tips

How to Hire a Contractor: 12 Red Flags (2026)

By Brian WilliamsPublished April 6, 202612 min read

Contractor scams cost homeowners $3B+ annually. Learn the 12 warning signs and contract must-haves to protect your money.

Two men shaking hands in front of a house after agreement

Contractor fraud costs American homeowners an estimated $3 billion a year, according to the National Association of Consumer Advocates. The most common plays: take a deposit and disappear, do substandard work, or charge for work that never happens. This is the category of problem that started me building PermitDeck in the first place.

Quick Answer: Before you hire anyone, verify their license at your state's licensing board, confirm insurance (request a Certificate of Insurance and call the insurer directly), get 3+ written quotes, and never pay more than 10-15% upfront. If a contractor demands cash-only, wants full payment before starting, or pressures you to decide today — walk away.

Here is how to protect yourself at every stage of the hire.

Signing a formal contract on a wooden desk

The 12 Red Flags That Signal a Scam

Red Flags Before Hiring

1. No license or won't give you a license number. Every state with licensing requirements makes license verification free and public. If a contractor claims to be licensed but won't hand over a number you can check, they are lying. In California, check the CSLB website. In Florida, check DBPR. For every other state, see the license guide.

2. No physical business address. A real contractor has an actual office or business address — not just a phone number and a truck. A P.O. Box is a yellow flag. No address at all is a red flag.

3. Bid significantly lower than everyone else. If one bid is 30-50% below the others, something is wrong. They are either planning to cheap out on materials, use unlicensed subs, or hit you later with "change orders" that bring the price back up (and then some).

4. Cash only or no written contract. Cash leaves no trail. Real contractors take checks, credit cards, and often offer financing. No written contract means no legal recourse when things go wrong.

5. High-pressure sales tactics. "This price is only good today." "I have another customer who wants this slot." "I can't hold this price past Friday." That is sales pressure, not a real business. Contractors with a healthy pipeline don't need to push you into a same-day decision.

6. Door-to-door after a storm. Storm chasers follow severe weather, going door-to-door offering emergency repairs. A lot of them collect a deposit and vanish, or do work that fails in a few months. The Better Business Bureau warns about this every hurricane season.

Red Flags During the Project

7. Big upfront payment. Industry standard is a 10-15% deposit, with progress payments tied to milestones. Anyone asking for 50%+ upfront is a risk. Some states (like California) legally cap advance deposits — in CA it's $1,000 or 10% of the contract price, whichever is less.

8. Won't pull permits. If your project needs a building permit and the contractor suggests skipping it "to save time and money," they are handing you the fines, the insurance risk, and the safety problem. Read the building permit guide to know when permits are required. Permitted work protects you, not them.

9. Subcontracts everything. Some "general contractors" are just middlemen who sub out 100% of the work. That is not automatically bad, but a GC with no employees and no equipment is taking a markup purely for coordination. Make sure you know who is actually going to be on your property holding a hammer.

10. Constantly changes the scope/price. Legitimate change orders happen — a rotten subfloor shows up during a bathroom remodel, for example. But a contractor who keeps "discovering" expensive problems is either a bad estimator or deliberately low-balled the bid to win the job.

11. Goes dark for days. A contractor running your project should be reachable within 24 hours. Multi-day disappearances — especially during active work — mean they are juggling too many jobs or losing interest in yours.

12. Wants cash upfront for "materials at cost." A classic scam. They claim they can get you a deal on materials if you pay them directly. Real contractors either include materials in the contract price or have accounts with suppliers. They do not need your cash to buy lumber.

Construction worker wearing safety gear with a drill

The Verification Checklist

Before signing, verify these five things:

1. License verification

Find your state's licensing board via the license guide

Confirm the license number is active and in good standing

Check for complaints or disciplinary actions

Confirm the license actually covers the type of work you need

2. Insurance verification

Request a Certificate of Insurance (COI) directly from the contractor

Call the insurance company to verify it is current — policies lapse more often than you'd think

Minimum: General liability ($500,000-$1,000,000) and workers' compensation (if they have employees)

If they have no workers' comp and someone gets injured on your property, you could be on the hook

3. References and reviews

Ask for 3+ references from recent projects (past 6 months)

Call them. Ask: was the work finished on time, on budget, and would you hire them again?

Check Google Reviews, Yelp, BBB, and your state's contractor complaint database

Be wary of contractors with only 5-star reviews and no detail — fake reviews are easy to buy

4. Written contract with these elements

Every contractor agreement should include:

Full legal name and license number of the contractor

Detailed scope of work (not "remodel kitchen" — list every element)

Full material specs (brands, model numbers, colors)

Total price with payment schedule tied to milestones

Start date and estimated completion date

Warranty terms (workmanship and materials)

Change order process and pricing

Who pulls and pays for permits

Cleanup and debris removal responsibility

Dispute resolution clause

5. Understand lien waivers

When you make final payment, get a lien waiver from the contractor AND every subcontractor. Without it, a sub who wasn't paid by your GC can put a lien on your house — even though you paid the GC in full. That happens more than you'd think.

Home renovation in progress with materials and tools

The Payment Schedule That Protects You

MilestonePaymentCumulative Contract signing10% deposit10% Materials delivered20%30% Rough work complete25%55% Project substantially complete25%80% Final walkthrough + punch list complete20%100%

Never pay the final 20% until:

All work is complete and inspected

Permits are closed (final inspection passed)

You've done a detailed walkthrough with the contractor

Every punch list item is resolved

You have lien waivers from all subcontractors

Real estate professionals shaking hands in front of a new home

What to Do If You've Been Scammed

If you think you've been the victim of contractor fraud:

1. Document everything. Photos, texts, emails, contracts, receipts, bank records.

2. File a complaint with your state licensing board and the Better Business Bureau.

3. Report it to your state Attorney General's consumer protection division.

4. File a police report if the contractor took money and disappeared.

5. Call your bank/credit card company to dispute charges if you paid by card.

6. Talk to an attorney who handles construction law for amounts over $5,000.

Frequently Asked Questions

How many quotes should I get?

Three at minimum, four or five for a big project. That gives you enough data points to spot outliers — too high or suspiciously low. Use the cost calculators to know the fair range before you even call.

Is the cheapest bid always bad?

Not always, but it deserves a question. Ask them why. If they have genuine efficiencies or use less-expensive-but-still-quality materials, fine. If they can't explain the gap, be cautious.

Should I hire a contractor who isn't licensed?

In states that require licensing — no, never. You lose every legal protection. In states without licensing requirements, verify insurance, references, and BBB status instead. See the state licensing guide to check your state.

What warranty should I expect?

Industry standard is 1-2 years on workmanship, plus whatever the manufacturer's warranty is on materials (varies by product). Some states have mandated minimums. Get warranty terms in writing in the contract.

Can I fire my contractor mid-project?

Yes, but read the termination clause in your contract first. You'll typically owe for work completed plus non-returnable materials. Document everything (photos, video) before and after the contractor leaves.

---