General contractors want to much money prior to starting job.

50 Replies

I recently purchased a 1402 Sq ft condo in Charlestown MA. I knew the condo association was reviewing bids  for an upcoming exterior paint job and repairing rotted wood. After closing on the condoI asked if they could send me the bids. As a GC myself I like to review that kind of stuff. I could not believe my eyes. A few bids came in around 45k which I was not shocked at. I was shocked when I saw one bid as high as 102k. The biggest issue I saw on the bids was everyone wanted 10 percent down the day the contract was signed and 33 percent on the day work would be scheduled to start. Long story short we I refused to let the condo association sign anything. I have always said you can trip over a good electrician and a good plumber but finding a good GC is like hitting the lottery. Nobody should ever put down so much money prior to any work being done. I understand materials cost money but 43 percent down is unrealistic.

Agreed, especially for just paint as any established painter will have trade accounts set up. I’m lucky if I see a first check in 45 days......governmental work. 

@Josue Velney I agree. Companies that require more than 10% down scare me and prefer not paying anything upfront. Longer projects I like to set up a percentage system with them and shorter repairs remodels the job should be done quick enough that it wouldn’t matter. I’ve had friends pay for small bathroom remodels/home repairs and then they’re no longer the priority to the contractor. I believe those companies are the exception and not the rule but wouldn’t want to risk it on an investment property. Good topic! - Mike

@Josue Velney That doesnt sound unreasonable at all . 10% gets you on the schedule , covers the paperwork time and phone call time to get the job up and going .  Then 33% in the contracting world in my area , thats the norm there are permits , materials, dumpsters  and the business overhead .  As a contractor you ALWAYS work using the customers money . NEVER  let the customer get behind .  NEVER  EVER as a contractor should you finance a customers job . 

If the contractor doesnt do this he will hear " I am waiting on my draw "  " I will catch up to you on friday "  " I am having having problems with my bank "   etc etc . 

Being a contractor and being a landlord are real close , I get a security deposit up front for damages that havent occured yet . AND I get the first month upfront BEFORE they move in . 

From your post it sounds like you had estimates from professional contractors that know how to run their business . 

@Matthew Paul the GC my company hired does not operate that way. On a job that sizes he would not even ask to paid till the job is complete. If A GC has good finances he won’t need 43 percent upfront. Rule one, the person with the gold makes the rules. 

This isn't unreasonable or unrealistic.

I work in large project lending and we do 33% payouts to GC up front all the time.

My personal projects I pay out my GC 100% of the project upfront


Do you have any relationship with these people? do you have a track record to show an established schedule of how you usually do things? People will get creative with people who they believe in, but if it's just blind bids for a random customer that they don't know, then I'm surprised they aren't asking for 50% upfront.

 There is no advice or question here, you're just complaining, and complaining has a terrible return on investment.  Instead, build a relationship, start a productive conversation with these vendors and solve this problem



@Josue Velney  then those contractors arent very good businessmen . ( unless they are holding first position on a note)   Trusting a person or company to pay after you have  $ 50 K in materials and another $30K in labor plus profit .  And then they file bankrupcy .   

When I have 3 or 4 jobs running , the money is moving , subs need to be paid , so do suppliers .  I would be an IDIOT to use my funds to finance someone elses project . I could have $200 K out , owed to suppliers and subs   Thats what hard money and banks are for . 

Thats a liability on the balance sheet .

Rule number 2    No money , no work .

You are an agent , have you ever sold a house and had the buyers come to the table and say , lets get this done , And then say I will send the seller  a check in 30 days ?  

@Matthew Paul I am not a GC or contractor like a lot of people on this thread so o have no bone to pick (specifically) on this topic. I think up to 25 percent down up front is fine. I personally probably wouldn’t do more. I’ll do half up front on smaller jobs. Half up front, the rest after.

@Alexander Felice I understand what you are saying. The reason I am unwilling to pay 43 percent upfront is because I don't have a relationship with the GC. I have heard horror stories about general contractors running off with people's money never to be seen again. If you did decide to take the GC to court it would take years to get your money back plus legal fees. I currently have my GC doing the project. Win Win I get quality work on my terms. That my friend is good business. 

Originally posted by @Josue Velney :

@Alexander Felice I understand what you are saying. The reason I am unwilling to pay 43 percent upfront is because I don't have a relationship with the GC. I have heard horror stories about general contractors running off with people's money never to be seen again. If you did decide to take the GC to court it would take years to get your money back plus legal fees. I currently have my GC doing the project. Win Win I get quality work on my terms. That my friend is good business. 

I hear you 100%

BP is a great place to vent, but remember when you get hot and post, you end up with quotes like

nobody should ever put down so much money prior to any work being done

Which I don't believe you think is good blanket advice.

