Builder Due Diligence: Questions to Ask Before Paying a Deposit

Tiny home fraud is not a hypothetical risk. In one widely reported case, a California builder collected millions of dollars in deposits before shutting down in September 2024, leaving customers on the hook for loans on homes that were never built.¹ A separate Texas case involved more than 100 alleged victims and roughly $1 million in losses.⁴ Most buyers who lose money to a bad builder aren't careless — they simply didn't know which questions actually protect them. This guide covers those questions, based on patterns identified across multiple fraud-prevention resources and real reported cases.

1. Payment Structure Red Flags

• Any request for 100% payment before work begins is a serious warning sign.³
• Legitimate builders typically structure payment in installments tied to milestones — for example, a portion upfront, a portion at the start of building, and a portion at completion.³
• Some states legally limit how much a contractor can request upfront; check your local rules.⁴
• Be wary of pressure to use unfamiliar lenders the builder recommends, rather than your own bank or credit union.¹
• Payment requests via wire transfer, cryptocurrency, or peer-to-peer apps are a red flag; secure methods like credit cards or true escrow services are standard among legitimate businesses.²

2. Verification Questions to Ask Directly

• Are you licensed and bonded in the state where you operate, and can you provide documentation?⁴
• Can I see your workshop or homes currently in progress, in person or via live video call?³
• Can you provide references from recent, completed projects I can contact directly?^2,4
• What is your company's registration status with state or federal authorities?²
• What happens, in writing, if the project is delayed or costs increase?⁵

3. Warning Signs in How a Builder Communicates

4. Verify the Photos and Listings Are Real

A common scam pattern involves stolen photos: scammers copy a legitimate builder's marketing images and advertise the same home at a lower price on social media, then disappear after collecting a deposit.^2,6 Run a reverse image search on any listing photos before contacting an unfamiliar seller, and always verify you're on the builder's official website or a channel you found independently, not one that found you through an unsolicited message.^2,6

5. A Price That Seems Too Good Should Raise Questions

A price significantly below the market rate, without a clear and verifiable reason such as a liquidation sale or disclosed defect, is one of the more consistent fraud indicators across the cases we reviewed.³ So is any builder promising an unusually fast custom build at an unusually low cost — verify the feasibility of any claim that sounds better than what every other builder is offering.³

6. Due Diligence Checklist

1. Confirm licensing and bonding directly with your state's contractor licensing board, not just the builder's word.
2. Insist on a written contract detailing materials, timeline, total cost, and payment milestones before paying anything.
3. Use a managed escrow arrangement or milestone-based payments rather than full payment upfront.
4. Speak with at least one past customer directly, not just testimonials on the builder's own site.
5. Reverse-image-search key photos if you found the builder through social media or an unfamiliar ad.
6. Check Better Business Bureau records and independent review platforms, not just the builder's own website.