Should a contractor receive 75% up front or should they be paid in smaller increments?

In Calif, the deposit can only be 10% or 1,000. I offer progress payments 30,30,30% based upon work actually performed.

Definitely not! 

  I'd do half upfront, and the rest when it's done.    Once contractors get the money, their motive to get it done quickly, or get it done correctly is gone. 

Depends on the contractor, and what sort of work is being performed.

It depends.

If you don't care that the work gets done then give him 75% upfront.

I wouldn't work with and don't recall that I've ever worked with a contractor that I paid much of anything upfront.  I don't have a problem paying as the job is completed and holding a little back, but would NEVER pay 75% upfront.

If he's buying the materials make sure he's paid for them.

@Jeff B. Thats exactly what i was thinking and i have had some say all and 75% up front. Its my first big rehab investment so im new to this part of investing

Thanks everybody for enlightening me on this because i need to make sure i call the shots so that its going the right way and the job is getting done

Payment schedule , down payments , draws , change orders , and final payment . All should be addressed  in the contract that is signed between the contractor and the customer .

BOTH parties here are trying to run a business.  I would not take a job for a person unwilling (or possibly, unable) to pay a reasonable deposit.  For me, it depends on the job.  I've never asked for 75% but if it's a small job like a standard bathroom or a roof, I usually ask for 50% down to put them on the schedule and the remainder when the job's complete.  If it's a larger job like a whole house, I prefer going 30/30/30/10 but there are lots of ways to make it fair.  I had a dirtbag realtor stiff me for $12k on a $32k job once so holding a large percentage to the end will never happen again.  Of course, I have a much better contract now also.  That said, my client is also taking a risk so it's only fair that we spread it out between us a bit. 

Hello Rose,

Everyone has provided you with very good advice. And, whether you have proceeded or not with the contractor as of date, I would like to provide the following recommendations to you.

(1) ALWAYS have a written Agreement/Contract. And, make sure the contractor is licensed and pulls permits to do the job.

(2) Within the agreement the contractor should indicate work that is to be completed, the timeline to complete each particular task, and the cost breakdown.

(3) For each particular task or work that is to be completed, the contractor should indicate within the Agreement the % of the work to be completed. (ie- Painting- 10% of the job, to be completed by X date, and cost.)

(4) Try,if you can, to hold out a 10% retainage (should be included in the Agreement/Contract) per each Request for Payment (or Draw). In other words, if they indicate that the Painting is completed and the amount owed is $650 (leave out 10% of that, which would equal $65). Retainages are a way to motivate a contractor to do a good job and to complete the job (especially in the agreed timeline). 

(5) Always do a thorough walk-thru of each phase of the project that is completed, so that you and the contractor are on the same page as to the job being completed correctly and timely. And, if the job is not done correctly, the contractor should definitely fix the issue (immediately) and definitely complete before receiving a  payment.

(6) Indicate in the Agreement/Contract a Termination Clause with Cause (list as many possible causes as possible, ie- unsatisfactory work (after the 1st time the Contractor was requested to fix or correct the task/work); not completed on-time (perhaps provide a 2-day grace period); damage to property,furniture, or fixtures; and the like.

Finally, depending on the size of the contractor, the contractor may request some type of upfront payment. The upfront payment should only be for supplies and materials. And, the costs of the supplies and materials should be itemized and written down. Perhaps, pay for the supplies/materials as the contract work is being completed. In other words, don't pay for the driveway pavement upfront when the work will not be started for 1-2 months.

I hope that the information that I provided has given you additional 'food for thought'. Much success to you in your endeavor!

@Jacqueline Peterson thank you so much for that thorough advice. Since this is the first huge rehab i am doing I really appreciate learning the right way to do it before i make any mistakes!

@Rose Davis You are most welcomed! Let me know if you have any further questions. Again, much success to you in your endeavors.

My government and commercial clients, I get 0 down and bill only completed work. For residential, I don't think I would do that, I'll be running after my hard earned money if they screw me.

@Rose Davis Absolutely not. Worse case scenario give half AFTER the materials are dropped on site. Small job only for that though. I am in the business too. I have had thousands of satisfied customers but I am only human. If they get that much up front they will not be as motivated to finish. I would likely be the same way.

