The Warning Signs of Unlicensed Builders

Unlicensed and uninsured contractors cause problems for all parties in the construction industry. Legitimate builders get grouped in with the scam artists whose business practices have led some people to believe that all contractors are “shady” or untrustworthy. They also must absorb and charge for the costs of running a real operation – insurance costs, licensing fees, admin work, etc. which many unlicensed builders are able to subvert. Adding on the costs of doing business by the rules can leave these “good” contractors stuck at a much higher price than their “bad” competitors. This in turn can make it a lot tougher decision for the customer who must balance a limited budget along with a job performed correctly, and in a timely manner.

Customers run significant risk for themselves and their home by hiring unlicensed builders. Your average customer is understandably lacking in knowledge of construction and building code, and therefore must rely on the professional they hire to make safe decisions that will lead to a well-built structure. If you hire the cheapest guy off Craigslist, you have to ask yourself if he will meet all the responsibilities necessary of today’s modern contractor. Wouldn’t you prefer to not stress and worry and just hire some one who knows what the heck they are doing!? Read on for a list of warning signs for uncovering unlicensed and uninsured contractors!

Signs Your Contractor Is Unlicensed or Uninsured

The Price is Too Good to Be True – if you request estimates from 3 or 4 contractors for the same scope of work and one guy is WAY lower than everyone else, it is probably too good of a deal to be true. Either they missed some items in their takeoff or they are using some other tactics to artificially lower their price. Beware the deal that is “too good,” you will end up paying the price one way or another. Change orders, work left unfinished, not showing up on the job consistently – we have seen and heard close to every nightmare situation possible!

Minimal Knowledge of Building Code – to receive a Residential Builder’s License in Michigan, you are now required to pass a 60-hour course and associated test, as well as take continuing competency education credits. You must also own and study the most up-to-date Code Book in addition. If the contractor you are considering hiring is having difficulty answering your questions, or dodges them outright, he/she probably doesn’t have great knowledge of the Code Book – you might do well to look elsewhere as they are likely not very knowledgeable about proper building practices.

No Permanent Business Address – a quick search on Google or your preferred search engine can tell you a lot about your prospective remodeler. One huge sign that your contractor is planning on sticking around for awhile is a permanent business address. A P.O. Box or no address at all could be a warning that the crew you wanted to hire is a “fly-by-night” company that is going to sneak off at the first sign of trouble. (This is not a sure-fire signal as lots of smaller contractors or those who are just starting out might be lacking a permanent address.) You can even go a step further and look at their office using Google’s Street View – then you can get an idea of how big they are, what their shop looks like, etc. Scammers often don’t have a permanent address as they need to be able to move around from region to region as their reputation catches up to them.

No References/Association Memberships – an important component of many families’ decision-making process is to gather references from people they trust. The shine of illegitimate contractors typically won’t hold up if you start asking previous clients or trade partners about their quality of work. Reviews are also good here, but it is best to talk to a couple different parties in person as those cannot be faked or manipulated very easily – either they had a good experience or will share what went wrong. If references aren’t readily available, another good sign is if your builder is part of a local trade association like the Home Builder’s Association (HBA) or the Associated General Contractors (AGC). This shows investment in the industry and is another indicator the contractor cares about his reputation and is planning on sticking around that community for the long haul.

Lack of Insurance (WC, General Liability, Auto) – as a potential client, you have the right (and it is always a good idea) to request a copy of your contractor’s insurance. If the contractor attempts to workaround your request or downplays the importance of insurance, it is time to run the other direction! This is extremely crucial because as a homeowner, if an uninsured laborer or subcontractor is injured on your property then YOU are the one liable for the damages and potential litigation! They need to be covered by Worker’s Compensation, General Liability, and Automobile insurance at a minimum, and sometimes specialty trades require more than that. Please check your contractor’s insurance carefully as this category has the most potential to send you careening financially.

Lack of Michigan Builder’s License – any work that you have performed on your home that is valued at $600.00 or more requires the person or company that performs the work have a valid Builder’s License. The exception to this rule is if you perform the work yourself, but that is the only exception. This requires taking the 60-hour course mentioned earlier, passing a test, paying fees, keeping up on registration and education, etc. Hiring a licensed builder is in your best interest because in addition to the investment required, it also provides you the customer with an avenue of complaint/action against poorly performing contractors. The state is on your side and will typically assist the consumer if you need to report a licensed builder for any reason. No such avenue is available if you hire an unlicensed builder. You may check the validity and expiration date of any license at This will show you a history of complaints, liens, and any other negative actions.

Requesting Cash Payment/All Payment Up Front – another huge warning sign of a scammer is the “cash-up-front” builder. This is a bad idea for a few reasons. One: there is no record of your transaction if you pay in cash so if anything gets hairy, there is no proof of the sum you paid or anything. Two: the builder can take the money and run off without ever showing up again. Three: even if the builder shows up after receiving payment, they have no real incentive to perform the work quickly and efficiently since there is no paycheck they are waiting on at the end. Who do you think will get the majority of attention when it comes time to finalize and punchlist two jobs: the person who has paid in full or the person who is holding 20% of the contract sum for final sign-off? (This is just good practice in general.) A legitimate remodeler should have a full payment schedule based on dates or project milestones for your review.

Want Client to Pull Building Permit – a common line unlicensed contractors try on unsuspecting clients is to get them to pull their own building permit. They will claim it is cheaper for the homeowner to do it or that you get a special discount. That is completely false. The cost of a permit is based solely on the value and type of work performed, and in what jurisdiction that occurs – who pulls it has zero bearing on cost. If a contractor pulls a permit on behalf of a homeowner the law requires he/she has a Michigan Builder’s License. Guess who was just trying to avoid telling you they’re not licensed? You guessed it – the builder feeding you a line of crap about made-up “owner’s discounts.”

Offering Leftover/Extra Material at a Discount – one of the oldest ploys in the book is the contractor knocking door-to-door in a neighborhood offering a job done with extra material if you get started right away. This is often the set-up for a “take the money and run” scheme, but even if you make it further than that there is probably trouble coming. Good contractors only order a little extra material to cover waste from cuts or whatever, not a huge portion that would allow them to do an entire second job. What happens a lot of the time is you will get second-rate, salvaged, or re-used material that has no factory warranty and is unlikely to hold up to normal use. Whatever angle the door-to-door, extra material guy is pushing, you can feel pretty confident that you will not get a great job done by that firm.

The Bottom Line

Unlicensed, uninsured, illegitimate contractors hurt everyone involved in the construction industry. You will certainly save money (in the short term, anyway), but at the cost of hiring someone who does not pay proper taxes, insurance, fair wages, and licensing fees. This may sound like something you can live with, especially if they are substantially less than the “legit” contractor you also received a quote from, but the potential for stress and problems at every turn should scare you away. Help support those who adhere to industry laws and are looking to provide real, quality work to local customers. The benefits far outweigh the costs of having your home torn up, unfinished, with impending legal action.