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Hiring a Contractor

House & Apartment

This article explains how to avoid fraud when hiring a contractor, and what to do before and after the hiring process.

Here you will learn what to consider when hiring a contractor. You will learn questions to ask when hiring a contractor and ways to avoid a home improvement scam.  


This article was adapted from material written by the Federal Trade Commission and the Office of the Attorney General of Texas. Revised on October 6, 2022. 


What kind of contractor do I need to hire?

Depending on how big or complex a project is, you might hire the following types of contractors: 

General contractor 

A general contractor manages all aspects of a project, including hiring and supervising subcontractors, getting building permits, and scheduling inspections. 

Specialty contractor 

 A specialty contractor installs particular products like cabinets and bathroom fixtures. 


 An architect designs homes, additions, and major renovations. 

Design/build contractor 

 A design/build contractor provides both design and construction services. 

How can I avoid a contractor scam?

Hire contractors who are licensed and insured.  

Check for qualifications.  Texas does not require general contractors to be licensed or bonded, but they are required to be a state-registered business. Check with your local building department or consumer protection agency to find out about additional licensing requirements in your area. If your locality has licensing laws, make sure the contractor’s license is current. Ask the contractor for proof of insurance. 

Get contractor recommendations from people you know and trust. 

Find out how long they’ve been in business. Look for an established company and look into their record and reputation. 

Check with the local Home Builders Association and consumer protection officials to see if they have complaints against a contractor.  

You also can search online for the company’s name with words like “scam,” “review,” or “complaint.” Check online rating websites you trust to see what others say about the   contractor. 

Get multiple estimates.  

A written estimate should include a description of the work to be done, materials, completion date, and the price.  

Don’t automatically choose the lowest bidder. Ask for an explanation if there’s a big difference among the estimates. Most of the legitimate bids should fall into a fairly close range. Beware of the "low-ball" bidder whose price is much lower than everyone else's. 

Question the quality of the materials that will be used and the work that will be done. A very low bidder may not plan to include all the specific tasks you might expect, and may use inexperienced labor, or second-rate materials.  

Read the contract carefully.  

Ask for a written agreement. Most home repair and remodeling work is performed under contract. Legitimate businesses will usually insist on having a contract for their own protection, and a well written contract should protect the homeowner, too. 

Carefully read and understand every word of the contract before you sign.  

Take your time and do not allow anyone to rush you into signing a contract. The sales person should be willing to leave the contract with you so you can read it carefully. If anyone rushes you or tries to make you sign on the spot, or will not leave a copy for you to study, you should be suspicious of that person and the contract. 

Make sure all blank spaces in the contract are filled in. 

Get and keep copies of everything you sign at the time you sign it.

Before you sign a contract, make sure it includes the following: 

  • The contractor’s name, address, phone, and license number (if applicable) 
  • An estimated start and completion date 
  • Any promises made during conversations or calls related to issues such as the scope of work and the cost of labor, special orders, and materials 
  • A written statement of your right to cancel the contract within three business days, if you signed it in your home or at a location other than the seller’s permanent place of business 
  • The payment schedule for the contractor, subcontractors, and suppliers 
  • The contractor’s obligation to get all necessary permits 
  • How change orders are handled. A change order is a written authorization to the contractor to make a change or addition to the work described in the original contract, and could affect the project’s cost and schedule. 
  • A detailed list of all materials including each product’s color, model, size, and brand. If some materials will be chosen later, the contract should say who’s responsible for choosing each item and how much money is budgeted for it (this is also known as the “allowance”). 
  • Information about warranties covering materials and workmanship, with names and addresses of who is honoring them — the contractor, distributor, or manufacturer. The length of the warranty period and any limitations also should be spelled out. 
  • What the contractor will and won’t do. For example, is site clean-up and trash hauling included in the price? Ask for a "broom clause" that makes the contractor responsible for all clean-up work, including spills and stains. 

Keep all paperwork related to your project in one place. This includes: 

  • Copies of the contract 
  • Change orders 
  • Any correspondence with your home improvement professionals 
  • A record of all payments 
  • Keep a log of all phone calls, conversations, and activities.  

You also might want to take photographs as the job progresses. These records are especially important if you have problems with your project — during or after construction. 

Use a Sign-Off Checklist. Before you sign off and make the final payment, be sure that: 

  • All work meets the standards spelled out in the contract 
  • You have written warranties for materials and workmanship 
  • You have proof that all subcontractors and suppliers have been paid 
  • The job site has been cleaned up and cleared of excess materials, tools, and equipment 
  • You have inspected and approved the completed work 

Don’t pay cash.  

If the job is expensive enough that you will need to finance it, be sure to shop around for the best terms on the financing. This is separate from taking bids on the cost of the work. When choosing your source of financing, consider the rate of interest, finance charges and the terms of the pay-out. As with any financing agreement, you should calculate the entire cost of interest and charges over the term of the loan. 

A home improvement company may offer financing, but this is not necessarily the best option, even though it may seem easy to arrange the financing and the work contract at the same time. Be aware that some contractors will have you sign a credit contract to pay a certain price for the work plus a finance charge, then immediately sell the right to collect on the contract for 20-50% less than the contract price. That usually means you could have gotten the work done for 20-50% less by paying cash or arranging financing yourself. 

