Contractor requesting 50% Upfront

192 Replies

@Alex Varner never under any circumstances. Does he have a business card that says Charles Shwab? He will most likely spend it to Fix his truck or to pay labor for another job. No matter how reputable the contractor, never give anything up front. I’ve been burned by even the most recommended and reputable Companies, and more Times than I care to admit. Order materials on your credit card. He can call you from the store and you give your card over The phone. Only pay labor in phases once completed and satisfactory...and drop un announced and frequently to your job site. Another thing to think about with deposits is how contractors always end up in the hospital or crash their truck or have something crazy happen to them in the middle of your job. What if you give them a 50% deposit and that happens? Good luck trying to get it back...

@Alex Varner   we typically do a 40/40/20 split.  So the day we arrive to start the job you pay 40% of the quote. Then once the floors are finished or the cabinets are installed, which ever comes first, we bill another 40 (Drywall, and all the rough-ins are done at this point).  Then once the job is completely done and you're happy we bill the last 20.  You could bring that up to him if that makes you more comfortable.  

If the contractor was a referral from someone, you're probably alright.  If he wasn't, then you're KIND OF rolling the dice.  If he has a legit company, pays insurance and all that, then you're probably fine.  It's not common for contractors to screw people over, at least around where I live, but there's always a few bad apples.  The contractors that typically screw people over are the ones that aren't running legit company's.  Therefore, they can charge lower prices which some people tend to gravitate to, and there's not a big consequence to them like it would be on a legit company for screwing someone over.    

Ask him what his contractors # is and look it up.  If he's registered, you're probably fine but it's not guaranteed.  If he doesn't have you sign a contract that should be a red flag.  It doesn't have to be some long lengthy lawyer wordy type of contract.  Just something saying you're paying this and he's doing this.  

It is OK to hire Chuck in a Truck as long as you know him and/or he comes with good references, but I don't see any scenario where I am prepaying him for a job.  

I'll go buy the materials, if needed, that is fine.  But there has to be motivation to hit those progress payment goals and get his crew paid. 

I would not pay 50% up front. Offer to pay the vendor for the materials up front and pay the rest as work is completed. A lender would not give a down payment, so why would you? 

Also, get a copy of their insurance with your company listed on it, a copy of their license and workers comp. also get 3-5 references 

There is never a reason to pay 50% up front before someone has done any work. With that said, he’ll then solve the issue. Offer to pay for materials or pay immediately upon completion of work.

1/3 down is pretty much standard. If you can, put everything on C.Cards, buy the material yourself, pay in stages, and a write a deterrence clause imposing a penality of 500.00 per day if not completed on time. Works well. Best to use referenced contractors. Go to a local REIA and talk to rehab groups that are local to you. Good luck and sorry you had a bad experience.

Alex,

There is a number of things you can do.

1. verify the contractor and also ask for references for recent work he did. Google the person or verify their phone number is not a google number...

2. you can also write checks directly to the vendor for material purchase and pay the labor as you go...

3. you can also select bigger or reputable company and pay 50% upfront.

Good luck!

@Alex Varner Contractors today are far and few between. Anyone asking for 50% upfront might be trying to pull a fast one on you. Ask for justification ask to why he needs the 50%. Is it for materials or rental equipment needed for the job? Usually a house rehab should start with demolition and that only costs the contractor time and a few bucks to dispose of the waste. If I were you I would integrate a scope of work and schedule to ensure work is progressing and to allocate payments accordingly as work is performed. And an upfront payment of 10% is more than adequate for a contractor to get started.

What's your instinct tell you ? Me I would say "have a nice day " If your asking me to buy the materials and I'll pay you in tranches as the work has stages to complete ... such as demo, prep, installation, finish work , clean up and complete.

Just have a clearly spelled out contract and that he is licensed and insured.  Always helps to have a copy of his driver's license just in case he tries to take the money and run.  50% is standard though to get the job started. 

