Should I put a down payment down on a subcontractor?

30 Replies

We recently bought our first flip and began to get estimates. One of the subs needed is a chimney repairman/tech. He recently gave an estimate for $6500 and wants $2500 down and the balance upon completion. Is it usual to require this much down, up front?

@Christine Krizenesky

Be careful there.  Not really.  Of course the contractors on these forums will tell you, yes.  But, no.  I wouldn't do that.  Offer to pay them out on day 1 or 2 when they hit a milestone goal.  If they can't afford to work for one day then you don't want to be working with them.

No, most definitely not. The materials costs of chimney repair are minimal. This guy does not need to go out and buy a ton of expensive supplies to fix your chimney, which is why he would want that kind of money upfront. I'd walk away from this.

You will hear " never pay a deposit "  . And as a contractor I always get a deposit when I sign a contract , if the customer doesnt want to , I will then thank you for your time and move on to the next job.  

@Christine Krizenesky

Yes good contractors will ask for a down payment. Would you yourself buy any materials for a job with your own money only to show up and the customer got someone else to do the work?

If you are unfamiliar with what goes into repairing the chimney, ask the contractor for a detailed estimate. All materials and labor each on its own line. If they are willing to show you what's going into the project so you understand, then you have a contractor that cares about their customer.

Originally posted by @Matthew Paul :

You will hear " never pay a deposit "  . And as a contractor I always get a deposit when I sign a contract , if the customer doesnt want to , I will then thank you for your time and move on to the next job.  

I agree with this but for this particular job, the deposit is way too high. I would check with your state laws regarding contractor deposits and see if their is a max. Here in CA, a contractor can not change a deposit on contract signing of more than 10% which can not exceed $1,000.

As a contractor, yes, I want a client to have some skin in the game and not be out of pocket too much on any job but I also understand the client also wants to be protected and not have to risk any contractor collecting a large deposit and then running off never to be seen again (a common scam in the industry).

In this case, the contractor is asking for too high of a deposit which is a red flag to me so I would either ask them to reduce that deposit or find another sub for this service. You need to protect yourself from scams.

 

@Will Barnard Thats slightly over 1/3 . In MD a deposit of 1/3 is the norm and the most allowed by law. If the repair is relining a chimney that amount covers the materials , which is entirely fair since they are cut to order .  So if the customer changes their mind the contractor isnt stuck with material they cant use and are out of pocket for . 

Originally posted by @Matthew Paul :

@Will Barnard Thats slightly over 1/3 . In MD a deposit of 1/3 is the norm and the most allowed by law. If the repair is relining a chimney that amount covers the materials , which is entirely fair since they are cut to order .  So if the customer changes their mind the contractor isnt stuck with material they cant use and are out of pocket for . 

Maryland is Maryland, CA is CA, and so on. We all know each state has different laws regarding contractor deposits. And “slightly over 1/3rd” when 1/3rd is the max is still a violation under the law if it took place in Maryland.

My point is, I felt that the deposit was too much for the job and task at hand posted by the OP and advised the OP to be careful as there are unscrupulous characters in the construction industry. A simple attempt to advise of these facts and to get another bid and opinion. Nothing more. 

@Christine Krizenesky - Kudos for you to being careful.  I agree with pretty much everything that has been said above, which is a pretty good sign that there is a legitimate difference of opinions on this issue.  A good contractor is hard to come by, but if you find one, they are a treasure worth hanging onto.  The only legitimate reason a contractor needs a deposit up front is for the purchase of materials.  If you find a contractor you like who asks for a deposit, ask them to provide you with a materials list and offer to buy the materials directly and have them delivered to your job site in advance in lieu of a deposit.


Then inspect the work they have done as soon as they are finished and pay them in full right away.  My contractors get a check as soon as they give me a bill.  After the first time I use them, they never ask me for money up front and they always answer the phone for me. 