If you are asked to sign a credit check application, read the form carefully and make sure it does not bind you to anything. Make sure it really is a credit check and not a contract. If you do not understand everything in the document, do not sign it until you have had someone else explain it to you. 

Don’t pay the full amount for the project up front.  

Set up the contract so that you only pay for work that has been completed.  

When can I withhold payment from a contractor?

If there is a good faith dispute about whether the work was performed in a proper manner, payments may be withheld. On Texas residential projects or four units or less, the maximum amount that can be withheld is 110% of the difference between what the party claims is owed and what the paying party thinks is owed.

What do I need to know about contractor liens?

In Texas, any contract you sign for work on your homestead must contain the following warning: 

"Important Notice: You and your contractor are responsible for meeting the terms and conditions of this contract. If you sign this contract and you fail to meet the terms and conditions of this contract, you may lose your legal ownership rights in your home. Know your rights and duties under the law." 

Failure to include this language may invalidate any lien the contractor places on your home.

When you sign a contract for home improvements on your homestead, the contractor can legally place a lien on the homestead. If you sign a contract and you fail to make the payments, the company can take away your home. Therefore, it is extremely important that you understand exactly what your obligations will be under the contract. If you have any questions or doubts, consult an attorney before you sign the contract. 

If there will be a lien on your home, make sure a notary is present to witness your signature. A notary other than the salesperson must be present to witness you sign the document creating the lien. Be wary if the salesperson does not have a notary present or if they say they will take care of the notarization later. 

If your contractor fails to pay the subcontractors and suppliers, you are responsible, even though you have not contracted directly with the subcontractor or supplier. Under Texas law, if a subcontractor or supplier who furnishes labor or materials for the construction of improvements on a property is not paid, the property may be subject to a lien for the unpaid amount. 

If your homestead improvement exceeds $5,000 in cost, the contractor is required by law to deposit your payments in a construction account at a financial institution. Ask the contractor for written verification of the existence of the construction account. Monitor deposits and disbursements to subcontractors, laborers, and vendors. Make sure access to the account record is included as a requirement in your written construction contract.

What are some questions I should ask before hiring a contractor?

How many projects like mine have you completed in the last year? 

Ask for a list so you can see how familiar the contractor is with your type of project. 

Will my project require a permit? 

Most localities require permits for building projects, even for simple jobs like decks. A competent contractor will get all the necessary permits before starting work on your project. You may want to choose a contractor familiar with the permitting process in your county, city, or town. 

May I have a list of references? 

A contractor should be able to give you names, addresses, and phone numbers of at least three clients with projects like yours. Ask each client: 

  • How long ago was the project completed? 

  • Was the project completed on time? 

  • Was the client satisfied? 

  • Were there any unexpected costs? 

  • Did workers show up on time and clean up after finishing the job?  

You also could tell the contractor that you’d like to visit jobs in progress. 

What types of insurance do you carry? 

Contractors should have: 

  • Personal liability 

  • Worker’s compensation 

  • Property damage coverage 

Ask for copies of insurance certificates, and make sure they are current, or you could be held liable for any injuries or damages that occur during the project. 

Will you be using subcontractors on this project? 

If so, make sure the subcontractors have current insurance coverage and licenses, too, if required. 

To find builders and remodelers in your area that are members of the National Association of Home Builders, go to their website. To find detailed information about a builder or remodeler in your area, contact your local home builders association.

What is a home improvement loan scam?

Some contractor scams also involve loans for a home improvement project.  

Here’s an example of what could happen: 

A contractor calls or comes to your door. They offer a deal to install a new roof or remodel your kitchen. They say they can arrange financing through a lender they know. After the contractor starts work, they ask you to sign papers. The papers may be blank, or the contractor might rush you to complete them before you’ve had time to read them. Later, you find out you’ve agreed to a home equity loan with a high interest rate, points, and fees. What’s worse, the work on your home isn’t done right or isn’t completed, and the contractor — who may already have been paid by the lender — has stopped returning your calls. 

How can I avoid a home improvement loan scam?

  • Never agree to financing through your contractor without shopping around and comparing loan terms. 

  • Never agree to any loan without understanding the terms of the loan and knowing whether you can make the payments. 

  • Don’t sign a document you haven’t read, or that has blank spaces. 

  • Don’t let anyone pressure you into signing any document. 

  • Never transfer your deed to anyone without consulting an attorney, a knowledgeable family member, or someone else you trust.

What are some common tactics scammers use?

  • Knocking on your door looking for business because they are “in the area.” 

  • Saying they have materials left over from a previous job. 

  • Pressuring you for an immediate decision. 

  • Asking you to pay for everything up front or only accepting cash. 

  • Asking you to get any required building permits. 

  • Suggesting you borrow money from a lender they know.

What should I do if I have a problem with a home improvement project?

First, try to resolve it with the contractor. Many disputes can be resolved at this level. 

Follow any phone conversations with a letter you send by certified mail. Request a return receipt, so you can prove that the company got your letter. 

Keep notes and copies of letters and documents for your files. 

If you can’t resolve it with the contractor, consider getting outside help from: 

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