Go build some relationships and get this done ;)

EASY!

@Caleb Heimsoth  there are some undertones that all contractors will rip you off , they are lucky to have your work , and they are working to get drunk this weekend . They will get the deposit and you will never see them again . 

Yes there are guys that do that . The cheap unlicensed , uninsured guys . BUT they do give the " best " price 

The contractors I know and know of are first business people , they are also landlords , house flippers and investors .  they live in very good neighborhoods , built in pools , or they have a beach house and or a 45 ft sport fisherman for ocean fishing .  These are the contractors with 2 ,3 and 4 employees , not the BIG guys . Their wives are stay at home moms and some have their kids in private school .  They are GC's , plumbers , electricians and hvac . 

These are the guys that get the job done , on time , quality , and do what is agreed upon .  BUT they dont work cheap , they know the market and what a job is worth .  They didnt get there by ripping people off . 

Do they work without upfront money ?  They are businessmen , no they dont .

Rule #1: Protect your cash and your investment.

I work full time as a contractor managing $100K-$750K residential renovation projects. We ask our clients to give us $1000 retainer fee.

If a contractor asks for 10% down and 33% on the start date - he clearly does not know how to manage his finances, manage the companies cash flow and manage paying his subs.

My advice, call the next guy in the phone book.

@Alexander Felice I am a licensed GC and full time student majoring in construction management at Wentworth Institute of Technology. I asked my professor his opinion on the matter and he agreed with me. He would only give a GC that much upfront if he had a relationship. If a GC need that much upfront their business might have financing issues. Please believe I did acquire 39 units by giving out my money so freely. 

Originally posted by @Matthew Paul :

@Caleb Heimsoth  there are some undertones that all contractors will rip you off , they are lucky to have your work , and they are working to get drunk this weekend . They will get the deposit and you will never see them again . 

Yes there are guys that do that . The cheap unlicensed , uninsured guys . BUT they do give the " best " price 

The contractors I know and know of are first business people , they are also landlords , house flippers and investors .  they live in very good neighborhoods , built in pools , or they have a beach house and or a 45 ft sport fisherman for ocean fishing .  These are the contractors with 2 ,3 and 4 employees , not the BIG guys . Their wives are stay at home moms and some have their kids in private school .  They are GC's , plumbers , electricians and hvac . 

These are the guys that get the job done , on time , quality , and do what is agreed upon .  BUT they dont work cheap , they know the market and what a job is worth .  They didnt get there by ripping people off . 

Do they work without upfront money ?  They are businessmen , no they dont .

I’m not saying you’re wrong, I’m just saying this is how I prefer to do it. 

A contractor is more likely to have financial issues when he doesnt get money up front .   

ABC contracting is running 5 jobs  , extending credit on the belief he will get paid . Lots of money owed to suppliers on 30 days . Job 1 , job 2 both pay , job 3 doesnt pay owes ABC $94,000 . Job 4 and 5 are still in progress . 

Now ABC is behind at the supplier , he gets cut off , supplier puts a materialmens lien on Job 2 , and job 3 , so these 2 properties are tied up . Work on job 4 and job 5 come to a standstill because ABC cant get supplies or pay his subs . 

All because  Job 3 didnt pay . 

Contractors can have excellent finances , but they are not the bank or hard money lenders . 

 In God I trust , all others pay cash 

The 2 big mistakes contractors make is  charging too little , and not getting a large enough deposit .

Originally posted by @Caleb Heimsoth :
Originally posted by @Matthew Paul:

@Caleb Heimsoth  there are some undertones that all contractors will rip you off , they are lucky to have your work , and they are working to get drunk this weekend . They will get the deposit and you will never see them again . 

Yes there are guys that do that . The cheap unlicensed , uninsured guys . BUT they do give the " best " price 

The contractors I know and know of are first business people , they are also landlords , house flippers and investors .  they live in very good neighborhoods , built in pools , or they have a beach house and or a 45 ft sport fisherman for ocean fishing .  These are the contractors with 2 ,3 and 4 employees , not the BIG guys . Their wives are stay at home moms and some have their kids in private school .  They are GC's , plumbers , electricians and hvac . 

These are the guys that get the job done , on time , quality , and do what is agreed upon .  BUT they dont work cheap , they know the market and what a job is worth .  They didnt get there by ripping people off . 

Do they work without upfront money ?  They are businessmen , no they dont .

I’m not saying you’re wrong, I’m just saying this is how I prefer to do it. 

I dont think you are .  Deposits and pay schedules can be negotiated .

