How to Avoid Home Improvement Scams

When you consider that Americans spent an estimated $567 million on improving their homes in 2022, according to the most recent report on remodeling from the Joint Center for Housing Studies of Harvard University, you can see why homeowners are targeted. Nearly 83,000 reports of home repair, improvement and product scams were reported to the Federal Trade Commission in 2023.

When you hire a contractor to repair or renovate your home, make sure your money doesn’t go into a scammer’s pocket.

Warning signs of a home improvement scam

Be wary if a contractor:

Demands cash payment up front. “If they’re asking for cash up front before the work gets started, before a contract can get put into place, that’s one of the bigger red flags,” says Melanie McGovern, director of public relations for the International Association of Better Business Bureaus.

Shows up uninvited. A good contractor is busy and isn’t searching for business door-to-door, says Archuleta.

Can start immediately. “A good contractor usually has a backlog of jobs and clients,” says Apter, who is booked at least six weeks in advance. 

Offers surplus materials. A builder may show up and say they were working nearby and have leftover material. They offer you a deal on, for example, redoing your driveway. But what you’ll get is incomplete or shoddy work. “They’ve even approached me in my own house,“ says Archuleta. Once they realize he’s a contractor himself, “they quickly run away.”

Has no truck, or uses a rented truck. A contractor using a U-Haul isn’t professional. Archuleta points out that his truck is printed with his name, cellphone number, license and home builder’s number — information that the state of New Jersey requires contractors to display.

Pressures you to hire them immediately. Scammers may make a special discounted offer to push you to make a decision right away. A good contractor, says McGovern, “will give you the time to look [the offer or contract] over and make sure you’re making the right decision. They don’t want unhappy customers.”

Doesn’t provide a written agreement or contract. Everything should be in writing, says McGovern.

Appears after natural disasters. If your house has been damaged by fire, flood or other natural disaster, you likely are at your most vulnerable. Scammers may promise fast, cheap repairs, or try to persuade you to sign over a payment from your insurance company directly to them.

Offers financing. Scammers may try to talk you into taking out a home-equity loan or reverse mortgage to pay for repairs and arrange for the lender to pay them directly. This gives them little incentive to finish the job or do it properly.

Protect yourself from a home improvement scam

Follow these tips on how to find and hire a contractor to help ensure you’ll have a successful experience from start to finish.

Ask for referrals. Start by asking friends and neighbors. If you’re new to an area, you can ask your local branch of the National Home Builders Association, Archuleta suggests. Or you can also go to local suppliers, like the lumber supplier, and ask for contractors in good standing, he adds.

Review references. Apter suggests that homeowners ask contractors for references from their last three jobs, because “anyone can give you their three best customers.” Also ask when the jobs were done. “They should all be within the last three months. Otherwise, this is a contractor who doesn’t get much work,” says Apter.

Ask for photos. Archuleta will show prospective customers a house he’s worked on and explain what he did — such as new roofing, siding and an addition.​ “Reputable contractors are proud of their work; they want to show it off,” says McGovern.

Check reviews. Look at neighborhood listservs or local social media sites. You can check ratings at the Better Business Bureau (BBB) and see how they’ve handled any complaints. (See below, under Resources, for more.)

Check licensing. Check with your state’s licensing agency to see if a contractor you are considering hiring is licensed. Make sure they are licensed in your state or city, says McGovern.

Have contractors visit the site. A contractor can’t give a proper quote for work without seeing the site, agree experts. Apter suggests you also consider whether they showed up on time; if they’re prompt, “it shows respect and that they’re organized.”

Get multiple bids. Get at least three bids before agreeing to any work. “This should give you a realistic snapshot,” says Apter.

Carefully weigh bids. “They should come in around 5 to 10 percent of each other,” says Apter. If one contractor’s estimate is significantly less than those of competitors, ask why: Some contractors cut corners to come in lower than competitors, says Archuleta.

Ask questions and read the fine print before signing a contract. A contract should include a detailed description of the work, material costs and start and completion dates. If there’s anything you don’t understand, clarify it with the contractor before signing. “Reputable contractors will walk you through everything,” says McGovern. “They’re not going to get defensive.”

Working with a contractor

Deposits should be no more than a third of the total cost. The appropriate amount below that, however, may depend on the scale of the project. Archuleta says his jobs can run from $500,000 to $700,000 “No way is anyone going to give me 30 percent,” or $250,000 to start, he says. But if it’s a roof job, “then, yes, 30 percent is going to cover the cost of materials.”

Usually, Archuleta asks for a 5 to 10 percent deposit on a big job to reserve a spot on his list, then when work starts and materials are ordered, another payment will be needed. That amount depends on the overall cost and size of the job.

Get all changes in writing. “If you come across an unexpected problem, such as a water line that needs to be moved, or decide you want an upgrade, such as wallpaper instead of paint, those additional costs and changes should be documented,” says Apter.

“No verbal agreements,” emphasizes McGovern, who says that these contingencies should be discussed early on, so that even if the contractor is in the middle of a job they know you want them to stop to document changes and cost in writing.

Keep detailed records. Keep careful records of work, payment schedule, receipts of payment, warranties on products the contractor is using, and all agreements between you and the contractor, says McGovern.

Inspect finished work. Apter suggests having two walk-throughs with your contractor, one to make a punch list, another to confirm work is done before submitting your final payment.

If you’ve been the target of a home improvement scam

• Contact your state’s consumer protection agency to report home improvement fraud.
• File a complaint with the BBB if you’ve been scammed or poorly served by a contractor.
• Call the free AARP Fraud Watch Network Helpline, 877-908-3360, to speak with trained fraud specialists who can provide support and guidance on what to do next and how to avoid scams in the future. The AARP Fraud Watch Network also offers online group support sessions.

Resources

Search these organizations’ directories for reviews and/or to find out if a contractor is a member in good standing.

• The National Association of the Remodeling Industry has an online directory of members, who have pledged to follow the organization’s ethical guidelines.
• The National Association of Home Builders has state and city chapters that can give you the names of member builders and remodelers in your area.
• The Restoration Industry Association has a page where you can search for RIA members certified in fire, flood and other remediations.
• The Better Business Bureau has listings with ratings in its business directory. The organization also has an online guide to home improvement.