Contractor deposit ??

Question

How much of a deposit/percentage is "customary" to give a contractor to rehab a house?

Or do you not give deposits at all? I have a Scope of Work, a Contractor Agreement with spelled out draws and project end date with per diem penalties.. just not sure if a deposit if necessary??

I know states like California have a law that it's $1000 or 10% whichever is less.

Account Closed · Answer

@Ruth Bayang  No deposits.  You go by your "spelled out draws".  It sounds like you've set it up wisely. Good luck!

Elliot S. · Answer

I always say go with your gut.

Personally my deposits vary greatly depending on the job and people involved, down here we can pretty much do any deposit both parties agree on, new customers are 30% minimum just to get a start date set in stone on paper.  I mostly do it for my protection, down here we have a lot of people that keep getting bids after setting terms with a hand shake (not on paper) then go with the lowest bidder.  If actually costs a good chunk of change when you schedule a rehab taking someone's word and they back out.

I have some larger investors that always do 50% down balance on completion or 30% down 30% at a set point balance on completion.

With all that said I work with a few we do mostly light rehabs for that I don't even bother with a deposit if it's under $2k in material costs, most those are quick rental turnovers that we do almost annually (paint in and out, tile all floors if not already done etc).

All that said I usually try not dragging out draw schedules to far since I try getting most houses done ASAP, last house we did was under 2 weeks start to finish, that included a kitchen, 2 baths, tile throughout, paint in and out as well as a lot of little fixes.

Tatiana R. · Answer

This amount is absolutely correct for California. I don't know what it is in Washington, but I would not exceed this amount if you don't know. A reliable contractor would not ask you to exceed the legal amount, fyi. The deposit is there for the Contractor to be assured that the owner is vested in their services. Yes, that deposit does come off the cost of your project. We consider it the first step in our Draw Schedule.

It may be used for initial supplies, but - please consider - if your contractor's banking situation is so tight that they NEED the deposit, I would be leery. I would be concerned that if they don't know how to budget their personal life, what are the chances of them doing a good job budgeting my project?? Expect to pay what the law requires and no more.

Be sure to check your contractor's license number prior to handing over the deposit. After that, you should (as you explained that you do) have a clear outline of what work needs to completed (Draw Schedule). Hope this helps.

Best $$$ to you!

Scott Price · Answer

Sometimes it depends upon whether or not the contractor requires a deposit to pay for initial materials in advance, though the labor (+ future materials) component gets addressed in the draws.  Just be sure to check the contractor's reputation, as always.

Also make sure the deposit gets used up in the early draw schedule and does not "float" through your entire project.  You should have a significant enough amount owed at the end so the contractor is always incentivized to complete everything to everyone's satisfaction before getting that final draw.  If your "deposit" floats through to the end, then this may unwittingly cover that final draw in advance of the final draw, and the incentive would be lost.

So, a deposit is not "necessary" and like most things it is negotiable.  But a materials deposit can be a normal policy/requirement for some contractors so that they can get a new project started plus reduce the chance of them not receiving funds from you in time for their own payment schedule to their suppliers.

Best Regards,

Scott Price