Originally posted by @Matthew Paul :
Originally posted by @Caleb Heimsoth:
Originally posted by @Matthew Paul:

@Caleb Heimsoth  there are some undertones that all contractors will rip you off , they are lucky to have your work , and they are working to get drunk this weekend . They will get the deposit and you will never see them again . 

Yes there are guys that do that . The cheap unlicensed , uninsured guys . BUT they do give the " best " price 

The contractors I know and know of are first business people , they are also landlords , house flippers and investors .  they live in very good neighborhoods , built in pools , or they have a beach house and or a 45 ft sport fisherman for ocean fishing .  These are the contractors with 2 ,3 and 4 employees , not the BIG guys . Their wives are stay at home moms and some have their kids in private school .  They are GC's , plumbers , electricians and hvac . 

These are the guys that get the job done , on time , quality , and do what is agreed upon .  BUT they dont work cheap , they know the market and what a job is worth .  They didnt get there by ripping people off . 

Do they work without upfront money ?  They are businessmen , no they dont .

I’m not saying you’re wrong, I’m just saying this is how I prefer to do it. 

I dont think you are .  Deposits and pay schedules can be negotiated .

They can but that’s likely how I do it

@Matthew Paul an owner has the most leverage at the beginning of a contract. Once he gives 43 percent down the owner loses leverage. Momma didn't raise no fool!! If a GC does not like my terms that is fine with me. I will hire another one. 

@Steve B. Lol i was using an extreme example for effect. The recommendation of the post was NEVER put down that much, i just wanted to use a similar tail example from the other side. My gc and i have done a lot of business together, its not a big deal. Also though, if further solidifies my point, have a great relationship and tons of possible solutions open up. With no relationship you gotta pay your risk up front with little wiggle room.
Any company that needs that much money up front is a red flag. I understand if the company has never worked for that client before and wants to protect themselves. But anything more than a small retainer or on large projects requesting clients put money in an escrow account is a sign to find someone else. I understand smaller companies can run a little tight, and in those cases I’ve paid for materials upfront to reduce the risk for everyone.
Originally posted by @Josue Velney :

@Matthew Paul an owner has the most leverage at the beginning of a contract. Once he gives 43 percent down the owner loses leverage. Momma didn't raise no fool!! If a GC does not like my terms that is fine with me. I will hire another one. 

That works both ways .  We only get 33% at the contract signing . If I dont ,  I the contractor loses leverage . Pop didnt raise a fool .  If the customer doesnt like our contract , they are free to look elsewhere .  

I am on my 35 th year in business , the best thing I learned over time is what customers NOT to work for . 

@Matthew Paul Agreed 100% I am a GC in Florida for 20 years...always get money upfront...ESPECIALLY with investors, flippers, rehabbers....these guys are usually the broke ones, living off draws and waiting for that HELOC to hit their account... If they dont like it?....see ya...

A long time GC company in my local area just filed for bankruptcy.  According to the newspaper they had taken five new contracts out within a week of filing--1/3 of the cost of the contract upfront.  Plus they had a 3 month wait to start a new job.  So they have been taking these large deposits for 3 months and are now out of business.  The police said nothing can be done.  Bankruptcy court has said they have no assets for unsecured claims.

And they got another 1/3 when the project started, first day.

This was an old established company but a few years ago the owner retired and sold it to a man that has a sales, but not a construction, background.  He put his wife on payroll as the CEO, his one son as media manager and the other as office director.  All at high salaries and the company does not generate enough to cover this level of overhead--and none of them work enough to justify their so called full time positions.

I know about them as I had hired them to build my boat dock and they did not follow the engineering drawings/approved permit, used number 2 lumber for supports, etc.  I had to fire them!  The owner did not know why the number 2 lumber was not as good as the number 1, did not know how to even read an engineering drawing to see what was to be built.  The builder just used the material he was given and did the best he could, but with 36 supports on the drawing and only 6 support posts delivered, and 3 of them number 2 lumber, he was not able to do the job.  The builder explained the financial situation at the company--no money for wood, salaries, etc.  I fired them, but lost on that situation with too much money upfront.  

The company continued to collect deposits with no ability to do the work.  Should have been fraud instead of bankruptcy.

Don't pay hugh amounts up front with out knowing the company's bottom line.

I am doing about $20 k work on my house (siding and new doors and rain gutters) with another contractor and he wanted a handshake upfront.  He asked for a $5k draw to pick up some custom doors when they were ordered.  That is it, and he has a lot of money in materials.  He will be done next week and I'll give him a check for everything then.  He likes to be paid that way on fixed cost jobs.

This company will be building a garage for me and a room addition on another house as cost plus.  They will give me the costs as they come up and each month and I add 17% to the costs and give them their payment.  

Old company, good business.  Honest folks!

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