How Can You Protect Yourself From Home Improvement Fraud?

I have been in construction now for over 21 years. Seven of those years, I have been in business as an electrical contractor. I have seen every dirty trick in the book. Horror stories, many of them. Shoddy work, price gouging, liability exposure, as well as old-fashioned bad business. A friend of mine is contemplating hiring a contractor to build an addition on to his home. And he is rightfully frightened about the prospect. He asked me how to protect himself. In the course of trying to give him a good answer, I learned a few things myself. I thought I should share.

First of all, become familiar with the laws of your state. A good resource is the Attorney General’s website for the state in which you reside. For instance, in my home state of Illinois, the site has a wealth of information to help consumers. There is a link to a PDF article specifically on guidelines to selecting a contractor. Some of these suggestions are incorporated below.

Never pay someone in advance for a project. Often times, the best leverage you hold as a consumer, is your payment. If someone wants to be paid in advance, you have to ask yourself, “Why?”

Get more than one estimate. But don’t assume that the cheapest guy is your best bet. Ask for references. Check out consumer advocacy groups. Ask to see some completed work.

Make sure your candidate is licensed and insured. A call to your local department of building and/or zoning will help you determine if your guy is properly registered and licensed with the proper authorities. And if he is licensed (if required by law), make sure that there is a building permit posted at your job site before any work commences. And if he has insurance, ask to be named as “additional insured” by his insuring agent. They will issue you a certificate to that effect.

Get everything in writing. Insist on a contract. And make sure it is written in language that you can understand. Never depend on a salesman explaining what a bunch of legal-ese means. Verbal agreements are almost always trumped by written documentation. Be sure to include the terms of progress payments, quality of materials to be used, complete scope of the intended project. Be specific. And if you want the project completed in a certain time frame, get it in writing, along with any financial penalties for failure to do so. And never sign a document under pressure. Take your time to make sure you know what you are signing.

Insist on a cost breakout of the work, including subcontractors, materials, labor, and markup. It may be required by law. You will need this affidavit to be sure that you receive lien waivers once the work is complete. Before you tender your final payment, you will want to make sure that you receive a written waiver of lien from the person doing the work, as well as “third-party” lien wavers from material suppliers. Just because you pay your man, doesn’t insure that he paid his suppliers and/or subcontractors. And if not, they may have the right to file a lien against your property to be paid for those amounts. That is why written lien waivers are so important, BEFORE YOU MAKE FINAL PAYMENT. Compare these to your affidavit listing suppliers and subcontractors.

Document the progress of the work. Keep a log of phone calls, payments, receipts, disputes, etc. Take photos showing the progress of the project. Keep all contracts and paperwork in one location, readily available. And when the job is complete to your satisfaction, insist on written statements of any promised warranties for workmanship or labor.