Contractor wants a 50% Deposit
Member since 2022 · 40 posts · 13 votes
Contractor wants a 50% Deposit
Most Popular Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes^^^What @Account Closed said. NEVER give 50% up front. If he says materials are at that 50% number, ask to see a quote from his supplier.
And he does not buy 100sf at a time....he will/should buy it all at once.
This is a big warning...think about it - if an established Contractor does not have enough capital to but a few grand worth of wood, or does not have an account at any supply houses or lumber yards.....are you sure you want him anywhere around your property?
71 Replies
- Rental Property Investor · San Diego, CA · Member since 2015 · 16 posts · 46 votes4yUnless you have a long term working relationship, most contractors are using your money for unearned work to pay for the last job they completed. If nothing is in the pipeline, they are out of $$. I'd recommend setting up a draw system paid weekly, but NEVER pay more than 65% until the work is done. If they bail on you, the next guy coming in to fix their mess will charge a whole lot more as the job will be too small at that point. I was just burned on a plumber on a $6500 job; I paid materials separate and gave him $3000 up front. Needless to say a 1 week job became 9 weeks and he stopped answering phones. Stupid me paid $3000 up front; Smart me would have given him 10% after the first day of work and paid accordingly.
- Lender · Lewis, CO · Member since 2017 · 218 posts · 159 votes4yPrevious experience is a big factor, but life always happens. The reason people say don't pay a contractor up front is because when life happens to them you don't want it to happen to you as well. Even someone who's done work for you in the past can have problems and end up leaving you holding the bag. Trust but verify is a good concept to think about. You need to always hold people accountable. Think of the concept of security for a debt. What is your security that this person will perform? If they don't want to be held accountable in a fair way then that is a red flag. The guy trying to press the ego button with a comment like "it's only $7500, not a big deal" is also a red flag. Was he like this for past projects? If not then why the change? If so then why are you posting here?
Secondly, I've never paid a contractor anything up front. Most recently we built a $250,000 shop. We were $70,000 deep before we even wrote the first check; one of the checks we wrote AFTER the work was done was $105,000. Experienced contractors have credit with suppliers and don't have to pay for many things right away. Someone who can't carry $7500 with a supplier is missing something, or they don't want to do it for you. Whatever is going on it doesn't all add up. - Real Estate Agent · Ulster County, NY · Member since 2020 · 201 posts · 173 votes4yThis is a red flag to me. 50% is very high for a deposit. Not saying this is the case, but often times when they ask this much it's because they need your money to finish another job, which means in order to finish your job they will have to do the same... this is a sign that they struggle with managing their cash on hand. So try to renegotiate if you can, if not, I'd find someone else. Plus a dollar today is worth more than a dollar tomorrow. Always best to keep more cash in your pocket now...
Hope this helps. Good luck! :) - Member since 2022 · 40 posts · 13 votes4y
@Paul Marthaler This I am sure is good advice for new contractors, and I was foolish for not abiding by it in the beginning, but this last project I actually paid him 70% as a DEPOSIT and he finished the work. The first job, I paid him 45% up front, and he did likewise (I said 50% and 40% in a previous post, but just looked back and realized I underreported). Yes, I was an idiot for doing it, and it could have gone very differently.
- Realtor · Asbury Park, NJ · Member since 2019 · 63 posts · 44 votes4yGet a new contractor.
- Member since 2022 · 40 posts · 13 votes4yThank you all for letting me know what I should expect in the future. I was not sure what the general standard was.
- Flipper/Rehabber · Phoenix, AZ · Member since 2018 · 268 posts · 152 votes4y
I'd personally NEVER agree to that. My contractor get's 50% at 50% completion and the remaining 50% at full completion of remodel.
Your playing with fire and I believe your gut is telling you not to do it but you don't have a relationship with anyone else.. best of luck.
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes4y
Putting up a 50% deposit to a contractor and hoping his word is good is about equal to putting up your cash, placing it on black, and hoping for the best. Is that really how you want to run your business? Many, many people have advised against this and it appears you have ignored the advice and hoped for the best asking about what recourse you have if he runs. Reading those text messages tells me even more and affirms the sentiment to not pay anyone 50% upfront. Not sure what state you are in but here in CA, such a deposit would be illegal and the contractor could face penalties, including losing his license for doing so. 10% or $1,000 is the max deposit on any contract. Of course the contractor could than get draw #2 on day 1 when they arrive with labor and/or materials per the draw schedule which should be part of the contract and itemized out with specific progress payments and what the payments are for (should be based on completion of specific tasks).
If you continue your business with these gambles, do not be surprised when you get burned, you have been warned many times in this thread. The contractor telling you $7500 is really not that much is a huge RED FLAG.
- Rental Property Investor · Tallahassee, FL · Member since 2017 · 38 posts · 15 votes4y
I'm am surprised at how many people have said 50% is not a normal deposit. I've worked with contractors in Virginia, California and Florida in the last couple years, and at least one in every state has asked me for a 50% deposit -- which I haven't thought twice about and have not had any issues with. I've never heard of the supposed law of $1,000 or 10%!
