If you're planning a big home improvement project this summer – or if you live in a region of the country recently hit by flooding or tornadoes – you need to know how to improve or rebuild your home without getting scammed by a contractor.
Unfortunately, the official launch of hurricane season on June 1 brings out all manner of contractors, from the reputable ones to the shady operators simply looking to fleece you.
To protect your home and your finances during your home improvement project, here are five ways you can avoid contractor scams.Know What Your Insurance Policy Covers
Insurance expert Chris Amrhein, president of the Amrhein & Associates insurance agency in Lorton, Va., cautions that in the wake of natural disasters, homeowners need to be especially vigilant.
"For about a week after a disaster," says Amrhein, "these con artist contractors are descending like vultures" on local neighborhoods. Some sham contractors are known as "storm chasers"; other are called "wood chuckers." What both have in common is that they prey upon people's misfortunes in order to push costly repairs.
A typical scam: A contractor may show up on your doorstep offering to take down damaged trees for $800 or so – or at a rate far above what your insurance company will reimburse you. Nevertheless, the contractor will tell the homeowner not to worry because their insurer will allegedly cover everything.
"The contractor will also say 'Oh, by the way, because we're from out of town, we'd appreciate cash,' " Amrhein says. "It's a quick kill for them, and then they're gone."
Even if your homeowner's insurance covers tree removal, check your policy or call to find out precisely how much your insurer is willing to pay for this service – and whether or not there's a cap on the cost of such work. Also, find out what services are excluded. In some policies, for instance, a failed sump pump or drains and sewers that are backed up may be excluded, meaning you'll have to pay to fix these yourself.
Use Caution With Door-to-Door Salesmen and Out-of-Town Contractors
If someone comes knocking on your door unsolicited, offering to repair something around your house, it should raise an immediate red flag. Good contractors, builders and carpenters are typically busy enough – via referrals and advertising – that they don't need to go trolling neighborhoods seeking odd jobs.
Plus, out-of-town contractors may try to pressure you into making speedy decisions, by saying things like "This discounted price is only good for today," or "We're only in your neighborhood this weekend." Recognize these tactics for what they are: sales gimmicks and coercion. In many cases, they're also the telltale sign of a scam contractor.
Get Referrals and Do a Background Check
Before you agree to do business with any contractor, be sure to get at least three referrals from his most recent clients. Then call those homeowners and make sure they were completely satisfied with the work that was done.
You should also check out a contractor with the Better Business Bureau to see if other consumers have lodge complaints against the business. And if a contractor says he's licensed, bonded and insured, double-check that information with the local building inspector's office and the contractor's insurance company.
Pay the Smart Way
Once you decide to hire a contractor, use sound practices when it comes to paying him. A deposit may be required for the contractor to get started, but negotiate with him to make this upfront payment as small as possible (no more than a third of the total cost). You don't want to pay too much up front because it leaves you vulnerable if the contractor simply skips off with your money without doing any work, or if he doesn't complete the job as agreed.
Another payment tip: Beware of contractors who won't accept checks or ask that you make a check payable to him personally, rather than his company. This is another sure-fire sign of a scam contractor.
If you're getting money from your insurer to do home repairs or upgrades, the Federal Trade Commission suggests that you never sign your insurance check over to a contractor. Instead, have your bank provide a Certificate of Completion. This way, the bank will pay the contractor in phases, as each stage of work is completed to your satisfaction.
Use a Written Contract as Your Guide
Never do business with a contractor based on a handshake or a verbal promise. Instead, get everything in writing, in as much detail as possible, to avoid potential misunderstandings later. Any oral agreements the contractor makes should also be written down.
Under federal law, you have three days to think things over when it comes to home improvement or repair projects, or for any contract over $25 signed in your home. So make sure your contract includes a three-day notice of cancellation, which protects you should you change your mind.
Finally, never sign a blank contract or agree to let the contractor just "fill in" certain spaces later. If there's a space in the contract, either fill it in immediately or cross it out.
In spite of your best efforts, if you feel you've been ripped off by a contractor, don't stand for any financial shenanigans. Report a repair rip-off to the BBB and the consumer division of your state's Attorney General. For a list, visit www.naag.org. Also, read these six tips on how to avoid scams in general.
How to Avoid Contractor Scams When Rebuilding or Remodeling