10 Red Flags When Hiring a Contractor

April 16, 2026

Every year, the Federal Trade Commission receives tens of thousands of complaints about home improvement fraud. Most of these situations are avoidable — the warning signs were there from the beginning. Here are the 10 red flags that should make you walk away from a contractor, no matter how good their price seems.

1. They Demand a Large Upfront Payment

A contractor who asks for 50% upfront — or worse, full payment before starting — is waving a red flag. Legitimate contractors typically ask for 10-15% at signing or a maximum of $1,000 (some states cap this by law). The rest should be tied to completed milestones.

Why this matters: contractors who collect large deposits before starting have less financial incentive to show up and finish. If they're asking for cash upfront, they may also be using your money to finish someone else's project — a classic sign of a contractor in financial trouble.

2. No License or They Won't Share the Number

If a contractor hesitates, deflects, or claims they "don't need" a license, stop the conversation. In most states, general contractors are required to be licensed for projects above a certain dollar threshold. Even in states without statewide licensing (like Texas), most cities require registration.

A licensed contractor has something to lose — their license. An unlicensed contractor has no accountability through the licensing board, which means your only recourse if they do bad work is civil court.

3. No Proof of Insurance

Every general contractor should carry general liability insurance and workers' compensation insurance. If they can't produce a Certificate of Insurance within 24 hours, they probably don't have coverage. And if a worker is injured on your property and the contractor has no workers' comp, you could be sued.

Don't just look at the certificate — call the insurer to verify it's current. Some contractors let policies lapse after getting the initial certificate.

4. They Pressure You to Decide Immediately

"This price is only good today" is a sales tactic, not a construction practice. Legitimate contractors understand that homeowners need time to compare bids, check references, and review contracts. A contractor who pressures you to sign immediately is either desperate for work (not a good sign) or doesn't want you to do your homework (a worse sign).

A good rule: never sign a contract the same day you receive a bid. Take at least 48 hours to review it.

5. The Bid Is Suspiciously Low

If you get three bids and one is 30% below the others, something is wrong. Either the contractor is underestimating the scope (intentionally or not), planning to use substandard materials, cutting corners on labor, or intending to make up the difference in change orders.

Low-ball bids are one of the most common contractor scams. The project starts cheap, then the "unexpected" issues pile up — each one requiring an expensive change order. By the time you realize what's happening, you've already paid more than the honest bids and the work is half done.

6. No Written Contract or a Vague One

A handshake agreement or a one-page "proposal" with no detail is not a contract. A real contract should specify the complete scope of work, materials, timeline, payment schedule, warranty, change order process, and dispute resolution. If the contractor resists putting things in writing, they're protecting themselves at your expense.

Red flag phrases in contracts: "work as needed," "standard materials," "estimated completion," or "final price may vary." These vague terms give the contractor unlimited wiggle room.

7. They Suggest Skipping Permits

"We can save you money by not pulling permits" is a sentence that should end the conversation. Unpermitted work creates serious problems:

• Your homeowners insurance may deny claims related to unpermitted work
• You could be forced to tear out and redo the work when you sell
• The city can issue fines and stop-work orders
• Unpermitted electrical or structural work is a genuine safety hazard

The contractor who skips permits is avoiding inspections — which means no one is verifying their work meets building code. Learn more about permit requirements by project type so you know what your project needs.

8. No Physical Business Address

A contractor who operates out of a P.O. box or won't tell you where their office is raises questions. Established contractors have a physical location — even if it's a home office, they should be willing to share it. A physical address means they're rooted in the community and easier to find if there's a problem after the project ends.

Also check how long they've been at that address. Contractors who move frequently may be running from bad reputations.

9. They Bad-Mouth Every Other Contractor

A professional contractor focuses on their own qualifications, not on tearing down competitors. If a contractor spends your consultation trashing other companies, that's a sign of insecurity, not competence. Confident contractors let their work and references speak for themselves.

This behavior also tells you how they'll communicate during the project — defensively and negatively.

10. They Can't or Won't Provide References

Any contractor who has been in business for more than a year should have at least three recent clients willing to vouch for their work. If they can't provide references, it means one of three things: they're too new and are overstating their experience, their past clients were unhappy, or the references they'd provide are fabricated.

When you do get references, actually call them. Ask specific questions about timeline, budget, communication, and quality. And check online reviews — patterns of complaints are more telling than any single reference.

What to Do If You Spot a Red Flag

If you encounter any of the above, here's your playbook:

1. Don't confront the contractor. Simply thank them for their time and say you're still comparing options.
2. Document everything. Save emails, texts, bids, and any written communication.
3. Report serious violations. If a contractor is operating without a license or insurance, report them to your state licensing board and local consumer protection office.
4. Keep looking. There are plenty of excellent, honest contractors. Don't settle out of frustration or urgency.

The best defense against a bad contractor is a thorough vetting process. Use our contractor directory to find licensed, reviewed professionals in your area, and check our full vetting checklist before you hire anyone.