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Hiring an Unlicensed Contractor: 2 Most Common Risks


When planning a home improvement project, one of the most important decisions you’ll make is choosing a contractor. While it may be tempting to hire an unlicensed contractor to save money, doing so can be a risky move that could result in legal and financial consequences.

In many states, contractors are required to be licensed by the state licensing board. This license ensures that the contractor has met certain requirements, such as passing an exam and obtaining a certificate of competency. In addition, a licensed contractor is required to carry liability insurance and workers’ compensation insurance, which protects you from financial liability in the event of an accident on your property.

California residents have been warned this year, last year, and will be warned again: working with an unlicensed contractor is simply a bad move. Whether it’s a cosmetic renovation or major restoration after a disaster, your state’s Licensing Board is there to ensure that the licensed contractor conducting the repairs is held accountable for their business practices and craftsmanship.

Without this guarantee in place, homeowners are often left at the mercy of shady contractors that often have less-than-scrupulous business practices, leaving the client exposed in a variety of ways. Here are two of the most common risks associated with not using licensed contractors.

Take the Money and Run

By law, the down payment given to a contractor must not exceed 10% or $1,000, whichever is less. Some unlicensed contractors, seeking to make a quick buck, might try and charge an excessive down payment. Once they have the money, work might slow to a slog ceasing entirely.

Such was the case in a prominent scenario covered by the New York Times, where an unscrupulous, unlicensed contractor charged a down payment of 50% and then never showed up to do the contracted work. With no license, holding such contractors accountable is extremely difficult. The family in the New York Times story never got their money back and had to pay a different contractor to start the job.

An Unassuring Lack of Insurance

By law, licensed contractors in California are expected to cover injuries of their employees and be bonded in case of unfinished work.  Some contractors don’t pursue licensing because they don’t want to pay for such insurance, but that decision ultimately hurts the consumer.

In multiple cases in California legal history, it has been ruled that the homeowner is responsible for medical expenses if an unlicensed, uninsured contractor or a member of the work crew is injured over the course of a job. This means that you could be on the dole for tens of thousands of dollars or more if someone in the unlicensed contracting crew is injured while working on your project. Such a financial risk is not something you want to take.

Hiring an Unlicensed Contractor: Worth the Risk?

When money is tight, the cost of hiring a fully licensed and insured contractor can be daunting when compared side-by-side with the quoted cost of an uninsured, fly-by-night operation.

However, when you compare those costs with the hefty financial risks that come with unlicensed contractor work, the possibility of being outright robbed, or picking up the tab for outrageous medical expenses, it’s important to ask yourself a single question:  Is it really worth it?

Hiring a Licensed Contractor: The Best Decision

  • Avoid Unlicensed Contractors

It’s important to note that not all unlicensed contractors are unscrupulous. Some may be skilled and experienced but have simply chosen not to obtain a license. However, even in these cases, hiring an unlicensed contractor could still be a risky move.

To protect yourself, it’s best to do your research and choose a licensed contractor for your home improvement project or restoration services. You can check with your state’s licensing board to verify that a contractor is licensed and in good standing. In addition, you can ask for references and check online reviews to get a sense of the contractor’s track record.

Ultimately, the decision to hire an unlicensed contractor is one that should not be taken lightly. By choosing a licensed contractor, you can ensure that your home improvement project or home restoration needs are completed to your satisfaction and in compliance with all relevant regulations and codes.