How to Vet a Contractor for a Flip

Start with license and insurance

Licensing rules differ by state and sometimes by city and by trade. In some places a general contractor needs a state license above a certain job size, while electricians, plumbers, and HVAC techs are licensed separately almost everywhere. Look up your own state and local requirements, and then verify the license yourself on the licensing board website instead of taking a photocopy on faith. Check that the name matches, the license is active, and the trade it covers matches the work you are hiring them to do.

Then ask for proof of insurance, and get it sent to you directly from the insurance agent, not just handed over by the contractor. You are generally looking for general liability coverage and workers compensation for any employees. Why does this matter? If a worker is hurt on your property and the contractor has no coverage, a claim can land on the property owner. If the contractor damages the neighboring house, you want their policy answering, not yours. Ask to be named as an additional insured or at least a certificate holder, and read what the certificate actually covers.

If a contractor says they use subs for everything, ask who those subs are and whether they carry their own coverage. A crew of uninsured subs under one insured name is not the same protection. Do not skip this step because the person is friendly or came recommended. Paperwork is cheap to check and expensive to skip.

References, and how to actually use them

Ask for the names of recent clients, ideally from jobs similar to yours, and go see completed work. Photos can be borrowed, but a house you can walk through is harder to fake. If the contractor has done flips for other investors, call those investors. Ask whether the job finished on time and on budget, how change orders were handled, whether the crew showed up consistently, and, importantly, whether they would hire them again tomorrow.

Ask pointed questions rather than general ones. Instead of asking whether they were happy, ask what went wrong and how it got fixed. Every job has problems. What you are looking for is how the contractor responded: did they own it, communicate, and fix it, or did they disappear and blame the weather. Also ask whether the final bills matched the original bid or whether surprises piled up.

Look for a track record in your area too. A contractor who does good work but regularly takes weeks to pull permits in your city may be a problem. Check whether permits were pulled on their past jobs; your local building department may have public records. A contractor who consistently avoids permits is putting your sale at risk, because unpermitted work can surface at inspection or during the buyer appraisal.

• Verify the license on the official board site and match the trade to the job
• Get the insurance certificate directly from the agent and read what it covers
• Call at least three recent clients and visit one finished job
• Ask what went wrong and how it was handled, not just whether they were happy
• Check local records for permits on their previous work

A written scope that leaves no room to guess

Most contractor disputes start with a vague scope. If your contract says renovate kitchen, you and the contractor each picture something different, and the difference ends up in a change order. Write the scope room by room and line by line: demo, framing repairs, electrical, plumbing, drywall, flooring, paint, trim, fixtures, and cleanup. Specify materials by grade or model when it matters, and say who buys what. If you want a specific tile or a certain brand of water heater, write it down.

Get detailed bids from at least three contractors using the same scope sheet so you are comparing the same thing. The lowest bid often leaves things out, and the highest may be padding. When bids differ widely, ask each contractor to walk you through the gap. Sometimes you learn that one of them noticed a problem the others missed, like a failing sewer line or a questionable roof, which is exactly the kind of thing you want to know before you close.

Put the rest in the contract: start date, a target completion date, how change orders are approved in writing before the work happens, who pulls permits, who handles cleanup and debris, and what happens if the schedule slips. Have an attorney review your standard agreement once so you are working from something solid. Verbal promises about timing and price are worth what you paid for them.

Draw schedules that protect your money

Never pay a large percentage up front. A small deposit to cover initial materials or mobilization can be reasonable in some jobs, but the bulk of the money should be tied to completed work. A draw schedule breaks the project into stages, such as demo done, rough-in complete, drywall complete, finishes complete, and final punch list, with a payment at each stage that matches the work actually finished.

Inspect before you pay each draw. Walk the property, take photos, and compare the work to the scope. If permits and municipal inspections apply, tie some payments to passing inspection. Hold back a final portion, often called retainage, until the punch list is complete and everything is cleaned up. If a lender is funding the rehab, their draw process may dictate part of the schedule, and an inspector may be sent to confirm progress.

Keep payments traceable. Pay by check or bank transfer from the business account, never cash, and write the property address and draw number in the memo. If you pay for materials directly to a supplier, document it and adjust the contractor price in writing. A contractor who insists on cash, or who needs the next draw before finishing the last stage, is telling you something about their finances.

Lien waivers and the paper trail

In many states, contractors, subcontractors, and suppliers who are not paid can file a lien against the property, even if you paid the general contractor in full. That means a general contractor who pockets your draw and fails to pay the plumber could leave you with a lien problem when you try to sell. Lien rules vary significantly by state, so ask your attorney or title company how they work where you are.

The standard protection is collecting lien waivers with each payment. A waiver is a signed document in which the contractor, or a sub or supplier, acknowledges payment and releases lien rights to the extent of that payment. Common practice is a conditional waiver with the payment, and an unconditional waiver once the money has cleared. Get a final waiver from the general contractor and from the major subs and suppliers before the last payment. Your title company will likely ask about this at closing anyway.

Keep every contract, change order, invoice, waiver, permit, and inspection record in the property folder. If a dispute ever arises, or a buyer asks for documentation of the work, that folder is your defense. It also helps your appraisal and resale story: a documented renovation is more believable than a verbal one.

Red flags worth walking away from

Some warning signs show up early. A contractor who pressures you to sign today, will not put anything in writing, or asks for a large payment before any work starts should make you pause. Be careful with anyone who cannot or will not show a license or insurance, who suggests skipping permits to save time, or whose references are all unreachable. A bid dramatically below everyone else is usually a bid that will grow through change orders.

Pay attention to behavior during the sales process, because it predicts the job. If a contractor is slow to return calls before they have your money, it will not improve after. If they badmouth every previous client, the pattern may include you. If they overpromise on schedule, ask for specifics on how many crews and how many days, and see if the answer is believable.

It is fine to start small. Give a new contractor a modest job first, like a bathroom or a punch list, before trusting them with a gut rehab. The investors who keep good contractors for years almost always began with a test job, paid on time, communicated clearly, and treated them as partners rather than adversaries. Good contractors are busy; being a clean and reliable client is how you earn priority.

• Pressure to sign immediately or pay a large deposit
• No written contract or a vague scope
• No verifiable license or insurance
• Suggestions to skip permits
• Cash only, or requests for payment ahead of progress
• A bid far below every other bid