Know the warning signs of a home improvement scam

by Center for Personal Finance editors

NEW YORK (5/18/06)--Home improvement con artists are busy this time of year, and there's no shortage of victims--typically senior citizens--who get taken in by false promises. The home improvement industry receives more consumer complaints than any other group (Money May 2006).

Remodeling is big business; the National Association of Home Builders forecasts a record $238 billion in remodeling business in 2006--an unprecedented 13.2% hike from last year (Reuters May 10).

What are the chief grievances? Most complaints are about contractors who don't finish projects, perform quality work, or meet local building codes.

What are the warning signs? An offer of a reduced price because they've just completed a job nearby and have materials left over. An offer of a "special" percentage off the repair, yet they're not clear about what the bottom-line price will be. No street address or phone number--only a post office box or an answering service. A refusal to give a written estimate or contract. A refusal to let you photograph them.

What questions should you ask? Ask how long they've been in business, whether the business has carried a different name, and if the company has ever been sued. Ask for references, but don't call the first name on the list--it could be the contractor's mother-in-law. Visit a site where similar work has been done, and ask the homeowners about their experience with the contractor.

What should you get in writing? Brand, model, color, and size of all materials used. Avoid the "or equal" clause, which could stick you with substandard materials. Labor to be performed. Estimated timeline, including start and finish dates. Payment schedule for contractor, subcontractors, and suppliers. Warranty covering the work and materials. Contractor's obligation to get all required permits. Obligations regarding site cleanup and trash disposal. Alteration clause--for example, no alterations or extra work may happen without a change order. Mediation and arbitration clauses in case of problems. Clause that allows you to back out of the contract within three days of signing it.

What are the five things that every contractor must have? Make sure the contractor has a license (contractors-license.org), liability insurance, workers' compensation insurance, insured subcontractors (plumbers, electricians, and others hired), and a clean record on file with the Better Business Bureau.

For more information, read "Guard against Home Repair Rip-Offs" in the Home & Family Finance Resource Center housing section.