Hiring a Licensed Contractor vs. Unlicensed Contractor
Every year Californians spend more than $10 billion on construction, reconstruction, and home remodeling. Whether it’s an extra room or bathroom, renovated kitchen or paint job, or a new landscaping endeavour, these projects add to the versatility, value and enjoyment of homes.
Yet, although hiring a contractor oftentimes costs more than a car, homeowners tend to spend significantly less time researching the right contractor than the right car.
But shouldn’t you know your contractor is equipped to handle the job before entrusting him/her with your hard-earned dollars? Shouldn't you know your contractor will obtain all necessary permits and that you will not be held liable for an injury sustained working on your home renovation?
Too often homeowners solely focus on the cost estimates that contractors quote. Yes, of course, costs and affordability are incredibly important.
But what’s equally, if not more, important is having the peace of mind that your contractor is licensed and highly experienced with workers compensation, liability insurance and proper accreditations.
In fact, choosing the right licensed contractor can ultimately lower overall costs by reducing risks and improving the quality and longevity of your project.
This article walks through the risks of hiring an unlicensed contractor, the basics of selecting and hiring the right contractor, and how to ensure the success of your project.
We have a lot to cover, so let’s jump right into the steps to hiring a licensed contractor.
1. Selecting a licensed and qualified contractor
If your job totals $500 or more for materials and labor, then the person you hire to do the work is required to have a valid CA contractors license. Selecting the right contractor for your job is an important undertaking.
Most licensed contractors are skilled professionals that take great pride in what we do. But unfortunately, there are always going to be those contractors that offer you little more than trouble. So after you plan your project and attain financing, it’s time to hire the right contractor.
Take a moment to learn the basics about the laws contractors must follow. You can review this information and important publications on the Contractor State License Board (CSLB) website.
The key is to hire only a contractor who is properly licensed for your job. Keep in mind, even when you hire a licensed contractor, you still need to be careful about managing your project to avoid costly mistakes.
Contractors can have a variety of special licenses so check to see if your contractor is properly licensed for the work you want done. You can check this information on the CSLB website.
If you hire an unlicensed contractor, you may have little or no recourse if problems occur. The CSLB can take action against an unlicensed contractor, but it cannot require the contractor to make repairs or to provide restitution. So only work with licensed contractors because they have proven levels of competency.
Price is important but, remember, you get what you pay for. So, of course, compare bids but also be aware that sometimes really low bids are indeed too good to be true. You should also obtain references and review past work.
Another thing to consider is whether your contractor has workers’ compensation insurance. Your contractor must have it to hire other employees for your job. If your contractor doesn’t have workers’ compensation insurance, then you could be held liable for injuries on the job.
Imagine how you’d feel if you found out you’d be responsible for medical bills and lost wages as a result of an injury because your unlicensed contractor wasn’t insured. In such instances, you could potentially lose everything.
Last but not least, make sure your contractor is properly bonded. You should be able to find this information on the CSLB website.
2. Negotiating a clear contract.
Once you’ve selected a qualified licensed contractor, it’s time to put your agreement in writing.
Put everything in writing. Your contract is an important document that often stops problems before they begin. So be as specific as possible and ensure all financial terms are spelled out.
Also be clear to the type and quality of materials they will use.
Otherwise, if problems or discrepancies do occur, it’ll end up being your word against the contractors.
That’s why you should also never sign a blank or partially blank contract, and take a copy of the contract immediately after signing it. Never, under any circumstances, pay cash for the downpayment or any other payment.
Make sure everything you’re paying for is specified in the contract, including items like clean up, warranties, product names, and any special requests you might require.
By law, the down payment must not exceed $1,000 or 10%, whichever is less.
3. Preventing disputes
With the contract signed, you’re ready to begin work. Now turn your attention to preventing problems before they start by doing your homework.
If you have second thoughts, you have the legal right to cancel the contract within three business days of signing. Understand that the scope of many jobs often changes once the contract is signed and actual work begins.
As the job progresses, be sure to get signed, written change orders if you and your contract agree on additions or deductions. The change order should clearly reflect alterations to the contract.
Your contractor should be able to give you an approximate date when your job will begin and end. Never let payment get ahead of the work and make sure everything is completed before you make that last payment.
Another important factor you should be aware of is the use of liens. Licensed contractors or their subcontractors may use liens to collect money if they’re not paid.
If you pay your contractor but he fails to pay his contractors and material suppliers, the subcontractor may be able to use liens to force you to pay them directly.
This means you could end up paying twice if your contractor does not pay his subcontractors or other bills. You could even risk foreclosure on your home.
You may receive preliminary lien notices from subcontractors or materials suppliers. If you receive a notice, you should take steps to ensure your contractor has paid his subs and material suppliers.
It’s a great idea to keep a job file that includes the contractor and any change orders along with financial documents, copies of all correspondences, copies of permits, and pictures of the job in progress.
While it’s the contractor’s responsibility to obtain all necessary building permits, you may be held responsible if your contractor conducts work without a permit.
Building codes only establish minimum standards, they don’t reflect the overall quality of the work. So a job could pass inspection but still not be up to the level of craftsmanship that you have specified in your contract.
4. Resolving disputes if they arise
You could run into conflicts with your contractor that the two of you cannot resolve. If so, request a complaint form online on the CSLB website. After you file your complaint, the board will mediate or investigate your situation.
In addition to licensing contractors and providing information about the licensing process, CSLB has a variety of free resources and informational handouts to educate you about your rights and responsibilities when hiring and managing building contractors.
CSLB holds informational forums around the state and is a regular presence at home and garden shows. The board also works with the media to ensure bad contractors are exposed while good contractors get the recognition they deserve.
All of these efforts help ensure CA homeowners have the info they need to protect themselves and their pocketbooks. Using these resources can save you time, aggravation and money.
Remembering these important points can help you from being taken by unlicensed and unprofessional contractors.
Don’t rush into repairs no matter how anxious you are or how badly repairs are needed. Instead, take your time hiring the right licensed contractor. Doing so is guaranteed to save you money and time.
