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Six (More) Ways Bad Contractors Cut Costs and Increase Their Profits

In our last article, we identified five similar techniques
unscrupulous contractors used to scam home owners. These included: 

  • Not
    having proper insurance
  • Not
    including clean-up in their fees
  • Hiring
    inexperienced workers
  • Using
    cheap materials
  • Offering
    a poor warranty 

If you missed the article, you can find it here

Methods Bad Contractors Use to Cut Costs and Increase Their
Profits 

Now that we have reviewed the previous five methods these
scoundrels use, let’s take a look at some more common practices, beginning
with:

Starting As Many Projects as Possible

We have all heard the horror stories of homeowners who
contracted with a builder and paid the deposit, only to have the builder quit
within weeks of starting the project. Unscrupulous contractors will come into
your home, tear up the site, and then disappear for days, weeks, or even months
on end. Financially, this contractor has gotten himself into a situation where
he has to start a new project to get enough money to finish off the last
project. It’s very much like the person who keeps getting new credit cards
rather than living within their means. Eventually this contractor just gives up
any pretense of finishing the project and walks away from the contract.
Meanwhile, the homeowner is left frustrated, stressed, and financially wounded. 

A low-risk contractor will be happy to provide you with
references. These references will be able to tell you whether their project was
neglected in favor of other projects or not. You should look for a
well-established contractor who can give you several client references from the
last six months to a year. Ask for the name of the contractor’s accountant or
banker. You want to ensure the contractor is financially sound and won’t be
declaring bankruptcy in the middle of your project.

Ignoring Permits

Unscrupulous contractors like to either ignore permits or
have the homeowner file for them. No! Make sure your contractor pulls all
required permits. This is very important. When a contractor pulls the required
building permits, you know things will be done to “code”. Also, many
homeowners’ insurance policies require pulling a permit on any major remodeling
to keep your home properly covered. Not all contractors will do this. Many
prefer not to pull permits because of the time involved and the
“hassle” with the inspectors. Some contractors may ask you to get the
permits. This could be a warning sign that they are not able to pull the permit
because they are unlicensed, or the work is outside of their license.

Blaming Suppliers for Delays

Delays are an inevitable part of a poorly run home
improvement project. Contractors who get over-extended and can’t live up to
their commitments force homeowners to wait weeks for crews to come back and
finish the job. During this time, poor contractors will start dragging out the
old excuses and one of their favorites is to blame it on their suppliers or
subcontractors. A kitchen remodeling job gets hung up because the cabinets are
on back order. An addition project gets held up because they’re waiting for the
windows to come in. The list goes on and on, but better planning and
communications with the homeowner can prevent all of these things. Whose fault
is it when delays happen? I say it’s the contractor’s fault!

Changing the Dream

Here’s a game that has burned thousands of homeowners: A
contractor will start a project, get a few weeks into it, and begin presenting
some “innovative” ideas to the homeowner. By then they’ve gotten to
know the homeowner and have a pretty good feel for what they would bite on. So
they throw out an idea and the homeowner may say, “Sure give me a price on
that and we’ll roll it into the project.”

Why would a contractor do this? There are two reasons –
schedule and money. Typically this idea is going to involve a product that
needs to be ordered. If the homeowner buys into the idea, the contractor just
bought themselves a multi-week excuse to disappear so they can finish the last
project. The financial benefits are even more blaring. Typically the homeowner
took bids from multiple contractors for the initial project, so the contractor
had to be fair with his pricing. But on this new change to the project, the
contractor is going to charge a premium because they know the homeowner is not
going to put it out to bid. Rather than a 20% profit mark-up, they’ll charge a
100% mark-up. 

Watch out for creative ideas a few weeks into the project.
They are almost always self-serving.

Encountering Lots of “Unforeseen Problems”

Granted, there are always things that can go wrong in a home
improvement project. There’s absolutely no way a contractor can know exactly
what they are getting into until they start the destruction portion of the
project and see what’s behind the walls and under the floorboards. However, a
low-risk contractor will spend time educating the customer for the possibility
of problems before the contract is even signed. They’ve seen hundreds of
problems and have their experiences to draw upon. They’ll talk about all of the
various risks involved in the project and help the homeowner manage their risks
by setting aside contingency funds. 

A poor contractor will spring a problem on a homeowner after
the contract is signed and demand an outrageous amount of money to continue.
Unfortunately, the homeowner has very little choice but to pay.

Leaving You Exposed to Liens

Your contractor
should provide you with a written lien waiver at the end of the job. This is a
legal document, which says the homeowner has paid the contractor in full for
the services rendered and the contractor waives his right to place a mechanic’s
lien on your property. If, during the course or construction, you receive any
Notice to Owner documents from material suppliers or sub-contractors, it would
be prudent to ask the contractor for a Final Release of Lien from each one
prior to paying the contractor his final draw. This protects you in case the
contractor doesn’t pay his material suppliers or sub-contractors after you have
paid him in full.

Many times an unscrupulous contractor will disappear before
the end of the a project. This leaves the homeowner with a series of liens from
unpaid suppliers. The homeowner has paid the contractor but if the contractor
did not pay the subcontractors and suppliers, they can place a lien on your
home and you are still legally responsible. Unfortunately, any lien on a
property prevents the homeowner from refinancing a mortgage or even selling the
home.