Complete Guide to Construction Scams

Falsifying invoices, manipulating change orders, bad materials, no permits, and more

Whether you’re a homeowner or a contractor yourself looking to hire out some work, there’s no question about it – hiring a contractor can be a tricky business. There are so many scams and shady businesses out there that it’s hard to know who to trust.

This complete guide will help you avoid getting scammed and make the best decisions for your home improvement project. We’ll discuss what to look for in a contractor, how to protect yourself from fraud, and more.

So read on to learn everything you need to know about contractor scams!

What is Contractor Fraud?

Contractor fraud is a type of fraud that involves a contractor unlawfully obtaining money from a homeowners insurance policy. Contractor fraud can happen in both commercial and residential settings.

It occurs when a contractor deliberately misrepresents the terms of a contract in order to obtain an unfair advantage. This can take numerous forms, from false advertising to bait-and-switch schemes. In some cases, contractor fraud can even involve identity theft or other forms of fraud.

No matter what form it takes, contractor fraud is a serious problem that can have lasting consequences for both businesses and consumers. Not only does it cause financial loss, but it can also lead to substandard workmanship or even safety hazards. As a result, it is important to be aware of the signs of contractor fraud and to take steps to protect yourself from becoming a victim.

Commercial Contractor Fraud

Commercial contractor fraud can take many different forms, but it typically involves some type of deception or misrepresentation with the intent to defraud a business owner or another party.

For example, a commercial contractor may submit a false invoice for payment, or use inferior materials without disclosing that fact. In some cases, commercial contractors may even engage in bribery or kickbacks in order to secure a contract.

Whether the fraud is perpetrated by an individual contractor or an entire company, it can have devastating consequences for the victim. Not only can it result in financial losses, but it can also lead to delays and substandard workmanship.

Residential Contractor  Fraud

Home improvement fraud is a type of consumer fraud that takes place when a contractor uses unscrupulous methods to convince a homeowner to hire them to perform work on their home. This can include everything from making false claims about the quality of their work, to using high-pressure sales tactics, to providing false quotes. In some cases, home improvement fraud can even involve contractors failing to complete the work they were hired to do.

Homeowners who fall victim to this type of fraud can often find themselves out thousands of dollars with little to show for it. As such, it is important for homeowners to be aware of the signs of home improvement fraud before hiring a contractor.

The Most Common Types of Contractor Scams

As a homeowner, it’s important to be aware of the most common types of contractor scams. They can take many shapes and forms, but here are some of the most common ones.

1. Unsolicited Home Inspections

Home inspection scams are a type of contractor scam that typically involve an inspector offering a free home inspection. The inspector will then find numerous problems with the home that will require expensive repairs. The inspector may even offer to do the repairs themselves for an inflated price.

This type of scam is a problem because it can often convince homeowners to spend money on unnecessary repairs. Additionally, the scammer may not actually do the repairs properly, leading to further damage to the home.

2. Rock Bottom Deals on Repairs or Renovations

In this scam, the contractor will offer a very low price for the work, often promising to do the job quickly and without a proper contract. The problem with this type of scam is that the work is often shoddy and incomplete, and the contractor may not be properly insured or licensed. As a result, you could end up paying much more for the repairs than you would have if you had chosen a reputable contractor.

If you’re considering hiring a contractor, be sure to get multiple bids and check references carefully. Don’t be afraid to walk away from a deal that seems too good to be true.

3. Falsifying Payment Applications or Invoices

This type of scam typically involves the contractor submitting false or inflated information in order to receive more money than they are actually owed. This can be a problem for both homeowners and businesses, as it can lead to overpaying for work that is not properly completed.

In some cases, this can also result in legal action being taken against the contractor. It is important to be aware of this type of scam and to carefully review any payment applications or invoices before signing off on them as a contractor.

4. Manipulating Change Orders or Schedules

One of the most common types of contractor scams is manipulating change orders or schedules. This often happens when a contractor gets behind schedule or runs into unexpected problems. To make up for lost time, the contractor may request that the scope of work be increased or that the timeline be extended.

