Why a Licensed Contractor Matters

by Serena Solomon

A licensed GC brings protection and accountability to your project

Before After kitchen

You’ve spent months, even years, dreaming up your home renovation. You’ll want to hire a licensed*, experienced, and professional general contractor to execute the remodel. Make note that the term “licensed” can also be referred to as registered or certified.

*An important note: Sweeten contractors are fully licensed in states that have licensing laws. Some states in the United States such as Texas does not license contractors.

Renovations can stretch budgets, making it tempting to go with a lower quote from someone who is unlicensed. However, in the long run, this can cost you more—in some cases, a LOT more—if anything goes wrong or the work isn’t up to par. Renovation matchmaker Sweeten vets all the contractors in its network, and checks in on the project until it’s completed. Cities, states, and towns have varying degrees of requirements for a licensed contractor, but chances are, if you’re hiring a licensed general contractor he or she will likely:

  • Be required to have insurance
  • Be required to be bonded
  • Have gone through a criminal background check
  • Have taken and passed a contractors’ exam

Here’s why every home remodel should be done by a licensed building professional:

When do you need to hire a licensed general contractor?

  • Projects in New York City that require a license include basement conversions, demolitions, bathroom or kitchen remodels, and wall additions. Specialty skills such as an electrician or plumber must have their own license that is specific to their trade even if they are operating as a subcontractor.
  • In California, a licensed general contractor is a must for any project above $500. Electrical and plumbing trades must also be licensed for jobs over $500 and are required to take a different exam from a general contractor (more on that below).

Check your local building department

The maximum value of a project that can be completed without a license varies from state to state and county to county. It is wise to check with your state and local building department for what project type and size calls for a licensed contractor.

In New York City, projects under $200 can be done by someone without a license. Jobs under $500 in California, such as painting can also be completed by someone without a license.

Whether you live in the suburbs or city in most areas of the country, it is very likely that all but the smallest home improvement projects, like swapping out a faucet or painting room, will require a licensed general contractor. Anyone taking on a project over your area’s minimum without a contractor’s license is doing so illegally. Besides breaking the law, there is no accountability if an issue should arise (more about that below).

You want a contractor who has insurance for your protection

Your home insurance might cover a few things, but when something goes wrong with a renovation, an average policy won’t cover everything. For example, if a bathtub is installed incorrectly and causes water damage to your floor, your home insurance might cover the water damage. However, it won’t help you when it comes to fixing that shoddy installation job.

With people working in your home, you are something of a pseudo employer. If any workers are injured while on the job in your residence, you could be vulnerable to a lawsuit.

Those reasons are why licensed general contractors are required to carry two types of insurance:

  • General liability insurance: This covers the contractor against any third-party lawsuits involving injury to a person or damage to property. For instance, if your contractor reverses into your neighbor’s car, the cost of damage is covered.

Your state, city, or county will dictate a minimum for general liability insurance. In New York City, it is $1 million. If you are remodeling an apartment, your co-op or condo board could request over and above the level required to get a licensed professional in your area.

  • Worker’s compensation: This covers any medical costs associated with a workplace injury for anyone working in your home. It also covers lost wages due to a work-related injury.
  • Do contractors need to have insurance in all states or counties? Although uncommon, not every region requires a general contractor to have all types of insurance. For example, Nebraska only requires GCs to carry worker’s compensation and not general liability insurance. Just to be safe, it is best to check what your state requires as well as the requirements in your local city or county.

A bonded contractor offers another safeguard

Many jurisdictions require licensed contractors to contribute to bonding, which offers financial help to clients often when insurance doesn’t. Bonding is a pot of money that pays out clients if a general contractor fails to complete a job, doesn’t do the job properly, or damages a home due to negligence.

Bonding is required basically everywhere. If your state doesn’t require it, then your local area will. To get a license in New York City, contractors are required to pay $200 into a trust fund with the Department of Consumer Affairs or prove they have a surety bond through a third party. In California, a bond is always done through a third party licensed by the state.  Similar to insurance, the contractor pays a fraction of the bond amount required to a third party, who agrees to pay out the full bond amount if it is needed.

In other states, like Illinois, there are different bond amounts for different types of work. For example, plumbing contractors must have a $20,000 bond, whereas roofing contractors only need $10,000. Again, as with California, the contractor pays a fraction of this amount to a third party. General contractors in Florida only need to be bonded if their FICO credit score is below 660.

Most areas conduct a criminal background check

Most areas will put applicants through a criminal background check. However, a criminal record won’t automatically disqualify someone from getting their license. It’s likely the licensing department will assess each applicant individually, weighing factors such as the severity of the crime, if it is related to an individual being able to carry out the functions of a contractor, and evidence that indicates rehabilitation.

Passing a contractor’s exam

It is common to sit for an exam before a license is issued. How difficult that test is and what questions are asked can vary greatly from area to area. In New York City, 21 out of 30 questions must be answered correctly to pass the exam and be taken by a sole proprietor or general partner owning 10% or more of the company. The questions focus primarily on the knowledge of the city’s regulations and best practices. Examples are “Must a contractor furnish a consumer with a written estimate?” and “What are the penalties for false or fraudulent representation?”

California requires two tests. One is a more general law and business examination that all building professionals must take. In 2018, more than 51,000 exams were scheduled, according to California’s Contractors State License Board. The other is more specific to a contractor’s line of work: general engineering contractor, general building contractor, or specialty contractor. The second test takes more than three hours and contains technical questions such as “According to the California Residential Code, what is the minimum allowable width of a residential hallway?”

How to check a general contractor’s license

Always request and check for an HIC number. Many areas make this easily accessible and the information is often through a city or county’s consumer affairs department. For New York City, there is an online search tool where you can check whether a contractor’s license is legitimate and current (a license in the Big Apple lasts for three years). In California, where licenses are renewed every two years, there is a similar online tool.

The United States is a patchwork of state, city and county regulations with licensing requirements differing from place to place but the process your licensed contractor will likely have had to undergo will be similar. In some cases, such as with California, licensing is handled at the state level. In other states, such as New York, licensing is mostly handled by counties. But in some cities, like New York City, it is handled at a city level.

Sweeten thoroughly vets its network of contractors including interviewing past clients, reviewing past renovations, and assessing the quality of the work. Start the path to your dream home with the right construction team and be a step closer to your dream home.

Finding a contractor who is licensed is an important first step in determining who to work with. Learn about the steps that follow in our post General Contractor 101: How to Find One and What to Expect so you can renovate with confidence.

Sweeten handpicks the best general contractors to match each project’s location, budget, scope, and style. Follow the blog for renovation ideas and inspiration and when you’re ready to renovate, start your renovation on Sweeten.

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