But looking forward to hearing an update about how everything works out for you @James Sloan
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Jake Moran:
I'm am surprised at how many people have said 50% is not a normal deposit. I've worked with contractors in Virginia, California and Florida in the last couple years, and at least one in every state has asked me for a 50% deposit -- which I haven't thought twice about and have not had any issues with. I've never heard of the supposed law of $1,000 or 10%!
But looking forward to hearing an update about how everything works out for you @James Sloan
Then you've been working with shady Contractors without knowing. IF they are licensed then they know the law. And it's just not very smart to give a Contr that much of your money before they have done the work.
The $1000/10% is the law in Cali, not sure about Fla. VA allows 33% max as a down payment. Makes ya kinda wonder about Contrs that knowingly work around the law......
- Investor · Maggie Valley, NC · Member since 2020 · 284 posts · 85 votes4y
Note: this is my actual account. The other one was temporary, because I had issues with this one.
It is going pretty well. Images are posted below. We are going to sand the ceilings and refinish the floor so that all of the interior wood has a more natural look to it, and then apply clear coat to the flat surfaces, and a darker hickory stain to the trim.
- Real Estate Agent · Springfield VA · Member since 2018 · 479 posts · 400 votes4y
Talk to more contractors. I interviewed 8 for my first renovation project and I am glad I did. I could compare the scope of work needed. Also, comparing prices was helpful as they were vastly different. It is key to ask how big the crew is and how long is the will the project take. I personally gave 10% to start the project and 10-20% gradually until project completion I liked that method of pay. It all worked well.
- Rental Property Investor · Tallahassee, FL · Member since 2017 · 38 posts · 15 votes4y
@Joaquin Camarasa you ever talk to or work with Joseph from Karbyte Contracting? That was my main guy when I lived in northern VA. I could be mis-remembering but I think he charged 50% up front whenever I worked with him, and he was most definitely NOT shady, contrary to many commenters' assumptions. (We also put in a few offers to buy a flip together, but it never worked out before I moved away.)
- Member since 2023 · 4 posts · 0 votes2yThis is ridiculous advice.
Quote from @Bruce Woodruff:
^^^What @Account Closed said. NEVER give 50% up front. If he says materials are at that 50% number, ask to see a quote from his supplier.
And he does not buy 100sf at a time....he will/should buy it all at once.
This is a big warning...think about it - if an established Contractor does not have enough capital to but a few grand worth of wood, or does not have an account at any supply houses or lumber yards.....are you sure you want him anywhere around your property?
- Member since 2023 · 4 posts · 0 votes2y
Quote from @Daniel Hennek:
Previous experience is a big factor, but life always happens. The reason people say don't pay a contractor up front is because when life happens to them you don't want it to happen to you as well. Even someone who's done work for you in the past can have problems and end up leaving you holding the bag. Trust but verify is a good concept to think about. You need to always hold people accountable. Think of the concept of security for a debt. What is your security that this person will perform? If they don't want to be held accountable in a fair way then that is a red flag. The guy trying to press the ego button with a comment like "it's only $7500, not a big deal" is also a red flag. Was he like this for past projects? If not then why the change? If so then why are you posting here?
Secondly, I've never paid a contractor anything up front. Most recently we built a $250,000 shop. We were $70,000 deep before we even wrote the first check; one of the checks we wrote AFTER the work was done was $105,000. Experienced contractors have credit with suppliers and don't have to pay for many things right away. Someone who can't carry $7500 with a supplier is missing something, or they don't want to do it for you. Whatever is going on it doesn't all add up.Some contractors are only willing to get beat for 50, 60, 70% rather than the full agreed upon contract price. Why should the contractor be the one taking all the risk? I'm licensed with the state, have insurance and a bunch of overhead and have reviews online showing that I have a bunch of satisfied customers. With a little bit of your time you can find out a whole lot about me and my business. The customer? I know nothing about them and am taking a giant leap of faith that they're the kind of person who keeps their end of the deal and pays their bills.
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votesOk, I'll bite.....which part of it.....?
Quote from @Mike Thomas:
This is ridiculous advice.Quote from @Bruce Woodruff:
^^^What @Account Closed said. NEVER give 50% up front. If he says materials are at that 50% number, ask to see a quote from his supplier.
And he does not buy 100sf at a time....he will/should buy it all at once.
This is a big warning...think about it - if an established Contractor does not have enough capital to but a few grand worth of wood, or does not have an account at any supply houses or lumber yards.....are you sure you want him anywhere around your property?
