6 Contractor Red Flags That Could Sink Your Project
Believe it or not, the phrase “red flag” comes from the fact that pirates used to fly red flags (not all pirate flags were black and white). And while you may never meet a pirate, there are unscrupulous contractors out there who want to take your money. Fortunately for you, those contractors fly red flags, too– if you know how to look for them.
At KP Contracting, we’ve seen the results of poor workmanship, and the work it takes to fix it. We want to make sure you don’t run into that sort of problem.
In this piece, we’ll review some of the most common red flags you should be prepared to look for. We’ll also give you an immediate “quick fix,” and suggest the next steps needed to hoist sails, and head the other way. If your contractor flies any of these red flags, you might want to think about a change.
Red Flag 1: The contractor has no license
Red flag: Your contractor doesn’t have a license
Quick Fix: Want to know if your contractor is licensed? Search Maryland’s Home Improvement Public Query site by last name, trade name, location, or even salesman’s name (here’s us, btw). If your contractor isn’t licensed, that’s a glaring red flag.
Next Steps: As a heads up, it’s illegal in Maryland to hire an unlicensed contractor. So? If your contractor isn’t licensed, you won’t have legal recourse. You’ll be out however much money you dropped on your unlicensed contractor.
Contrarily, contractors licensed through the Maryland Home Improvement Commission are bonded. That is, they’ve already paid a bond, so if anything goes wrong, the money to fix it is already there. Better yet, they’re required by the state to pay restitution. Without a bond, you’ll have to depend on a criminal case to get your money back. The MHIC has a list (not exhaustive, just representative) of bonding agencies here.
If you really want to do your due diligence, you can call your local branch of the Maryland Consumer Protection Division. If you’re in Charles County, the number is 301-274-4620. If you’re in another county, check here to see who you should contact.
If someone lacks the proper license, there’s probably a good reason, but that good reason is bad news for the buyer. Getting a license requires 10-20 hours of study on the contractor’s part, so they’re able to pass the required exam. A contractor not willing to do that amount of work raises another major red flag. By checking if your contractor’s licensed, you’ve actually done extra due diligence. That’s b/c the licensing process requires a contractor have good credit, no felony record, and 20k of equity.
Red flag 2: The contractor doesn’t want to pull a permit
Red Flag: Your contractor hasn’t pulled an approved (!) permit.
Quick fix: Ask your contractor to see the approved (!) permit for the project. Why the (!), you ask? Because some contractors apply for permits, tell their customers… but then never get those permits approved. It’s a tricky way some builders fleece their customers: provide the appearance of getting approval without the legal follow-through.
Next steps: Do further research on your contractor. The lack of a permit could imply further red flags. It could mean the contractor’s on the bad side of county or state authorities. It could also mean the contractor is unlicensed. The lack of permits could also be a sign of sloppy workmanship, if your contractor turns out to be one who doesn’t bother to complete the process.
If work is done without a permit, you may have to pay to undo it. According to Charles County: “A stop work order could be issued or you could be required to tear down your work. For example, you could be asked to remove a wall so the inspectors can see what work was done behind it.”
Another next step? Ask to see the permits and drawings your contractor has. They should be comfortable in sharing this information with you.
Red flag 3: The contractor has an inadequate/absent contract
Red flag: Your contractor doesn’t have a contract, or the contract is inadequate.
Quick fix: Ask to see a contract with an itemized budget of the project. Make sure the itemized budget also has estimated start and finish dates, a scope of work, and a list of materials.
Next steps: Be aware that the contractor should be buying materials, not asking you to do so. Also, initial down payments are a normal practice for contractors. However, contractors’ deposits can’t be more than ⅓ of the total project cost in Maryland.
Three common payment structures are completion, milestone, and time-based. Completion-based structures pay out at regular intervals. Milestone-based payment structures pay out at predetermined milestones, for example, the posts and ledger being installed in a deck project. Time-based payments, predictably, are scheduled by agreed-on times.
Red flag 4: Contractor gave you too low a price
Red flag: A price that seems too good to be true.
Quick fix: Shop around and compare other bids. A price that’s too low likely doesn’t incorporate all the charges, or work, that will be necessary.
Next steps: A price that’s too low is a red flag Russian nesting doll: there are several hidden red flags within the initial one:
> A low bid may be a sales tactic. A company may be drawing you in with an appealing estimate, rather than being open about potential costs
> A low bid may be a smokescreen for shoddy work. If a contractor knows their finished product is sub-par, they may try to make up for it with lower prices.
> A low bid predicts a bleak future for the contractor themselves. The vast majority of deck builders go out of business in the first five years. According to the Bureau of Labor Statistics, 20% of small businesses fail in the first year, 30% fail in the second, and 50% by the end of their fifth year.
This is often the case with contractors, because they think they’ll get more business with low bids. The low cash flow that results isn’t enough to sustain the company’s operations. Enough low bids means a company will lack the money to weather tougher times. And if a company folds, warranties and repairs become moot points.
Bids will generally be in the same range. A bid significantly lower is a bad sign: “Bids from professional remodeling firms rarely vary by more than 10 or 20 percent, assuming that the firm would use the same materials and get the proper building permits,” says expert David W. Myers.
Red flag 5: Contractor has insufficient/absent insurance
Red flag: A contractor has no insurance, or cut-rate insurance.
Quick fix: Look up whether a contractor is licensed at the Maryland Department of Labor’s site.
Next steps: A lack of insurance is worrisome for multiple reasons. First, there’s the fact that accidents won’t be covered. Second, the absence of insurance either means the contractor doesn’t think it’s necessary, or they were turned down for insurance. Either possibility is worrisome.
Ask potential contractors how much insurance they have, as law only requires $50k. The good ones will have more. As a side note, if a contractor is licensed, it means they’re insured.
Red flag 6: Contractor has few/no reviews
Red flag: Contractor has few or no reviews, or a preponderance of bad reviews.
Quick fix: Check one and two-star reviews to see why, and how, the contractor got them. If the low reviews cite issues that would bother you, too, that’s probably a bigger red flag. Also, see how the company responds to negative feedback, if at all. Their responses to criticism can say a lot about their character.
Next steps: Some bad reviews are inevitable, so what you’re looking for is a pattern of negative reviews. You’re also looking for what the bad reviews say. Since finding a contractor is about finding the right fit, reviews that cite weaknesses in areas that matter to you– say, communication– would be a red flag.
If a company has no reviews, you can ask for references. While a lack of reviews is generally a red flag, it could be that a company’s getting started. In that case, ask for the name of their previous customers. Failing that, ask if they have previous managers who can speak to their abilities.
The horizon beyond red flags
These red flags will tell you what to avoid, but the next step is figuring out what you want: and that’s up to you. What are your outdoor living goals? What value do you want to get out of the project for which you’re contracting? Red flags may be general rules, but good signs (blue flags? Smiley face flags?) are particular to your goals.
For instance, if you want to add a deck and pool to improve the value of your home, and you’ve got a moving deadline of one year from now, that will shape which contractor’s a good fit. Do the reviews say they’re quick? Do previous customers mention how much buyers admired the additions that company built? If the answer is yes to both, that contractor would probably be a good one to work with.
While choosing a contractor is based on your needs, we’d love to start a conversation with you, and get the chance to see if we’d work well together. If you’re looking to improve your outdoor living situation, give us a call at 240-266-5900, or contact us here. We’d love to find out if we’re the right fit to provide your next project with smooth sailing.
Phil Parsons is an owner at KP Contracting with 20-years’ experience in custom remodeling and the development of outdoor living spaces that bring friends and family together. He is a degreed engineer, and his work has been featured on HGTV.