5 Crazy Facts about Contractor Fraud and Scams

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Home improvement is a necessary part of maintaining your house throughout the year, and it’s simply overwhelming to do everything as a DIY project. That’s why you need to hire a professional. However, contractor fraud is a major concern, which is why you review, research, and interview multiple service providers.

How prevalent are contractor scams in home improvement? Here are some of the top facts compiled in a recent infographic from HomeAdvisor and how you can best avoid fraud:

1. Home improvement is a $200 billion industry every year

This statistic explains why so many fraudulent contractors might get into the business. According to one study, recent home buyers spend twice the amount improving their home compared to homeowners who have been in the same home for many years. It’s also estimated that first-time buyers spend around $3,000 every year on home improvements.

This also sparks almost $100 billion in home-related spending like furniture, gardening and other home decor. So it’s imperative the money you invest isn’t wasted on repairs from fraudulent work.

2. Poor workmanship is the No. 1 fear when hiring a contractor

When you hire a home improvement professional, one of the major issues you could encounter is poor workmanship. This means you may have to spend additional money on repairs or replacement down the road. To help avoid this extra expenditure, here are some steps you can take with a licensed or unlicensed contractor:

  • Inform the contractor about the poor workmanship: While this sounds obvious, sometimes informing them leads to a simple fix. It might also be in the contract to keep them aware of any problems on the job.
  • Take photos of the problem: Make sure to document where the problem is, just in case you have to go to court later. If the problem persists after the contractor fixes it, you will need the proof to receive damages.
  • Keep track of any additional repairs by another contractor: If you need to hire a second contractor to do repairs, keep all records of time sheets, work orders, material costs and the like as evidence for court.
  • Keep an eye out for a lien: Even if the contractor did a poor job, he may file a lien for the work.

3. The biggest warning sign of contractor fraud is if they demand money up front

While a contractor may ask for a down payment equal to 20 or 30 percent of the total job, you should never pay for the full amount of the project. You should also never pay for the project materials or any of the work until you sign a contract that works as your legal recourse. Otherwise the contractor can take the money and only do some or none of the work; leaving you without a way to get any of the money back.

4. The Federal Trade Commission (FTC) reported more than 13,000 home improvement-related complaints in 2011

If you don’t take the steps to look for screened and approved contractors, there’s a chance you could be one of the 13,000 or more homeowners filing a claim with the FTC. In addition, scams related to contractors have been the top reported inquiry for the last five years. Complaints about home improvement fraud also ranked third, according to the Consumer Federation of America, in 2010. It’s imperative that homeowners call past clients, research online and look for reviews before hiring them as to avoid such problems.

5. Almost 80 percent of people believe contractors are fraudulent without proof of insurance

This is a very high statistic that homeowners should take note of when looking to hire a contractor. In addition to asking for proof of insurance, homeowners should also ask about:

  • Worker’s compensation, errors, and omissions coverage
  • If your insurance company has an amendment policy to cover any damages to your home
  • How the contractor intends to cover personal and home damages without insurance

All of this information will need to go in the contract that you sign. If they’re hesitant to sign a contract or put any kind of agreement down, you should consider hiring someone else.

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