When selecting and evaluating general contractors, always ensure that your general contractor is licensed. We can’t stress this enough. Proper licensure is the key to ensuring that the money you’ve invested in your remodel is protected — and that the work performed is held to the highest quality standards.
Take it from us — we speak from experience. As a general contractor, Pro.com has stepped in to take over several projects from other general contractors. There’s a common theme in almost every one of these situations: the previous contractor was unlicensed.
Time and time again, homeowners come to us for help fixing the poor results from an unlicensed contractor they hired in good faith. Beyond construction quality, there are other factors that can quickly derail your project. By sharing this guide, we hope to empower you to seek qualified professionals committed to keeping your project on track.
What is an unlicensed general contractor?
Many states require anyone who professionally manages construction projects to carry a general contractor license. To receive their license, a GC must prove they have the knowledge and experience to do the job — as well as the proper insurance.
Many homeowners hire unlicensed contractors by accident or without a clear understanding of the risks. The offer can be tempting, as they usually offer lower rates on home construction and renovation projects. Because an unlicensed contractor bypasses the overhead costs associated with licensing fees, liability insurance, and worker’s compensation, they’re able to offer an impressively low upfront price.
How to check if a general contractor is licensed
Unlicensed general contractors offer lower pricing — but it comes with significant risks. If you have an unlicensed GC in the mix, you will likely be promised a lower project cost and fast delivery. Simply put, without the oversight of a licensing board, the contractor can tell you whatever they want.
The good news is that it’s easy to look up and verify their credentials online. Most state websites have a contractor license database where you can check that they are actively licensed, adequately insured, and complaint-free.
If you’re hiring a general contractor for your home remodel or renovation, check to make sure you’re comparing licensed GCs only. You can use links below to go directly to the contractor license lookup tools in the areas where Pro.com operates:
Why unlicensed contractors are cheaper (upfront)
Remember, if the price seems too good to be true, it probably is. Lower upfront construction costs come with serious risks down the road. Let’s explore why an unlicensed contractor can offer lower pricing, then review some of the big risks that could derail your project.
Unlicensed contractors bypass the initial licensing procedure, so they don’t pay annual fees to their licensing board throughout the year. Because they don’t pay these fees, they can offer you more favorable pricing.
Bonds ensure a construction project’s bills will get paid. They also protect homeowners from disruptions or financial loss due to a contractor’s failure to complete a project.
Finally, and perhaps most importantly, unlicensed contractors will not have liability insurance or worker’s compensation. These are additional overhead costs that a contractor cannot attain without a license, so they simply move forward and do the work without these measures of coverage. However, if your contractor does not have liability insurance or workers’ compensation, the responsibility to fix low quality work or any incidents on the job will fall on you, the property owner.
Homeowners take on the risk
If your contractor does not have liability insurance or workers’ compensation, the liability will likely fall on you, the property owner.
It’s worth noting that all licensed contractors will carry two insurance types: liability and worker’s compensation. They are required to have both to maintain their license. Unlicensed contractors — you guessed it — aren’t able to obtain insurance.
When you hire a licensed contractor, they will have workers’ compensation for themselves, plus any employees they hire to assist with the job. If your contractor is unlicensed, they (and anyone else they hire to work on the project) are all considered your employees. This makes them your responsibility to insure.
Working with an unlicensed and uninsured contractor could put you in a dangerous situation. Without the proper insurance, you, the homeowner, can be held liable for accidents, damages, or injuries that could happen on the property.
To avoid a worst-case scenario, check that your contractor carries both liability and worker’s compensation insurance. This information is typically available in the same contractor lookup tools listed above. You can also ask your contractor to see a copy of their certificate of insurance (COI).
What could (and does) go wrong
To put these risks into perspective, we’ve compiled a list of unlicensed GC horror stories we’ve heard from our clients. Remember, our intention isn’t to fear-monger — we want to help first-time remodelers avoid making the same mistakes.
Large deposits and handshake agreements
Without a signed contract, there’s no recourse if the GC stops work on the project. Unlicensed contractors have been known to request large deposits upfront to secure materials but never return in the worst-case scenarios. The homeowner’s money is gone, and there is little that can be done to recover funds.
No inspections and major quality issues
To reduce project costs, many unlicensed contractors will cut corners and skip permits altogether. Without a permit, there is no inspection from the city. They are often not in compliance with (and likely not aware of) building codes and requirements. Remember that workmanship issues go beyond just slap-dash paint jobs or crooked tile. When a contractor performs unlicensed, unpermitted plumbing and electrical work, there’s no way to ensure that the new systems are safe.
If you or an inspector discover issues on your project, a licensed GC will be motivated to fix them. If they don’t, they could face penalties if the homeowner complains to their local licensing board. However, if the contractor is unlicensed, there’s no motivation to make things right.
Unpermitted work hurts your bottom line
Cities only recognize permitted remodels and additions when assessing a home’s value. Without a permit, projects that would normally increase your property value (like converting a powder room into a full bath or adding additional square footage) cannot be claimed in the home’s legal description. This can be especially challenging if you plan to sell your home in the future.
What’s more, if the city finds that you’ve built an unpermitted remodel or addition, you run the risk of having to re-do some or all of the project. Let’s say you’re remodeling a basement with the proper permits to complete below-grade plumbing. After completing the plumbing work and putting in drywall and flooring, you find out the sewer line is not draining. There’s no easy fix at this point. You’ll have to start over — adding more time and cost to the project.
It pays to do your due diligence
No matter who you hire to GC your project, it’s critical to make sure that they are in good standing before any money is exchanged. But keep in mind that an active license and insurance is just the first step. For more information about how to make a confident hiring decision, read our guide for first-time remodelers. We’ll go deeper into what to look for in your contract and ask in your first meeting.