I even hold out 5% at the end until after the punch list is done. That way they will be there to knock it out and not wait three weeks "because they are so busy" to get it done.

Remember, he needs you more than you need him. You are the customer.

Originally posted by @Jacqueline Peterson :

Hello Rose,

Everyone has provided you with very good advice. And, whether you have proceeded or not with the contractor as of date, I would like to provide the following recommendations to you.

(1) ALWAYS have a written Agreement/Contract. And, make sure the contractor is licensed and pulls permits to do the job.

(2) Within the agreement the contractor should indicate work that is to be completed, the timeline to complete each particular task, and the cost breakdown.

(3) For each particular task or work that is to be completed, the contractor should indicate within the Agreement the % of the work to be completed. (ie- Painting- 10% of the job, to be completed by X date, and cost.)

(4) Try,if you can, to hold out a 10% retainage (should be included in the Agreement/Contract) per each Request for Payment (or Draw). In other words, if they indicate that the Painting is completed and the amount owed is $650 (leave out 10% of that, which would equal $65). Retainages are a way to motivate a contractor to do a good job and to complete the job (especially in the agreed timeline). 

(5) Always do a thorough walk-thru of each phase of the project that is completed, so that you and the contractor are on the same page as to the job being completed correctly and timely. And, if the job is not done correctly, the contractor should definitely fix the issue (immediately) and definitely complete before receiving a  payment.

(6) Indicate in the Agreement/Contract a Termination Clause with Cause (list as many possible causes as possible, ie- unsatisfactory work (after the 1st time the Contractor was requested to fix or correct the task/work); not completed on-time (perhaps provide a 2-day grace period); damage to property,furniture, or fixtures; and the like.

Finally, depending on the size of the contractor, the contractor may request some type of upfront payment. The upfront payment should only be for supplies and materials. And, the costs of the supplies and materials should be itemized and written down. Perhaps, pay for the supplies/materials as the contract work is being completed. In other words, don't pay for the driveway pavement upfront when the work will not be started for 1-2 months.

I hope that the information that I provided has given you additional 'food for thought'. Much success to you in your endeavor!

 Awesome post. I am glad I am not the only one that asks for retainage. It should be standard across the board.

@Rose Davis , Girl! Who sent you that **** sandwich? You know better!  @Jacqueline Peterson really spelled it out beautifully. Copy and paste that into a document for you to use...forever. PLEASE...give me that contractor's name. Consider them un-officially blacklisted in our network!

PS, everyone...I know Rose personally. :) 

Jacqueline, will you copy and paste that on some other forums? It is VERY good advice. I find that it is hardest on female investors because I have heard from and been the bearer of many contractors treating me like a total idiot...because of my gender. What a value add, bravo!

Originally posted by @Meghan McCallum :

@Rose Davis , Girl! Who sent you that **** sandwich? You know better!  @Jacqueline Peterson really spelled it out beautifully. Copy and paste that into a document for you to use...forever. PLEASE...give me that contractor's name. Consider them un-officially blacklisted in our network!

PS, everyone...I know Rose personally. :) 

Jacqueline, will you copy and paste that on some other forums? It is VERY good advice. I find that it is hardest on female investors because I have heard from and been the bearer of many contractors treating me like a total idiot...because of my gender. What a value add, bravo!

What you say is very important about women trying to get bids. It is so very true. There are many who would try and take advantage like that. I tend to forget that because my wife is my partner and (used to could) hang rafters like me (still can but not nearly as fast). She came across that with subs (once each) may times in the past. They all know her now so it hasn't really been an issue for quite some time.

*a hush of sadness falls across the crowd* 

As a Hvac contracter, I dont charge anything upfront, 1000, 8000, or 20000 job. But when I hire a contractor for my rentals, they all seem to want money up front, really annoys me. Ill offer to buy materials, but thats it.

@Meghan McCallum Thank you for your kind words. And, you are absolutely correct that women investors tend to be underestimated as well as women in construction, and women in real estate development (like myself). But, from my experience in doing over $30 million in development projects, men were just a little more accomodating to me because of my ability to successfully negotiate, that I signed all of the checks, and , that I made the final decisions. Furthermore, I have learned that it is vitally important to ALWAYS have a written Agreement with terms spelled out in as much detail as possible- no matter the size of the project. It is imperative to figure out 'what-if' scenarios in order to manage potential risks. 

