Playing by the rules—carrying insurance, getting licensed, paying taxes—is an expense reputable custom home builders bear. When low-cost, unlicensed, and uninsured competitors take work away from us, we experience frustration at the very least. But the consequences for homeowners who contract with such builders can be far worse than frustrating. This is the story of a couple who didn't understand the envelope of protection they would have gained by hiring a legitimate professional.

The Somersbys had recently purchased a lot in a gated subdivision where they wanted to build a home. They'd never built or remodeled before and knew little, if anything, about the process or cost. On the advice of their real estate agent and friends they had met with several highly regarded architects and builders to discuss their project. These professionals came highly recommended and knew the subdivision and local building requirements well. But according to “do-it-yourself Jack” Somersby, everyone they spoke with “wanted an arm and a leg” for their services. Potential home-building clients for both architectural design and contracting services, the Somersbys had not found anyone to hire to get their project off and started.

The subdivision was bursting with building activity and several projects were being constructed on their street, including one right next door. The Somersbys had watched this house jump right out of the ground. During visits to their lot, they had often exchanged pleasantries with several of the tradespeople working next door. They'd even talked with the general contractor about their project but had been unable to come to terms on price and construction timetable. Their lot sat lonely and vacant while everything around it buzzed with productivity.

During one of their visits they had befriended one of the carpenters on the framing crew working next door. For the purposes of this column, I'll refer to him as Jim Dandy. He had been a carpenter for many years and had a wide range of experience in home building. He'd been a framing foreman for the general contractor but had been demoted from that position due to an alleged drinking problem. In the last six months, though, Jim's performance had been exemplary, and he was well on his way to regaining his old job as a foreman and team leader.

One day after work, Jim's employer took him for a cup of coffee to discuss his performance. The meeting went well, and Jim was ecstatic to learn that he was being promoted to his former position. He was disappointed, however, that the pay was equivalent to his previous rate as foreman. “I'm really pleased that you're offering me my old job back, but I really feel that my experience and efforts lately have been overlooked. I feel that I deserve another $300 per week,” Jim affably responded. “Jim, you're right, you're a valuable member of the team. But right now I can't offer you the additional money. We'll revisit this at your annual personnel review in four months, OK?”

Jim nodded in approval, but his mind and ego were in complete disagreement with his boss. It was time, he decided, to take the plunge and become his own boss, become a general contractor.

Jim called the Somersbys and explained his situation. He offered them a deal with benefits for both parties: They could be his first client, and he would build their house on a cost-plus basis for cash. Everybody saved money. No paperwork. No cash records. No overhead costs.

To the Somersbys, this was a godsend. They trusted Jim. He was tried-and-true, had lots of experience, and over a period of several months they had grown to really like him. And … he was going to work for cash and save everybody money. No messy wage withholdings, sales taxes, liability policies, workers' comp insurance, contractor overhead, etc. And no paper trail to lead to those pesky taxes.