- Lender · Lewis, CO · Member since 2017 · 218 posts · 159 votes2y
Quote from @Mike Thomas:
Quote from @Daniel Hennek:
Previous experience is a big factor, but life always happens. The reason people say don't pay a contractor up front is because when life happens to them you don't want it to happen to you as well. Even someone who's done work for you in the past can have problems and end up leaving you holding the bag. Trust but verify is a good concept to think about. You need to always hold people accountable. Think of the concept of security for a debt. What is your security that this person will perform? If they don't want to be held accountable in a fair way then that is a red flag. The guy trying to press the ego button with a comment like "it's only $7500, not a big deal" is also a red flag. Was he like this for past projects? If not then why the change? If so then why are you posting here?
Secondly, I've never paid a contractor anything up front. Most recently we built a $250,000 shop. We were $70,000 deep before we even wrote the first check; one of the checks we wrote AFTER the work was done was $105,000. Experienced contractors have credit with suppliers and don't have to pay for many things right away. Someone who can't carry $7500 with a supplier is missing something, or they don't want to do it for you. Whatever is going on it doesn't all add up.Some contractors are only willing to get beat for 50, 60, 70% rather than the full agreed upon contract price. Why should the contractor be the one taking all the risk? I'm licensed with the state, have insurance and a bunch of overhead and have reviews online showing that I have a bunch of satisfied customers. With a little bit of your time you can find out a whole lot about me and my business. The customer? I know nothing about them and am taking a giant leap of faith that they're the kind of person who keeps their end of the deal and pays their bills.
It sounds like you need to find out what a mechanics lien is...
- Member since 2023 · 4 posts · 0 votes2y
Why should a contractor take 100% of the risk, especially at a time like right now when material costs have skyrocketed? At the end of the project, the contractor is still at risk of not being paid the other 50% or more (depending on the down payment amount) of the agreed upon contract price.
It's easy to gather all kinds of information on a contractor to determine if they have a history of being trustworthy and doing good work. The customer? The contractor is taking a giant leap of faith and has no idea if that customer has a history of not paying their bills.
I understand the argument that 50% may be too much, though I don't believe it is in many situations, but I get it. The down payment amount I require varies and I've never had pushback or lost a customer because I require one. For bigger companies that feel they can take the risk more power to them but to imply that a business that does require one shouldn't be trusted is just silly. - Member since 2023 · 4 posts · 0 votes2y
Quote from @Daniel Hennek:
Quote from @Mike Thomas:
Quote from @Daniel Hennek:
Previous experience is a big factor, but life always happens. The reason people say don't pay a contractor up front is because when life happens to them you don't want it to happen to you as well. Even someone who's done work for you in the past can have problems and end up leaving you holding the bag. Trust but verify is a good concept to think about. You need to always hold people accountable. Think of the concept of security for a debt. What is your security that this person will perform? If they don't want to be held accountable in a fair way then that is a red flag. The guy trying to press the ego button with a comment like "it's only $7500, not a big deal" is also a red flag. Was he like this for past projects? If not then why the change? If so then why are you posting here?
Secondly, I've never paid a contractor anything up front. Most recently we built a $250,000 shop. We were $70,000 deep before we even wrote the first check; one of the checks we wrote AFTER the work was done was $105,000. Experienced contractors have credit with suppliers and don't have to pay for many things right away. Someone who can't carry $7500 with a supplier is missing something, or they don't want to do it for you. Whatever is going on it doesn't all add up.Some contractors are only willing to get beat for 50, 60, 70% rather than the full agreed upon contract price. Why should the contractor be the one taking all the risk? I'm licensed with the state, have insurance and a bunch of overhead and have reviews online showing that I have a bunch of satisfied customers. With a little bit of your time you can find out a whole lot about me and my business. The customer? I know nothing about them and am taking a giant leap of faith that they're the kind of person who keeps their end of the deal and pays their bills.
It sounds like you need to find out what a mechanics lien is...
Well aware of what a mechanics lien is but I appreciate the advice. My goal is to do a job, get paid and move to the next one, not spend my time fighting to get paid. Minimizing risk has served me very well in life.
- Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes2y
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votesThe states that require contractors licenses generally only allow you to get $1,000 or 10% whichever is less as an actual down payment. And that is fair.
Quote from @Mike Thomas:
Why should a contractor take 100% of the risk, especially at a time like right now when material costs have skyrocketed? At the end of the project, the contractor is still at risk of not being paid the other 50% or more (depending on the down payment amount) of the agreed upon contract price.
It's easy to gather all kinds of information on a contractor to determine if they have a history of being trustworthy and doing good work. The customer? The contractor is taking a giant leap of faith and has no idea if that customer has a history of not paying their bills.
I understand the argument that 50% may be too much, though I don't believe it is in many situations, but I get it. The down payment amount I require varies and I've never had pushback or lost a customer because I require one. For bigger companies that feel they can take the risk more power to them but to imply that a business that does require one shouldn't be trusted is just silly.
Now as soon as a contractor shows up with materials and his crew and his subs, yes your darn right the customer better start forking over some money. When I say down payment I am only talking about money received prior to the contractor doing anything.
And I never had a large company, just 10 of my own employees plus the subs....
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