Myth: Unlicensed Contractors Are Bad Guys

unlicensed contractors versus licensed contractors

A general contractor is a crucial part of the homeownership, so you need to make sure you’re working with experienced professionals. Unfortunately, many people have fallen into the habit of equating “experience” with licensing when it comes to hiring contractors for home construction or renovation projects. This assumption is not necessarily valid. So, here are a few things you need to know about the differences between hiring a licensed versus an unlicensed contractor, and why those differences show that the latter is, indeed, not as bad as other media might portrait.

What Does it Mean to be a Licensed Contractor?

When a contractor is licensed, they have the authority and legitimacy to claim to be a professional in the construction industry. The license serves as proof that the individual has reached specific standards in their industry during their work to acquire the license. Of course, as they proceed in their professional work, they are expected to uphold these same standards and adhere to those that are newly introduced throughout their career. Why do so many attribute this to being “good” or “trustworthy,” though?

Well, to acquire a license for a contractor is a costly, time-consuming endeavor. Requirements vary slightly by state; however, they generally obligate the contractor to complete the following work:

  • Pass a trade exam, business, and/or law exam.
  • Document hours worked to show proof of experience. (Number of months/years may differ between states. Many states ask for evidence of four years of experience as a journeyman or foreman).
  • Acquire general liability and worker’s compensation insurance.


Please take note that they may also need to follow additional rules and complete even more professional milestones due to local laws applicable to contractors. While this type of commitment certainly does reflect a commendable level of responsibility and dedication to their trade, it is not exclusively representative of “goodness” or “fairness” in their services. After all, there are exceptions across states as to who is legally required to have a license versus who is not. (For example, contractors in South Carolina are only required to be licensed for projects exceeding $5,000.)

Unlicensed Contractors

If you have been in the construction trade, you will notice many unlicensed contractors are just as skillful in their trade as the licensed ones. In many cases, the difference boils down to the unlicensed ones don’t speak English as well as the licensed ones, or they don’t possess the understanding of the laws as the licensed ones do. While the licensed contractors know the consumer protection laws, many of them don’t really work with their hands – they hire skilled workers to do the jobs. Therefore, I won’t be surprised if an unlicensed contractor is actually a front line worker for a licensed contractor.

Hiring a Licensed vs. Unlicensed General Contractor

One of the major reasons why it is highly encouraged that you get a licensed contractor for construction projects is because of the contrasting levels of resource accessibility afforded to licensed versus unlicensed contractors. The licensed general contractor has displayed their capacity and integrity to work within their trade in the process of obtaining the license. They have also met insurance standards, among other things, to maintain it. This means that they probably will not cut corners on their work, just as they did not cut corners in their prior experience and education. 

With this licensing, the contractor will not have to hide from authorities that distribute penalties for lack of insurance, fines for the absence of specific certifications, and similar issues. An unlicensed contractor, on the other hand, may not have the same number and types of certifications. So, they may be forced to cut corners here and there. This is not necessarily indicative of the unlicensed contractor’s capabilities or integrity or even their ability to work. Instead, it is reflective of the resources available to them due to exceptions in the law or other insurance or legal caveats. 

With this in mind, you can feel comfortable hiring an unlicensed contractor for small jobs without being afraid that the job will be done inadequately. Refer to the legal licensing standards above as they relate to costs: In Alabama, contractors are legally required to procure a license for projects costing more than $50,000. In California, on the other hand, they must be licensed if they plan to work on any project that costs more than $500 to complete. 

When You Might Hire an Unlicensed Contractor

Let’s say you need a bathroom renovated. You’ve done the math, and it will not cost any more than $4,000, including potential surprise fees. If you are a resident of North Dakota, then you don’t have to look for a contractor with a license, as $4,000 is the cutoff for those who are legally allowed to work without licensing. In Maine, however, you don’t have to worry about hiring a contractor with licensing at all! General contractors are not legally required to hold a state license to practice in their trade. They are only obligated to provide a written contract for their work for all projects exceeding $3,000. 

Here, you can get your bathroom renovated, and the work will be completed to an equal standard of excellence, no matter which of the two you choose. Imagine, secondly, that you need a home repair, but have a bit of a tight budget to work with. Unlicensed contractors are more suited to meet your needs within the constraints of your finances, as they are often able to perform work with lower quotes. 

They do not have the same overhead costs as a licensed contractor (i.e., fees associated with maintaining the license, primarily), so they have more wiggle room in their pricing. Still, this isn’t enough to justify always choosing an unlicensed individual over a licensed contractor. By choosing the former, you forfeit the following legal and insurance protection for your construction project:

  • Compensation for Injuries or Wrongful Death: If you or another third party is injured on the site of construction, general liability insurance protects you by providing compensation. Unlicensed contractors may not have this insurance, and there is no license to confirm it. Without it, you will be unable to hold them legally responsible for injuries or wrongful death. 
  • Compensation for Damages: If the contractor or their employees damaged your home during the construction project, general liability insurance would provide compensation for this as well. Without it, you will face challenges in holding them legally responsible for the damages and collecting payment for your case.

Although there are instances in which it would be suitable to choose an unlicensed contractor versus a licensed one, it’s usually best to seek the latter. This way, you don’t have to fear any legal or financial repercussions, should there be an accident. You’ll have the protection afforded by the licensing law, with as few worries as possible. 

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