By Jason Valavanis, CFP 

Few financial advisors will write about this topic, and, frankly speaking, most financial advisors only write about what makes them money. But, in light of the horrific hurricane-happenings of 2004 and 2005, I felt the need to elaborate what was the most destructive form of fraud the State of Florida has ever experienced in 100 years.  We are in the midst of another hurricane season, so I felt the need to highlight this topic.  Hey folks, hurricanes are not the thing of the past.  Even if no spooky wind ruffles your feathers, you may still need a building contractor for whatever reason.

 Construction contractors come in all forms.  Most are honorable, fully licensed, and have all of their liability insurance in order, but there are a few significant issues most government and independent sources will ignore.  These most “important” matters are the underlying reasons why so many senior citizens (and younger folks) have been ripped off, financially bludgeoned, violated, and, may I say, “taken to the bank”.

 If you must hire a contractor to “renew” your palace to the “pre-storm” levels, or you insist on remodeling any part of your house, you MUST, and I mean MUST, abide by these following ideas:

 Once you have decided to hire a contractor, it is paramount that you choose one that has a strong and local history.  Do not focus on price or personality.  If you do, it will be the kiss of death.  The best price tends to be directionally proportional with the best personality.  Slick salesmen are the most likely to disappoint, so keep a keen eye.  Here is what I do to select a contractor:

 First, I demand what I want done and then I listen to their solution.  I do this three times – three different contractors.  If I feel they make sense, I ask for their price.  If the price is within reason, I insist on a copy of their local occupational license, a copy of their State license, and a copy of their liability insurance.  I demand this of all three bidding contractors.  No exceptions!  If you forgo this easy step, you are either lazy, rich or in a hurry.

 Once I have these three priceless documents from each contractor, I ask for a couple of days to think about it.  This is when I become Inspector Colombo.  I call the County, the insurance company, and the State to verify everything.  Yes, my friend, verify, verify, verify!  Once I have done all the homework, I just may find discrepancies.  I then start asking questions.  If after questioning, they give me the runaround, I politely ask them to visit Siberia at the peak of the winter. 

 Once you get these three documents, and then successfully checked them out, you must ask this one VERY important question: “Do you need any money up front?”  If they say “yes”, send them walking.  Here is why: Respectable contractors with good credit do not need money up front.  If they are decent businessmen, they will have strong credit lines with their suppliers and their banks.  With those credit lines, they should not have to pay for materials for 30, 60, or even 90 days.  So, if they insist that they need cash up front to buy materials, they are, in effect, admitting to you that they cannot maintain satisfactory credit with their suppliers, which means they are “losers”.  Basically, they are poor businessmen and you may be their next victim.  In a nutshell, you do not want to engage into a financial relationship with a contractor who cannot maintain a good bond with his bank or suppliers.  If you do, you may be paying for work not done, and even worse, paying his supplier for materials that he never paid for.

 Rarely, is the government in a position to help you in any way, simply because they are over-worked and/or complicit.   Basically, common sense, a keen eye, and due diligence is your best defense to keep yourself insulated from contractor fraud.