Also, never pay for more work than is done and never give them the final payment before the job is finished - no matter what the sob story is.  The one time I did it was the one guy that burned me.  Lesson learned.

@Christine Krizenesky I've never paid a subcontractor a deposit. I will buy material, if needed, through my own HD account, and have them pick it up. I will then pay the labor costs in increments as work is completed. Thatblarg of a deposit up front is a red flag for me

Originally posted by @Brian Tome :

@Christine Krizenesky - Kudos for you to being careful.  I agree with pretty much everything that has been said above, which is a pretty good sign that there is a legitimate difference of opinions on this issue.  A good contractor is hard to come by, but if you find one, they are a treasure worth hanging onto.  The only legitimate reason a contractor needs a deposit up front is for the purchase of materials.  If you find a contractor you like who asks for a deposit, ask them to provide you with a materials list and offer to buy the materials directly and have them delivered to your job site in advance in lieu of a deposit.


Then inspect the work they have done as soon as they are finished and pay them in full right away.  My contractors get a check as soon as they give me a bill.  After the first time I use them, they never ask me for money up front and they always answer the phone for me. 

Also, never pay for more work than is done and never give them the final payment before the job is finished - no matter what the sob story is.  The one time I did it was the one guy that burned me.  Lesson learned.

Fantastic post and info in here. Great job explaining that in detail Brian. As a client, I have many subs that never ask me for the money upfront, they do the work, bill me, get paid, and keep going.

As the contractor, if I have an established client, I too do the work, invoice them, and get paid. For new clients, I certainly ask for a deposit but always within the legal limits of the law  here in CA and that client is told, shown, or given my credentials, performance history, and any referrals they need, including ability to view any number of my ongoing projects. This shows my clients that I am here, not going anywhere, and care about my name and rep.

In other words, reciprocity is key in any relationship, new or established in this business.

I have done both, deposit and no deposit. Make sure your contractor is licensed (if needed) and insured. You can ask them about the deposit, what it is for. If it is all materials especially something being custom ordered, it shouldn’t be tough to verify this. I would also have a good contract in place. None of it guarantees anything, but it’s a risk of this business.

Originally posted by @Christine Krizenesky :

@Matthew Paul

Thank you,

It looks like I’ll have him itemize everything so I know the cost of materials.

What does knowing the cost of materials matter ?   A deposit is not just for materials , its to reserve and schedule a date . Its the consideration to enter into a contract . The contractor wont show you any receipt of any kind , he will just write it down . 

 

Originally posted by @Christine Krizenesky :

@Matthew Paul

I get this as well, but it does make me think about asking to adjust the contract to put down less of an amount. Is it unheard of for someone to rewrite a contractors contract and change terms or meet in the middle, especially if you have a reputable one?

Its not unheard of , but its doubtful . Especially in the current market , contractors are busy , there is no need to drop your price . Good contractors are in demand . 

 

@Matthew Paul

@Christine Krizenesky

Matthew, are you serious?  You're asking what does the material cost matter to a customer?  On a site devoted to real estate investors!!!  I commend you for at least disclosing that you're a contractor but you can't expect people to take you seriously, in saying stuff like this.  You are after all posting on a site dedicated to real estate investors, and owners.  If you are an owner or real estate investor yourself, you of course can appreciate the value of having transparency into material costs, including but not limited to:

#1: You get to see where materials are from (sometimes tells you something about their quality, whether or not they're stolen or re-purposed, and of course, if the angel of a contractor is not marking them up 200%+)

#2: You get to negotiate on what's SUPPOSED to be the 'value-add' of what a contractor is offering: their time and supposed experience/skill-set.  Meaning, the contractor cannot 'hide' their desire to make $200/hr by obfuscating a time and materials quote where material costs are not shown

#3: Related to this OP's original question, which is: what is fair, if anything, for a deposit - well, if you as a contractor has NOTHING invested, vs. if you have to front $3,000 to come out and start work - this is a completely different scenario and that transparency would be fair and reasonable.