What Are the Risks of Working With an Unlicensed Contractor?

Updated on June 29, 2018

When homeowners are contemplating a remodeling project, they may experience some sticker shock when they start getting bids. They may even be tempted to take a chance on that guy that their neighbor’s cousin knows who supposedly does great work even though he’s not licensed, because he’s offering a deal that sounds almost too good to be true. However, hiring an unlicensed contractor exposes a homeowner to serious risks that can end up costing them far more in the long run.

It’s true that licensed contractors, by and large, cost more than unlicensed ones. First, licensed contractors must pay a licensing fee. Their license is an indication to a prospective client that they have met industry training standards in their field and can work in your area. While a license may not be a guarantee that they’re the absolute best contractor around, it does mean that they have a basic level of competency. Second, licensed contractors must carry both liability insurance, in case they damage something during the course of the project, and worker’s compensation insurance, in case they or one of their workers is injured on your property. Finally, licensed contractors must obtain a bond, which protects the homeowner in case of failure to complete the project or damage to their property as a result of the work, guaranteeing a financial payout to cover the loss.

These safeguards serve a very important purpose for a homeowner. Contractors from Sea Pointe Construction in California explain that without insurance and bond protection, liability for these types of damage and injury falls on the homeowner. Worse, these types of situations may very well not be covered by a regular homeowners’ insurance policy, leaving them to cover potentially substantial bills out of pocket.

In addition to these risks, unlicensed contractors cannot pull permits in the state of California. Permitted work is subject to inspections during the construction process that verify work is completed correctly and up to code. Without inspections, you may not know if your unlicensed contractor is cutting corners. All unpermitted work must be disclosed should the house ever be sold, so an unpermitted project can complicate a future sale or even completely deter buyers who don’t want to go through the hassle of attempting to have the work retroactively permitted or who don’t want to take the chance that such work was not up to code. Work done without a permit may also not be covered by homeowner’s insurance.

In California, licensing also offers another important tool for homeowners shopping around for a contractor. On the Contractor’s State License Board website, you can search for the status of your potential contractor’s license and check to see if they have any complaints against them. Such complaints are tracked by the state, and a contractor with excessive complaints may lose their license. There are no such safeguards in place for unlicensed contractors, and you can be sure that they will not voluntarily point you to customers who were dissatisfied with their work.

In short, the long term risks of using an unlicensed contractor vastly outweigh the short term rewards. Should anything go wrong with an unlicensed project, that original bid from a fully licensed, insured, and bonded contractor may well end up seeming like a bargain in comparison to the financial liability a homeowner would face.

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