10 Red Flags When Hiring a Contractor

Contractor fraud costs American homeowners billions of dollars annually. Most fraud can be avoided by recognizing warning signs early, before money changes hands. Here are the 10 most common red flags to watch for.

🚩 Red Flag #1: Can't Provide a License Number Immediately

A licensed contractor knows their license number the way a driver knows their license plate. If a contractor says they'll "get it to you," "the license is at the office," or claims they don't need one - stop. In states requiring licensing, operating without one is illegal and you have zero recourse if things go wrong.

Action: Verify the license before any further conversation.

🚩 Red Flag #2: Unusually Low Bid, The Low-Ball

A bid significantly below (more than 20-30%) the other estimates is a warning sign, not a bargain. It often means the contractor:

• Underbid to get the job, then will request change orders once work starts
• Plans to use inferior materials
• Is not paying for workers' comp or insurance (saving costs illegally)
• Doesn't have enough experience to know what the job actually costs

🚩 Red Flag #3: Door-to-Door Solicitation After a Storm or Disaster

Storm chasers are a known predatory practice. After natural disasters, unlicensed contractors flood areas offering "quick" repairs. They often demand large upfront payments and disappear before completing work. Always initiate the contractor search yourself from reputable sources.

🚩 Red Flag #4: Demands Large Upfront Payment

Standard industry practice for residential projects is:

• 10-30% deposit at contract signing (to cover material costs)
• Progress payments tied to completion milestones
• Final 10-15% upon satisfactory completion

Any contractor demanding more than 30% upfront, or asking for full payment before starting, is a serious red flag. Never pay in cash. Always pay by check or credit card.

Check your state's legal cap, not just industry norms. Several states set a hard statutory ceiling on the deposit a contractor can collect, and it can be far below 30%. California, for example, caps home improvement down payments at 10% of the contract price or $1,000, whichever is less (Cal. Bus. & Prof. Code §7159.5), so on any contract over $10,000 the legal maximum is $1,000. Confirm the rule for your state with your state licensing board before agreeing to a deposit amount.

🚩 Red Flag #5: No Written Contract Offer

A legitimate contractor provides a written contract before work begins. The contract should specify: scope of work, materials (with model numbers/grades), start and completion dates, payment schedule, permit responsibility, and warranty terms.

A contractor who wants to "keep it simple" with a handshake deal is asking you to have no legal protection. Decline.

🚩 Red Flag #6: No Insurance Certificate (or Won't Let You Verify It)

Ask for a Certificate of Insurance (COI) naming you as additional insured. Then call the insurance company listed on the certificate to verify coverage is current. Contractors have been caught presenting fake or expired certificates.

🚩 Red Flag #7: Wants to Pull Permits "In Your Name"

Permits should be pulled in the contractor's name (in most states). If a contractor asks you to pull permits - or suggests skipping permits entirely, they are either unlicensed or trying to avoid liability. If the work is unpermitted and something goes wrong, you (the homeowner) bear the legal and financial consequences.

🚩 Red Flag #8: No Local References for Similar Work

Any contractor worth hiring has recent, local references for similar projects. Ask for 3 references from the past 12 months for projects of similar scope. Then actually call them. Ask:

• "Did they finish on time and on budget?"
• "Were there change orders? Were they explained?"
• "Did they clean up after themselves daily?"
• "Would you hire them again?"

🚩 Red Flag #9: Pressures You to Decide Immediately

"This price is only good today" or "I have another job lined up and need your answer now" are pressure tactics. Legitimate contractors give you time to review their proposal and compare bids. Artificial urgency is a manipulation technique.

🚩 Red Flag #10: Material Bids Without Specifications

A bid that says "roofing materials" without specifying the manufacturer, model, and warranty grade allows the contractor to use the cheapest possible materials. Always require itemized bids with specific product names, grades, and warranties. This protects you and allows accurate comparison between bids.

What to Do If You've Already Hired a Suspicious Contractor

• Document everything with photos and written communications
• Stop payments immediately if you see warning signs mid-project
• File a complaint with your state licensing board if licensed
• Contact your state Attorney General's consumer protection office
• File with the Better Business Bureau
• Consider small claims court for disputes under your state's limit