Let me start by saying something that might surprise you: not every contractor who takes more money than they should is a criminal. Some are incompetent. Some are desperate. Some are dishonest. And some - stay with me here - are actually doing exactly what they need to do to stay in business, even if it makes you uncomfortable.

We'll get to that nuance. But first, let's talk about the ways contractors separate you from your money, because the trend is unfortunately accelerating in 2026, and knowledge is your best defense.

This is the classic scam, and in one recent Texas case, contractors pleaded guilty to defrauding more than 40 people out of nearly $5 million across at least 24 construction projects WFAA. The pattern is always the same: professional presentation, polished website, glowing reviews (often fake), and a request for a substantial deposit to "get materials ordered" or "secure the crew."

Experts say most contractors will require a percentage of the total price upfront, but it should never be the full price KLTV. A legitimate contractor needs some money to begin - typically 10-15% maximum, maybe stretching to one-third on very large projects. Anyone asking for half or more upfront is either financially desperate or planning to disappear.

Your Protection Script: "I'm comfortable with a 15% deposit to secure materials and scheduling. We'll structure additional payments based on completion milestones outlined in our contract."

If they push back hard, walk away. If they're legitimate, they'll understand. If they're not, you just saved yourself five figures of heartbreak.

This one's more insidious because work actually starts. The crew shows up, tears into your project with enthusiasm, makes visible progress for a week or two, then... crickets. They're "waiting on materials" or "had an emergency on another job" or "dealing with permit issues."

What's really happening? They took your deposit, started your job, then took someone else's deposit and started their job. They're playing financial musical chairs, using new deposits to fund work they've already been paid for, staying one step ahead of the collapse until the whole house of cards falls apart.

Your Protection:

Structure your payment schedule around completed milestones, not calendar dates. Don't pay for work that hasn't been done. And include penalty clauses in your contract for extended delays not caused by acts of God or permit issues.

Unlicensed operators sometimes claim credentials, borrow another contractor's license, or push homeowners to pull an "owner-builder" permit Wymanlegalsolutions. This happens more often than you'd think, and it's particularly common in states where licensing requirements are strict.

The borrowed license scam works like this: an unlicensed contractor uses a licensed friend's or relative's information for permitting, but the licensed contractor has no involvement in or oversight of the actual work. When things go wrong, you discover the person who pulled the permit never set foot on your property.

Your Protection Script: "I'll need to verify your license directly with the state licensing board, and I'll need to see your personal ID to confirm you're the licensee."

Then actually do it. Most state licensing boards have online verification tools. Use them.

Here's a sneaky one: the contractor provides proof of liability and workers' comp insurance when signing the contract, then cancels the policies immediately after to save money. You think you're protected. You're not.

If someone gets hurt on your property and the contractor has no active workers' comp, guess who might be liable? You. If the contractor's crew damages your neighbor's property and there's no liability coverage, guess who might be paying? You.

Your Protection:

Request a Certificate of Insurance directly from the insurance company (not from the contractor). Better yet, have your own homeowner's insurance agent verify coverage. And include contract language requiring the contractor to maintain coverage throughout the project with 30-day notice if policies are cancelled.

This is psychological warfare. The contractor files a mechanic's lien on your property for money they claim you owe but don't. They're betting you'll panic and settle for something - anything - to avoid the cost and hassle of fighting it in court.

Homeowners should get interim lien waivers as work progresses, documenting that subcontractors and suppliers have been paid Today's Homeowner. Never surrender to a false lien threat, even if you have to bond it out. False liens are often grounds for counterclaims, and contractors who file them can face penalties.

Your Protection:

Before making any payment, require signed lien waivers from the contractor and all major subcontractors and suppliers. Keep meticulous payment records. If a false lien is filed, consult an attorney immediately - many will take these cases because the law often provides for attorney's fees to be paid by the losing party.

This is surprisingly common and exists in a moral gray area. The contractor charges you a General Contractor fee - typically 10-20% of the total project cost - which is legitimate. They're coordinating the work, managing subs, handling permits and inspections.

But then they also mark up what they're paying the subcontractors. So if a plumber quotes $5,000 for the work, the GC might tell you it's $6,000, pocket the difference, and charge you their GC fee on top of the inflated number.

Bad contractors use change orders as standard business practice, bidding low initially to get the job and making up profit by demanding more money through change orders GreatBuildz. The double-dip is the cousin of this strategy.

Is it legal? Usually yes, if not explicitly prohibited in the contract. Is it ethical? That's where opinions diverge.

