Use these red flags to help protect yourself from contractor fraud. If you notice any of these warning signs, think twice before signing, especially if the contractor is pressuring you to make a quick decision. A reputable contractor should give you time to review the estimate, ask questions, and compare quotes.
The 9 Warning Signs
Red Flag #1: Demands more than 30–33% upfrontStandard deposits cover materials ordering: 10–33%. Demanding 50%+ (especially cash) suggests the contractor is underfunded or planning to use your money on another job. Legitimate contractors typically don't need you to fully fund the project before work begins.
Red Flag #2: Asks you to pull your own permitsIn most cases, the contractor should handle the permits required for the job. If they ask you to pull the permit yourself, ask why. It could be a sign that they aren’t properly licensed or don’t want the work tied to their business. Before moving forward, confirm who is responsible for the permit and inspections with your local building department.
Red Flag #3: Pressure to sign today or "the price goes up"Material prices rarely change overnight. A contractor who won't give you 48–72 hours to review a quote may be trying to keep you from getting a second opinion. Consider walking away and calling someone else.
Red Flag #4: Their bid is 30%+ lower than everyone elseSignificantly low bids often mean one of three things: they plan to cut corners on materials or labor, they will ask for more money midway through (change orders), or they made a mistake. Competitive bids are typically within 15–20% of each other.
Red Flag #5: Cash only, no written contractLegitimate contractors rarely require cash-only payment for a major project. In many states, a written contract is required by law above a certain project value, which varies by state. Your contract should specify: exact scope, materials, payment schedule, start date, timeline, and warranty terms.
Red Flag #6: PO box only, no physical business addressA PO Box alone doesn’t necessarily mean a contractor is untrustworthy, but you should be able to verify that the business is legitimate and established. Look up the company through the agency that licenses contractors or the specific trade where you live. Depending on your location, that may be a state licensing board or a city or county office. Make sure the business name, license information, and contact details match what the contractor provided.
Red Flag #7: Won't provide proof of insuranceAsk for a Certificate of Insurance naming you as additional insured. If a worker is injured on your property and the contractor lacks workers' comp, you may be liable. A legitimate contractor should be able to provide insurance certificates promptly.
Red Flag #8: Out-of-town contractors showing up after a storm"Storm chasers" follow major weather events and often take large deposits, do substandard work, and become hard to reach afterward. If they knocked on your door unsolicited, be especially cautious. Use contractors with verifiable local history.
Red Flag #9: No license number or won't verifyMost states require licenses for roofing, electrical, plumbing, HVAC, and major remodeling. Ask for the license number and verify it with the authority that licenses the trade in your state. It usually only takes a few minutes.
Ask 7 Questions Before Signing
Are you licensed and insured in this state?
Will you pull the permits?
Are your workers employees or subcontractors?
Does the warranty cover labor, workmanship, and materials? What isn’t covered?
What is the payment schedule?
How will you protect my home during the project?
Can you provide 3 local references from the past year?
Take These 5 Steps To Protect Yourself
1. Get three written quotes from contractors with verifiable local presence.
2. Verify every license at your state's licensing board before signing anything.
3. Request a Certificate of Insurance: general liability AND workers' comp. Call the insurer to confirm it is active.
4. Pay by check or credit card, and avoid wire transfers and cash. Credit cards offer chargeback protection.
5. As a rule of thumb, avoid paying more than 33% upfront. Some states set lower limits, so check your state's rules. Structure payments: deposit on signing, progress payment at a milestone, final payment only when work is completed to your satisfaction.
Frequently Asked Questions
Search with the authority that licenses the trade in your state. Most have a free public lookup by name, company name, or license number. Results show license status (active/expired/suspended), bond and insurance status, and any disciplinary actions.
A reasonable deposit is 10–33% of the project total to allow materials ordering. For large projects over $20,000, 10–15% is more appropriate. As a rule of thumb, avoid paying more than 33% before work begins. Some states set lower limits, so check your state's rules. Tie remaining payments to completion milestones.
A complete contract includes: exact scope of work with material specifications, start and estimated completion dates, payment schedule tied to milestones, change order process (all additions must be in writing and signed), warranty terms for workmanship and materials, cleanup responsibility, and permit responsibility.
If a contractor takes a deposit and does not perform, you may recover it through: (1) small claims court (limits vary by state), (2) a complaint to the state contractor licensing board, or (3) a credit card chargeback if you paid by card. This is why paying by credit card is strongly recommended.
Not always: some legitimate companies expand their service area after major storms. The red flags are: they came to you unsolicited, no verifiable local presence, pressure to sign quickly, and asking you to sign an Assignment of Benefits on your insurance claim. A legitimate company will still have a verifiable license, insurance, and local references.
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