Unlicensed contractors: Your Bottom Line

As is true with any licensed contractor, our company has an obligation to report unlicensed activity. Beyond that, we feel we have an obligation to educate our clients and community in regard to this matter. Unlicensed contracting means any person who is not licensed and yet who does remodeling or repair work, residential or commercial, for over $500. Typically, there is no written agreement or contract for this work, another illegal aspect. A written contract for home remodeling and repair is required by state law. It is also vital for the protection of the homeowner's rights.

Many homeowners simply choose someone based on low prices. This is understandable but let's look at the consequences of hiring an unlicensed person or company to work on your home. And then let's look at why their prices may be low.

First, a homeowner who hires an unlicensed contractor (this can be a handyman or someone to install flooring or lighting, or just someone to do some repairs around the house, etc.) has no recourse should something go wrong.

Let's say you hire a guy your neighbor recommended to install your new cabinets and countertop, and a dishwasher. He's not licensed, just a part-time handyman. The guy does a decent job although one drawer doesn't pull out in the right way and the countertop edge is a little crooked. You call him to come fix these issues and he doesn't return your call. There is really nothing you can do but you figure you've save money so you live with the problems.

But what if, three days later, there is water on the floor, a leak from under your sink. You now have to call a plumber. The plumber finds the water leaked into the subfloor and it now needs to be replaced or you're going to have a mold problem. You have no recourse. You do not have a warrantee on the handyman's work, you have no written contract. You also cannot discuss this with your plumber who, if he's licensed, has an obligation to report the handyman (though he may not).

You see the picture. Was it worth saving a few hundred dollars to hire an unlicensed guy?

Now let's look at why this guy charges less. First, if he's unlicensed, he's not paying for insurance (you have to be licensed to get either insurance or a bond) and is unlikely to be reporting all his handyman income. He's not going to have a city business license either, so no fees or taxes he has to pay locally. If he has "employees" or helpers, he's not paying for Worker's Compensation Insurance, a big expense for a licensed contractor. In California, he may not be a citizen, and thus may pay no taxes at all.

Of course this guy is cheaper. Is it worth it? If you pay taxes out of your income, perhaps you want others to do the same. Perhaps you want the people who are working in your home to be covered by Worker's Comp (required by law) for their own safety and protection. What would happen if a guy working in your home got injured on the job and he is not licensed or covered by WC?

My point is not to scare anyone or to make up frightening possible scenarios. My point is that hiring an unlicensed person to do repair or remodeling on your home is not worth it. Support the guy, the company, that made the effort to study, learn his trade and trade business practices, and passed his licensing exams and keeps up with license requirements, who pays taxes, who covers his employees with insurance. When you hire an unlicensed guy or company instead, because it's cheaper, you are penalizing the licensed, tax-paying guy. He's got to compete with these lower prices while having to pay taxes and insurance the other guy doesn't pay.

That's the picture, the view from a licensed contractor's office. Thank you for letting me speak out.