• Does not list a number in the phone book. This may indicate a fly-by-night operation. They may seem legitimate in the beginning, but after you make your first payment for the job they may vanish.
• Asks you to get required building permits. Contractors should provide all necessary permits. If they don't, they may not be licensed or registered properly under the requirements of your state or locality. You may want to call the state licensing board for verification.
• Only accepts cash. A legitimate business should have appropriate financial accounts and should accept a variety of payment options from clients, including personal checks and credit cards.
• Solicits door-to-door. Most legitimate contractors find enough work through word of mouth referrals or a service such as Home Advisor. If they need to drum up business by going door-to-door, they probably are not an established, local operation.
• Says you will get a discount if you find other customers for that contractor. A good contractor's work should speak for itself. If the contractor has to provide you with an incentive, they probably haven't worked for other customersor the customers they have worked with have been unhappy with their work.
• Uses left over materials to complete your job. Legitimate contractors order enough supplies to meet the needs of each job and the price for supplies is typically included in the contract. If a contractor has materials left over from a previous job and is making them available to you, he either didn't finish the job or is cheating the previous customer.
• Tells you your job will be a demonstration. Some contractors may even offer you a cash bonus to let them use your house as a model. Established contractors should have completed enough previous projects that they won't need your job as a demonstration. If they do, this could signal the contractor is not experienced or is running a sham business.
• Offers exceptionally long guarantees. The contractor may be making promises that can't be kept, solely to sucker you into hiring him/her for the job.
• Asks you to pay for the entire job up front. This contractor will be long gone well before your project gets underway.
• Suggests you borrow money from a lender the contractor knows. If a contractor does suggest you borrow from a specific lender, this could indicate a home improvement loan scam. To protect yourself from this scam, never agree to a home equity loan if you don't have enough money to make the monthly payments. Don't sign documents that you haven't read or that have blank spaces that will be filled in after you sign. Don't let anyone pressure you into signing a document and don't deed your property to anyone.

Protect yourself from fraudulent operations by doing the following:

• Read and understand every word of a contract before signing. If you don't understand something, ask for clarification.
• Never sign a contract with a service professional who makes promises that sound too good to be true. Chances are this service professional needs to create these incentives to attract customers.
• Be wary of service professionals who try to scare you into signing for repairs that they say are urgent. Before agreeing to any additional costly repairs, seek a second opinion.
• Proceed cautiously when a lender or contractor demands a lien on your property. If you've taken out a loan for less than $7,500 to complete the project, a lien should not be necessary. Shop around for a more reasonable loan or a less demanding contractor.

-- by Leticia Stefens, reprinted courtesy of HomeAdvisor.com