However, these changes can often end up costing the homeowner more money. In some cases, the contractor may even threaten to walk off the job unless the homeowner agrees to their demands. This type of scam can be very costly and stressful for homeowners and contractors alike, so it’s important to be aware of it before hiring a contractor.

5. Using “Leftover Materials” From Previous Jobs or Substituting/Removing Material

Some of the most common scams involve using leftover materials from previous jobs or substituting/removing material without the homeowner’s knowledge or approval. In either case, the goal is usually to save money by using cheaper materials or reusing materials that would otherwise be considered scrap.

Unfortunately, this can often result in subpar workmanship and lower-quality results.

6. Demanding a Down Payment or Billing for Unperformed Work

Another one of the most common scams is when the contractor demands a down payment before any work has been performed. This is often a red flag that the contractor is not reputable, as most legitimate businesses will not ask for payment until the job is complete.

Similarly, another common scam is billing for work that was never actually performed. This can be especially difficult to spot, as it may not be apparent until after the job is finished and you have a chance to inspect the work yourself. I

7. “I Don’t Need a Permit”

“I don’t need a permit.”

“The city turned me down for a permit, but I know how to do it so it will be fine.”

If you hear a contractor say either of these phrases, run the other way!

Chances are, they are trying to scam you. Pulling a permit is one of the most important steps in any home improvement project. It protects you, the homeowner, by making sure the work is done up to code and meets all local ordinances.

A contractor who tries to skip this step is not only breaking the law, but putting you at risk as well. In addition, permits are generally very affordable, so there is no excuse for cutting corners.

If a contractor tells you they can save you money by not pulling a permit, walk away. They are almost certainly trying to scam you.

8. Subcontractor Collusion or Bid-Rigging

One of the most common types of contractor scams is subcontractor collusion or bid-rigging. This occurs when two or more subcontractors agree to submit false bids to the primary contractor in order to inflate the cost of the project. The subcontractors may also agree to divide up the work among themselves in order to avoid competition.

This type of fraud can be difficult to detect, but it can have a major impact on the cost of a project. Contractors should be careful to choose their subcontractors carefully and to get multiple bids before awarding a contract.

9. Diverting Purchases and Stealing Equipment/Tools

One of the most common types of contractor scams is diverting purchases. This occurs when a contractor pays for materials or equipment but then has them delivered to a different project site or keeps them for personal use. To avoid this scam, be sure to watch for items that appear to be in excess of project specifications. Also, make sure the tools and equipment you pay for are actually used on your jobsite.

Another common scam is stealing equipment or tools. This can happen when a contractor borrows tools or equipment from a jobsite without returning them. It can also happen when a contractor purchases items but never uses them on the job.

10. False Representation

This occurs when a subcontractor lies about their employees, insurance, purchases, or other aspects of their business in order to win a contract.

For example, a subcontractor may falsely claim to have a certain percentage of minority workers on their staff in order to meet the requirements of a contract. If the contractor is later found to be misrepresenting their business, they may be held liable for any damages that occur as a result.

False representation is just one of many ways that subcontractors can scam contractors and homeowners alike.

Red Flags to Watch Out For

When you’re hiring a contractor, there are a few red flags that should send up a warning signal.

First, be wary of any contractor who doesn’t have a physical address or who refuses to provide references.

Second, be sure to get everything in writing, including a detailed estimate of the work to be done and the materials to be used.

Third, be cautious of any contractor who asks for full payment upfront – a reputable contractor will usually request a deposit but not the full amount.

Finally, trust your gut instinct – if something feels off about the contractor, it’s probably best to move on.

How to Avoid Contractor Scams

Every year, thousands of homeowners fall victim to contractor scams. These scams can range from overcharging for services to failing to complete the job altogether. As a result, it is important to know how to avoid being scammed by a contractor.

Here are a few more tips.

Only Hire Licensed Contractors with Insurance

Only hire licensed contractors with insurance. This will protect you in case something goes wrong with the project.

