This is especially applicable in hiring an unlicensed contractor.
To start, it is important to know when a contractor’s license is required. In California, if a job costs $500 or more in labor and materials, a contractor’s license is required. The requirement is not met simply by having a contractor’s license, but the right kind of license. For example, hiring someone with only a roofing contractor’s license to rewire your home is the same as not having a license at all.
To begin with, it illegal in California for a contractor to work without a license. It is also illegal to hire an unlicensed contractor to perform work which requires a license. There are some serious ramifications as a result. For example, insurance might not cover you should an unlicensed contractor be injured while working on your property. Just as serious is that if the unlicensed contractor does a project and damage occurs at a later date, the insurance company will likely not pay out due to the work being done without a license. So, if your roofing leaks and the house sustains $100,000 of damage, it might come out of your pocket.
If the job is a larger project then it is usually a project subject to CAL/OSHA safety regulations. If a worker is injured the homeowner can find themselves in a lawsuit by the injured worker.
A contractor who is unlicensed would also not be able to pull the necessary permits to do the work you are hiring them for. If a project is done without permit there are no inspections and quality usually drops off. In addition, if work is performed without a permit the City may require you to tear out all of the work you just built since they cannot verify the materials used or how the work was performed.
All things considered, the temptation of the lower priced job is the same as the sirens in Greek mythology, luring you in to crash upon the rocks.