And, Meghan, in regards to posting my advice in other forums, I will need your recommendation as to where you think I should post.

I will continue to contribute information as much as possible and interacting with you and others.

@Mike Reynolds I would like to say thank you as well for your kind words and I am glad that we are on the same page as it relates to 'retainage'. :)

@Meghan McCallum Arksafe. That business card i sent u

beware

always use someone licensed bonded and insured

a reputable contractor will be able to perform the work with no money up front, if they demand it then that is a flag to me that they may have a credibility problem

make sure they can follow your schedule- do they have the manpower available for the project do they have the correct tools to perform and how many of these projects have they done

have a strict interview process in place when searching for a contractor

them not showing up can cost you big time

time is money

enjoy

As a contractor, my experience is that the guy asking for 75% up front is either broke today or is running bases to make it on American Greed as fast as he can. Do due ddilligece on this guy or he will probably run with your money. That said, the amount you pay up front should never be more than half. Depending on the size of the project and duration. Either way, have a contract of when he is paid and how much and both of you sign it. That way if you end up on Judge Judy you can win a lawsuit.

Certainly interesting seeing this topic hashed out from both sides of the table. We all come from different areas of the country as well and there are different issues in each area. I'm planning on expanding into the Florida market and I hope I can talk some guys from Minnesota to head down there with me. I know getting people to show up down there is a bit tougher. 

I'm going to assume that @Jacqueline Peterson , you've experienced some bad apples and have hardened your approach because of it. Sadly, I have experienced them as well which is why I also require a detailed contract now. Once bitten, twice shy.

Again, this agreement has to be a two way street for me. If you tell me your not paying a dime until work is 100% complete meaning, I alone will carry 100% of the risk on the job. I'm paying for materials, subs and labor, then when I'm 100% done, you'll pay me 90% of what you owe me as incentive to make me work harder? I'll thank you for your time, wish you luck on your project and walk away. What you're telling me is that you don't think I'm a professional and you plan to treat me like a unruly teenager through the project. Never have needed a job so bad that I'd take that. 

For the contractors out there, you too need to make sure that your contracts are as air tight as possible. We get screwed by unscrupulous customers as frequently as customers get screwed by dishonest or unqualified contractors. I learned all this the hard way. You start out with a small project that grows into a larger project, which takes more time and costs more money. Then the customer doesn't want to pay you any more for all the extra work you did AND is upset because you didn't keep the original schedule. Here are my rules of thumb:

- ALWAYS (thanks for the emphasis @Jacqueline Peterson) have a written contract and make sure the scope of work is clear and concise in that contract. For the record, by clear and concise I mean CLEAR AND CONCISE!  Any ambiguity will prevent you from drawing up accurate change orders and can easily lead to disputes. As unfair as it is, you will usually lose those disputes.

- On that note: Do not agree to or perform ANY additional work, outside the original scope of work without a detailed and signed change order. Make sure that change order includes any additional time that this work is going to take and how that alters the original completion date. If you fail to do this, you WILL get short changed in the end.

- Alway bill for those additional costs on the subsequent progress billing.  Do not wait till the last bill to get paid for these add-ons. This for one, dissuades the client from making tons of frivolous changes during the project and prevents that look of shock when you deliver your final bill. They will always have forgotten to sum up the total of all those changes they made and again, you'll be the one left holding the bag.  And it will be an empty bag.

- Always, get something, as small as it might be, up front. Customers who are unwilling to show you that amount of respect on the front side are disproportionately the ones that will beat you up on the back side as well.  You're better off moving on.

And that's my two and a half cents.

wow 75% up front...RUN!

I never pay anything up front. If that is a problem I buy the materials and I pay on progress...but then I pay IMMEDIATELY once the progress threshold is met. If the sub calls and says the framing is done, for instance, I get in the car, run over, get the lien waiver and hand him the check. Anyone that needs a pile of $$$ up front does not have enough financial ability for me to do business with them.