Beware Rock Bottom Bids and High-Pressure Sales Tactics

Rock bottom bids are often too good to be true, and they may mean that the contractor is cutting corners or using subpar materials. High-pressure sales tactics can be another sign that the contractor is more interested in making a quick sale than in doing a good job.

If you’re approached with a rock bottom bid or pressured to make a decision on the spot, beware! It’s best to get multiple bids and take your time choosing the right contractor for the job.

Never Prepay More than 10% of the Total Job Value

Asking for a large deposit is one of the most common contractor scams.

By law, each state has different regulations regarding the amount a contractor can ask for an up-front deposit — it ranges from less than 10 percent to around 30 percent. In many cases, a 10 percent deposit is more than enough to show that you are serious about the project while still protecting yourself in case the contractor doesn’t deliver on their promises.

However, there are some instances where a larger deposit may be required, such as when special ordered materials need to be purchased. If you are asked to pay more than 30 percent of the total job value upfront, be sure to check your state’s laws to see if this is legal.

Do Not Pay in Cash

One of the easiest ways for a contractor to scam you is by asking to be paid in cash. While it may seem like a reasonable request, paying in cash makes it difficult to track expenses and leaves you vulnerable to fraud. If a contractor asks to be paid in cash, it’s best to find someone else to do the job.

Make Sure They’re Getting Permits

One of the best ways to avoid being scammed is to make sure that your contractor is pulling the necessary permits. While this may seem like an unnecessary hassle, it’s actually a good way to protect yourself.

Getting a permit requires the contractor to Jump through a few hoops, including getting licensed and insured. This means that if anything goes wrong, you’ll be able to hold them accountable.

In addition, most municipalities have building inspectors who will check to make sure that the work is up to code. This additional layer of protection can help to ensure that your home is safe and up to code.

Include a Procedure for Change Orders in the Contract

In order to avoid being scammed, it is important to be aware of the most common tricks and to have a procedure in place for change orders. One of the most common scams is when a contractor inflates the price of materials in order to increase their profits.

Another trick is to quote a low price for the job, only to add on hidden fees later on. To avoid these scams, it is important to get multiple quotes and to carefully review the contract before signing. It is also a good idea to include a procedure for change orders in the contract. This way, if there are any changes that need to be made, they can be made in a transparent and fair manner.

Don’t Hire on the Spot – Do Your Research and Get References

One of the most common scams is hiring a contractor on the spot after they’ve been spotted working on another job in the neighborhood.

The contractor will usually offer a discount if you hire them right away, but this is a huge red flag. A reputable contractor will never try to pressure you into hiring them on the spot – they will know that you need time to do your research and get references.

If a contractor tries to pressure you into hiring them immediately, walk away. You should also be wary of contractors who give you an estimate that’s much lower than other estimates you’ve received. This could be a sign that they’re not including all of the necessary costs in their estimate, or that they plan to cut corners on the job. In either case, it’s best to find another contractor.

Always Have a Contract

Hiring a contractor can be a big decision – and a big investment, no matter who you are or your reasons for hiring someone for the job.

You want to make sure you find a reputable, reliable contractor who will do a good job and stand behind their work. But unfortunately, there are scams out there, and some contractors will take advantage of unsuspecting homeowners. That’s why it’s so important to have a contract in place before any work begins.

A contract protects both you and the contractor by spelling out the scope of work, the timeline, and the cost. It should also include information about any warranties or guarantees. Having a contract in place will give you peace of mind knowing that you’re protected in case something goes wrong.

If a contractor tries to pressure you into starting work without a contract, that should be a red flag. Don’t let yourself be scammed – always insist on having a contract in place before any work begins.

Final Thoughts

Protecting yourself from contractor scams can be as simple as taking a few minutes to do your research and asking the right questions.

By being aware of what red flags to look for and knowing whom to contact if something seems off, you can greatly reduce your chances of becoming a victim.

Consider these tips today so that you’re prepared in case you ever encounter a contractor scam.