Risks of Hiring Unlicensed Contractors

Risks of Hiring Unlicensed Contractors

The facts and the resulting risk we just introduced may be sufficient to discourage most consumers from using an unlicensed contractor. But I’ve pledged to be as open and honest as possible in reviewing these issues and we don’t want to ignore the sole underlying reason as to why a consumer would even consider using unlicensed workers – the question of price.

Many consumers still hire unlicensed people on the theory that they will charge less than a licensed contractor.  That theory is based upon a number of both valid and not-so-valid assumptions. Examples of these assumptions include:

  • Government regulations result in additional costs to licensed contractors that are passed on to consumers
  • Everyone else who has a license (doctors, lawyers, architects, engineers, etc) have high rates; partly in order to recoup their investment in education and experience
  • As an advanced college degree is not required to be a licensed contractor, the work is really very simple so there’s no real difference between the licensed and the unlicensed contractor.

There is an element of truth to each of these assumptions.  For example, a license must be renewed on a regular basis to remain valid at a current cost of $360 ($30 per month). The government also requires that licensed contractors carry a license bond in the amount of $12,500 – easily obtainable for under $600 ($50 per month). Other government fees like a city requiring a business to buy a business license or pay for job permits have nothing to do with whether or not the contractor is licensed. Bottom line – there is a cost for the license but it’s pretty minimal.

Here’s a Rule-of-Thumb backed up by over 30 years of contracting experience. For low-cost jobs that require a minimum of expertise, unlicensed contractors can usually do the job cheaper. But for anything that requires any reasonable level of complexity (like remodeling or adding a room) or a special skill set (like air conditioning, plumbing or electrical work) there is very, very little difference in price between qualified experienced contractors. Check it out and you’ll find that the real difference in price is based upon factors completely unrelated to their license status like whether or not they’re carrying acceptable insurance policies and how much they spend on marketing and lead generation. We’ll explore those factors extensively in future articles but let’s close this post regarding licensed vs. unlicensed contractors with the following Alert direct from the California Contractors State License Board website:

Alert

Be advised that unlicensed individuals pose a risk to you and your family’s financial security. They expose you to significant financial harm in the event that a worker is injured while on your property, if your property is damaged, if the work is incomplete and/or faulty. Few, if any, unlicensed individual has bonding or workers’ compensation insurance. The quality of their work usually doesn’t compare to that of a licensed contractor. Don’t take the chance in order to save a few dollars. You’ll probably end up paying more in the long run.

Next, we’ll investigate how to investigate – a license that is.

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