Save $2,400: 12 Ways To Avoid Home Renovation Scams

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Home renovations are booming. According to the Joint Center for Housing Centers of Harvard University (JCHS), home improvement project spending leapt from $328 billion in 2019 to $472 billion in 2022. It is projected to reach $485 billion in 2023.

A recent GOBankingRates survey backed this up, with 89% saying they spent money on renovations last year. About 88% of those people spent at least $500, with 43% spending at least $2,000.

Though attractive and sometimes necessary, home renovations can easily sink your finances. This is especially true if you get involved with a shady contractor who pulls a scam on you. It’s more common than you may think. 

A new study from JW Surety Bonds found that 1 in 10 Americans has been a victim of a contractor scam, losing an average of $2,426. Baby boomers were found to be the most likely to fall victim to a contractor scam (15%), followed by millennials (13%), Gen Xers (10%) and Gen Zers (9%).

How can you hire a contractor safely, without heightening the risk of being scammed? And how can you maintain a good relationship with the contractor you choose? Let’s find out. 

Also see six money scams to avoid.

Research, Research, Research 

The first step when hiring any home renovation professional is to determine your project’s needs. 

“Before you even begin looking for a contractor, it is important to conduct research on the project you are planning,” said Shaun Martin, owner and CEO of We Buy Houses In Denver. “Get familiar with local building codes and regulations, as well as permits that may be needed in your area.”  

Make Your Money Work for You

Get Referrals

Referrals are not surefire ways to protect yourself from a scam artist contractor. In fact, according to the survey, one way those scammed by contractors found them was via referrals from family or friends (34%). Still, this method of asking people you know for referrals can be beneficial. 

“Ask them about their experience with the contractors they used and [whether] they would recommend working with them again,” Martin said. “You can also check online reviews for additional information about the contractor’s reputation.”

Research Online Reviews and Ratings

Check websites and online directories that feature reviews and ratings for contractors. “Look for consistent positive feedback and testimonials,” said Brett Johnson, owner of Cash For House Pro

Interview Multiple Contractors

Don’t just settle for the first contractor you talk with — even if they wow you. 

“Meet with several contractors to discuss your project, budget and timeline,” Johnson said. “Compare their expertise, communication skills and willingness to listen.”

Ask the Right Questions

When interviewing contractors for the gig, ask the right questions to get an understanding of their experience and qualifications. 

Martin said, “Some questions to consider include: What projects have they worked on in the past? Do they specialize in a particular type of home renovation? What is their expected timeline for completing the project?”  

Joshua Palmatier of Palmatier Electric provided a few more questions to ask prospective contractors: 

  • Are you licensed? “Most states require some sort of licensing or registration in order to be a home improvement contractor,” Palmatier said. “Does your contractor have a license, and are they willing to show it to you?”
  • Can you provide a COI? “If your contractor is uninsured, you probably don’t want them working on your home,” Palmatier said. 
  • Do you have branding? “Does your contractor have a logo, a website, shirts or uniforms representing their business? Do they send professional-looking estimates that are branded?” Palmatier said.
  • How long have you been in business? “Everyone has to start somewhere, so just because a contractor is new doesn’t necessarily mean they are bad,” he said, “but a contractor that has been around for many years is a good sign.” 
Make Your Money Work for You

Clearly Define Your Vision and Set a Realistic Budget

As you embark on the journey of finding the right contractor for your project, be as communicative and knowledgeable about your needs and vision as possible. 

“Prepare a detailed description of your renovation goals, including materials, design preferences and desired outcomes,” Johnson said. “Provide visual references, such as images or sketches, to convey your vision. Determine your budget range and communicate it to the contractor up front. Be transparent about your financial limitations to avoid surprises or misunderstandings later on.”

Verify Licenses and Insurance

Asking whether a contractor is insured isn’t enough; verify that he or she is. 

“Ensure that the contractor is licensed, bonded and insured,” Johnson said. “This should include general liability insurance as well as workers comp insurance if they have employees. Further, you need to make sure that every subcontractor that your contractor hires has the same insurance. Neglecting this step could put you in a bad legal position should someone get hurt on the job.”

Request a Detailed Written Contract

Always get agreements and plans in writing. 

“Ensure that the contractor provides a comprehensive written contract that includes the project scope, timeline, payment schedule, warranty information and any necessary permits,” Johnson said. “Ensure that your contract includes a laid-out scope of work that outlines the specific tasks, materials and deliverables involved in the renovation project. This document should leave no room for ambiguity and serve as a reference point throughout the project.”

Establish a Milestone-Based Payment Schedule

Set up a payment plan that is linked to progress milestones or moments of completion. 

“Divide the total project cost into four installments, with each payment corresponding to the completion of a significant phase,” Johnson said. “Additionally, hold back the final 5% to 10% until all punch-list items are complete. The holdback is important as many contractors get distracted on other jobs and you need to ensure your job is completed to your satisfaction.”

Schedule a Weekly Standing Meeting with the Contractor

Stay in the loop throughout your home renovation experience with weekly meetings with the contractor “to discuss the project’s progress, address any concerns or issues and ensure that everyone is on the same page,” Johnson said. “This regular communication will help keep the project on track and provide an opportunity to clarify any questions or changes that may arise.”

Look Out for Red Flags 

Matthew DiBara, CEO of The Contractor Consultants and founder of The Undercover Contractor, said there are a number of red flags to be on the lookout for when hiring a contractor:

  • Lack of licensure 
  • Significantly lower or less competitive pricing 
  • Subpar equipment and materials 
  • Asking for full payment up front 

Trust Your Gut

If you get any weird vibes from a contractor you’re considering hiring, run away.  

“If something feels off or if you have reservations, it’s best to continue your search,” said Joshua Haley, founder of Moving Astute. “A strong rapport and a sense of trust between you and the contractor are crucial for a successful renovation project.”

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