure you have everything in writing, have it signed is even better. Make sure you agree on a price, whether that be a time and materials bid, or a fixed bid.
Also, if you’re wanting something done in a specific way (like a herringbone tile pattern) ALWAYS provide a photo. Never assume they understand what you’re talking about. 
I have a personal example where a contractor was hired to remodel my duplex in Indianapolis. My agent had offered to help and had previously gotten a flooring bid. He then shared the flooring bid with the contractor, who included “new flooring” in his scope of work. I didn’t realize the flooring he had planned was sticky vinyl plank which is great for kitchens and bathrooms, but not great for living rooms, which is what we got. Had I required him to be more specific and list the type of flooring I would have caught it.
 

Other Need To Know’s

 
Get a few bids. There’s been times where I had a good relationship with a subcontractor and just gave them the job. Almost every time I priced checked them later, I found out I was overpaying. While you do want to establish a relationship in order to get the best price, every once in awhile you want to have someone else bid to make sure you’re still getting a deal.
 
You have to set the direction – If you leave the work open ended you may not get everything that you want done. Contractors cannot read your mind, and what may be common sense to you may not be to them.
 
Provide timely response to questions or issues – sometimes they need a quick answer. The longer you wait to respond it may hold the job up.
 
You get what you pay for. Sometimes the lowest bid was lower than the other bids for a reason. I’ve had good and bad luck with hiring the low bidder, so just make sure you know that there may be corners cut with the low bidder.
 
Someone will still need to check up on them. Even if you hire the best contractor, you still want to inspect what you expect. When we had our Indianapolis duplex renovated (from thousands of miles away), we had our agent and our property manager pop by to make sure the work was being done right. 
 
Inspect what you expect. If you are not happy with the work say something. Its easier to fix an issue while they are working on your property than having to come back later.
 
Weekly updates and walk throughs are a must. schedule a time once a week to check in and visit the property, or have someone visit the property for you. I like my contractors to send me weekly update photos.
 
NEVER let a non-licensed person (or tenant) do work on your properties! I’ve heard of a lot of owners allowing tenants to do work on their properties for a reduced rent. This is a HUGE liability, and something we have never allowed.
 
Let them know that you plan on sending them more business after the first project. make sure they know that their job is not done on this one project, that if things go well
 

So there you have it, everything you need to know about protecting yourself from bad contractors! Anything to add? Please comment below!

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About the Author

Jennifer Beadles

I’m Jennifer Beadles, and together with my family, we are living the day-to-day of a financially independent family thanks to our rental properties.

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3 thoughts on “How To Protect Yourself From Hiring A Bad Contractor”

  1. Thanks for pointing out that everything must be put into writing and must be signed as well to ensure that you are getting what you’ve agreed. I will keep that in mind since I will be hiring a contractor soon for the house. Maybe, I’ll wait until after winter to ensure that any possible problems acquired from that season will also be fixed. This will help us hire a good one.

  2. Beautiful article its a great guide for us and really very helpful. I liked the content of your article and also enjoyed reading it. We are planning to remodel our house but was not sure about whom to give the contract but then later we met a contractor where he said that we will have to make complete payment in one shot and now I feel why he might have said that. Your article is an eye-opener and also saved us from a fraud thank you so much for putting up this article.

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