Crucial Differences Between Licensed & Unlicensed Contractors

Updated: Aug. 31, 2021

Choosing an unlicensed contractor comes with legal liabilities for the homeowner.

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Choosing either a licensed or unlicensed contractor is one of the first decisions homeowners have to make before starting a home improvement project, and there’s more involved here than possibly saving a few bucks.

Defining “Contractor”

The first thing to understand is that contractors are essentially coordinators. It’s a common misunderstanding, but most people who use tools professionally are not contractors. The main work of a contractor is as quarterback, orchestrating a group of tradespeople hired to do the actual work.

This distinction may be the most important issue of all when it comes to choosing a contractor, because their licensed or non-licensed status can affect your personal liability as a homeowner.

Protection Against Liability

Most unlicensed contractors do not carry liability and/or workers’ compensation insurance. This means you, as a homeowner, are financially responsible for damage that occurs to your home during construction (i.e. that new plumbing sprang a leak, kept running all night and ruined your nearly-finished new $30,000 kitchen). Lack of workers’ compensation insurance held by an unlicensed contractor can also mean you’re legally responsible in the event of worker injury or death while working on your project. In the absence of a properly licensed contractor on your job site, the courts typically consider homeowners to be the official “contractor,” fully responsible for legal and financial liability claims.

Filter Out the Riffraff

The entire purpose of contractor licensing is to reduce risk and uncertainty for homeowners. Not just anyone can get a contractor’s license and anyone holding a license has passed examinations and paid fees to get it. Sure, it’s possible that a licensed contractor can still do a bad job, and licensing should never take the place of due diligence when researching the track record of any contractor you’re considering. That said, one main advantage of licensing is that it filters out most of the riffraff.

Licensing & Honesty

The most important quality of any contractor is honesty because there are a million ways a contractor could cheat you. And, while not every jurisdiction makes licensing mandatory, when a contractor chooses to be unlicensed, does it not raise questions? Did this contractor try to pass the licensing exam and fail? Has this unlicensed contractor committed some crime that prevents licensing? If a contractor won’t structure his business properly from the ground up with licensing, what does it say about his technical judgement on your project? When a contractor chooses to be licensed, it’s a public sign that they want to do things right; they’ve proven they’re competent and have the paperwork to prove it.

So is it smart to save a few bucks going unlicensed? I guess that depends on how much you’re willing to take on extra financial and legal risks during your renovation project.