Your Protection:

Some contractors will provide cost-plus contracts showing actual sub costs plus their markup. Others won't. If transparency matters to you, address it upfront: "I expect to see actual sub bids and a transparent markup structure."

But here's the reality: most contractors won't agree to full transparency because they consider pricing proprietary. Which brings us to...

When I was 15, I worked a summer job at my dad's construction company. I basically swept the shop and sorted nuts and bolts, but I struck up friendships with the diesel mechanics who were always there, working on various machines.

One day I noticed Lester putting a very large and expensive ratchet in his own tool bag - he didn't know I saw him - and walking out.

That evening at dinner I told my dad, "I think Lester is stealing tools from you."

"I know he is," Dad said.

I was shocked. "Are you going to fire him?"

And then Dad said something that has stayed with me to this day: "When the value of the tools he takes plus what I pay him outweighs what he is worth to me, I'll fire him."

Wow. What a lesson.

The Larger Context

Here's the uncomfortable truth about contractors and money: construction is a brutally difficult business with thin margins, endless liability, constant cash flow problems, and clients who often don't understand what things actually cost.

Some contractors genuinely don't know how to price jobs correctly. They underbid to get work, realize halfway through they're losing money, and scramble to make it up through change orders or creative billing. It's survival, not malice.

Some contractors are working with clients who are impossible to please, who change their minds constantly, who hold payments for trivial reasons, who expect Architectural Digest results on a Craigslist budget. Those contractors start building padding into their bids as protection.

And yes, some contractors are simply crooks who prey on homeowners' lack of construction knowledge.

Know how your contractor might be sticking it to you, but evaluate their behavior in the larger context. If your projects are delivered on time and on budget, you have a rare breed - even if they're making a few extra points on material markup or padding their GC fee a bit.

If they're screwing their subs? That's on them, not you. If they're providing quality work, meeting deadlines, and staying within budget, the exact internal mechanics of how they structure their pricing is ultimately their business.

But if they're vanishing with deposits, borrowing licenses, cancelling insurance, or filing false liens? That's not gray area territory. That's fraud, and you should respond accordingly.

Before hiring any contractor:

During the project:

Contract Language That Protects You:

On change orders:

"All change orders must be submitted in writing with itemized costs for materials and labor before work begins. Change orders exceeding $500 require approval. Contractor agrees to charge reasonable prices based on documented costs plus standard markup not to exceed [X]%."

On licensing and insurance:

"Contractor warrants that all licenses remain active and in good standing throughout project duration. Contractor agrees to maintain general liability insurance of at least $1 million and workers' compensation insurance as required by law. Contractor will provide updated Certificates of Insurance monthly upon request."

On lien waivers:

"Before each progress payment, Contractor will provide signed conditional lien waivers from all subcontractors and material suppliers who have performed work or provided materials to date. Final payment will not be released until unconditional lien waivers have been received from all parties."

On delays:

"Substantial completion is expected by [DATE]. For each week of delay beyond this date not caused by weather, permits, or homeowner-requested changes, the contract price will be reduced by $[AMOUNT] as liquidated damages."

The Encouragement

Don't let this article terrify you into never hiring a contractor. The vast majority are honest people trying to do good work and make a living in a difficult industry. According to surveys, roughly 1 in 10 Americans have experienced contractor fraud NCOA - which means 9 in 10 haven't.

Your job isn't to be paranoid. Your job is to be informed and protected. Good contractors won't object to reasonable protective measures because they understand the industry has bad actors and homeowners need safeguards.

Do your homework. Document everything. Structure your contract intelligently. Pay attention to red flags. And remember that the cheapest bid is rarely the best deal.

The goal isn't to catch contractors cheating - it's to create a relationship where cheating isn't necessary or possible, where expectations are clear, where both parties are protected, and where good work gets rewarded fairly.

Most contractors just want to do the work, get paid reasonably, and move to the next job with a good reference in their pocket. Help them do that by being a smart, fair client who's hard to cheat and impossible to scam.

And if you encounter the other kind? You'll know what to do.

One more thing: I've compiled a zip file of useful contractor documents that I've built up over years of doing hundreds of flips - including the Construction Agreement template I use, lien waiver forms, change order templates, and payment schedules. You can download the entire Contractor Docs package from the Quick Tips website completely free with no obligation. There's no form to fill out, no hoops to jump through - just download what you need and use it. Consider it my contribution to keeping you from learning these lessons the expensive way. Click here for the Contractor Docs.