Here's how homeowners can protect themselves from contractor fraud

W5: Contractor, part one Sarah Plowman speaks to the Ridley family who allege their contractor purposefully defrauded them.

Building or renovating a home can be one of the biggest expenses of one’s life.

It’s costly, and potentially even more expensive if something goes wrong.

Between 2022-24, the Better Business Bureau (BBB) received hundreds of complaints about general contractors in Canada.

Then, there’s home improvement scams — frequently ranked in BBB’s Scam Tracker Risk Reports as one of the riskiest scams Canadians face. Perhaps it starts with an unsolicited knock at the door, or a call from a worker offering to fix your roof or driveway. It may seem like a good deal until you pay the deposit, but the worker vanishes.

Other times, homeowners and builders simply disagree.

Contract disputes can get heated and result in financial losses for both parties. Perhaps it’s prompted by shoddy workmanship, or a picky and unrealistic homeowner who changed plans mid-project. How do you protect yourself from any of this?

Experts say get a contract. And make it detailed.

1. Get it in writing

One of the most important things you can do to protect yourself, many experts say, is have a contract that clearly defines roles and responsibilities.

Melanie McGovern, director of public relations and social media at International Association of Better Business Bureaus Inc., said homeowners will want to have an agreement in writing that includes timeframes, costs and estimates.

“So, if something does go wrong, you can refer to that document,” she said.

It’s recommended a lawyer review it, especially if it’s a contract for an expensive project.

“Don’t sign anything until you get a lawyer to review it and don’t pay a deposit before you do it,” said Scott Fash, CEO of BILD Alberta.

Claudia Simmonds, CEO of Canadian Home Builders Association of New Brunswick (CHBA-NB), said it’s also important to make sure the contract speaks to the project.

“Sometimes the builders will produce a contract that’s ‘their contract’. It’s what they need. So, what homeowners need to do with that contract is ensure their interest is being protected as well,” she said, adding that too many transactions are a handshake, with nothing in writing.

“Because homeowners are quite frankly intimidated by the builder, and because there’s a shortage of builders at the moment,” she said.

Peter Di Scola, owner of Salerno Custom Homes and chair of the Ontario Home Builders’ Renovation Council, said a huge part of the contract is scope of work.

“I always tell my potential clients, if we get the scope right, we don't really have to look at the contract too much because other than the milestone payments, everything else will be smooth,” he said.

He said a contract should describe what happens if there’s negligence on either parties’ part or if something fails.

“A contract has to stipulate what happens when things go wrong as well,” he said.

Canadian Home Builders Association has tips and lists on what homeowners should should ask for and have included in a contract.

2. Ask a lot of questions and do your homework

Experts point out how hiring a contractor should be seen as a job interview.

Search the contractor online. Do they have a profile on Better Business Bureau? Are they a member in good standing of any Home Builders’ associations in their jurisdictions or professional organizations? Are they willing to provide references and what do those previous clients say about their work? Do they have past projects you can visit?

The BBB notes bad contractors will be reluctant to share this information, and scammers won’t wait for you to do your homework.

“You want to make sure you're thoroughly checking the company out, and then you make your decision from there,” said McGovern. “The cheapest bid is not always the best bid.”

Other key questions to ask include – does the contractor provide warranty? Do they have liability insurance and occupational health and safety coverage such as Workers Compensation Coverage?

“Ask for a copy of those documents. If they’re a legit builder, there should be no issue,” said Simmonds.

In New Brunswick, for example, homeowners can search contractors on WorkSafe NB to verify they’re in good compliance.

In provinces, such as Alberta, which has a new home builder license registry, people can search companies that way.

The Canadian Home Builders’ Association offers the RenoMark program for renovators. RenoMark-certified renovators must adhere to a set of standards, including offering a minimum of two-year warranty on all work, a minimum of $2 million in liability insurance and have up to date Workers’ Compensation coverage.

3. Review warranty

Talk about warranty arrangements before signing.

Depending on what province you live in, third-party new home warranty coverage may be mandatory on new homes. But it’s available to contractors in all provinces and is seen as a valuable safety net because it protects the homeowner from potential structural problems or if the builder goes bankrupt. The length of the warranty is scaled, depending on the work, but for new homes it could guarantee coverage for certain aspects of a home for up to 10 years.

"Make sure they’re enrolled in a new home warranty program if they build homes," Canadian Home Builders’ Association CEO Kevin Lee said.

Currently, third-party new home warranty coverage is mandatory for new homes in British Columbia, Alberta, Ontario and Quebec. In other provinces, professional associations may require its members to provide the warranty, or banks may require it to finance a new home, but it’s not legislated.

Many see third-party new home warranty as a valuable safety net when building.

An information sheet connector about Alberta’s new home warranty advises that contracts detail whatever warranty arrangements have been decided on — including the builder’s responsibility for providing or obtaining a warrant.

It also notes that builders generally provide some basic warranty coverage, usually referred to as “builder’s warranty,” but it may not be the same as new home warranty.

4. Watch for red flags

Deals without contracts

Experts emphasize one of the most important ways to protect yourself from fraud or a dispute is to have a contract that details the project and responsibilities. It’s there to protect both parties.

Cash-only deals

Simmonds said if a contractor offers to do the job at a discount for cash, “alarm bells should be going off.” It could mean they’re trying to dodge taxes. Make sure with any transaction, you get a receipt.

Pressure to sign

McGovern said one of the biggest red flags is when contractors pressure clients to sign a contract right away.

“Reputable contractors will give you time to look over a contract to decide whether it's right for you. They will answer your questions. They will be proud of their BBB listing,” said McGovern.

“If they're pushing you to sign right away, start right away, I need this money, I need cash that’s when you need to say, ‘I’m going to check you out before I sign anything.’”

Demanding too much money upfront

Another thing to watch out for is when contractors demand too much money up front.

Generally, a deposit is not unusual. It could be between 20 and 30 per cent, depending on the project.

“The higher it is, the more questions you should ask. So why? What are those funds going towards? How are they contributing to the project,” said Di Scola, pointing out a person doesn’t have to agree to it. It’s a negotiation.

“As a consumer, you have the ability to negotiate with the contractor to say, 'I'm not comfortable with 30 per cent because the value that seems to, in my opinion, only be 20 per cent,'” he said.

McGovern said you always want to give a down payment, but not too much.

“Asking a lot of questions is really important because if they’re unresponsive, if they’re evasive, if they’re just demanding money, that’s a big red flag,” she said.

Contractors who try to dissuade

Lee said people need to be wary of contractors who try to tell you something isn’t necessary. Home warranty coverage. Building permits. Whatever it is, it can be very compelling because Lee said it’ll seemingly cost you less money.

“But with every one of them that you skip, you're putting your house, your money, your investment all at risk in order to potentially save a couple of bucks, which could also end up costing you an incredible amount of money,” he said.

5. Be cautious and trust your instincts

Julie and John Ridley were defrauded more than $45,000 when they paid a contractor to put a second storey atop their garage, but the project was never completed.

“I’ve got a pretty good judge of character, so when it first started, when things weren’t coming together, when work wasn’t being done but money was still going out the door, I kind of had that, I was like ‘uh, there’s something wrong,’” said Julie.

She wants to remind homeowners to be cautious about their decisions.

“If you have that little twinge in your stomach saying, ‘I don’t know, this is uncomfortable,’ listen to it,” she said.

Di Scola also noted an important question to ask when doing a project is do you like the person?

“You’re going to have to work with that person for months,” he said.

“You really have to get along with that person, and you have to be able to communicate with that person,” he said, adding he holds a lot of value in that.