You are certainly entitled to your opinion.  I do not buy materials and pay labor costs for a job without the customer having some skin in the game to ensure they don't screw us.  It is hard enough getting customers to pay their final payments when work is completed.  There needs to be a fair and equitable arrangement for everyone.  But again, you'r entitled to your opinion. 

@Alex Varner

There are too many variables with your question. Are you referencing a general contractor for a large scale project, or specific trade contractors? Perhaps you are referencing a handyman. In any event, a deposit is not out of the norm.

A GC may have to provide a deposit to their subs, buy materials and upfront labor. The difference between the new GC and a seasoned one is their cashflow.

I am an electrical contractor, and if you want to get on my schedule (3 weeks booked out) it will require a deposit, typically 30 to 50%. This is for jobs 3k or more. Jobs not bid and under the 3k threshold are billed at time and materials +25%.

When I first ventured out on my own, I had zero cashflow, zero money saved, and zero reserve funds. I could not pay for your materials and struggled to put food on my table. There are many reasons a contractor may need a deposit.

There is so much work right now and fewer people getting into the trades, you will see more and more, the requirement for a deposit, especially with first time relationships. As you continue to use the same contractor and their is an established repoire you may not need a deposit with future jobs. Their are just as many dead beat real estate investors and just as many slum lords trying to take advantage of fledgling contractors as their are shady contractors. Their is a reason a mechanics lien is a thing and a reason anyone hiring a contractor should ensure they have a contract and expectations are spelled out.

Times are only going to get more difficult hiring contractors in the future. This evidenced by the labor rates. Supply and demand is impacted exponentially because the diminishing number of trades people. The average age of a licensed electrician in the state of New Hampshire is 57, with many retiring in the next few years. In my region, I am seeing other electricians billing out at $125 per person, 2 person minimum and a 2 hour minimum.

If you are not comfortable witha 50% deposit for a trade, I suggest you drop everything and start an apprenticeship. Rates are going to continue to rise as availability decreases. Your projects will have to adjust timelines.

StephenGallagher

I'm surprised people are not utilizing escrow accounts for these matters (protects both the contractor and the customer). i don't care how large a job is. a reputable contractor should have means to procure the materials and start on the job without a customer subsidy. then, like others had mentioned, present proof of work completed/materials acquired and get paid based on that. 

Originally posted by @Alex Varner :

Hello,

I have a contractor that is requesting 50% of what he quoted the job up front. It isn’t a super large sum of money, but I’m curious on what type of things I should do/look for to protect myself. As of now all I have for information on the guy is his phone number.

Thank you!

Dont walk , run or even better bolt from there . Please...

wow, good job getting so many replies...

I have been a part of 4 successful contracting companies and have successfully completed over 4 dozen flips with 3rd party contractors, It's not a cookie cutter scenario, if you're just starting out or in a remote location your option may be limited, but if you're in a contractor abundant area and you have some experience and credibility then NEVER pay ANYTHING upfront you must lay out your SOW on a detailed schedule and have that contractor agree. sign. and execute on that agreement at a 200$ per day fee if its not met. You must establish expectations and follow through. Once job is completed you then go over anything that may need to be fixed and include a variance. Then if job is successfully completed then pay 100% for the job completed as outlined on the SOW. If a contractor can't front the cost of material to get a small job started then he obviously is not a successful contractor. but again it all comes down to trust and credibility on your side as well. If you are doing large commercial jobs that is also different etc.

Originally posted by @Stephen Gallagher :

When I first ventured out on my own, I had zero cashflow, zero money saved, and zero reserve funds. I could not pay for your materials and struggled to put food on my table. There are many reasons a contractor may need a deposit.


 Good post, but this part irked me. It's not my responsibility to subsidize your business ventures. You don't go into business with empty pockets or with a notion that somebody owes you money upfront for 0 work done. 

@Victor S.

You are welcome to that opinion, but it is no different than a first time investor piggy backing on someone else's deal or using someone else's money for their investment.

It is all perspective.

When I first started my electrical business I had nothing. I used every tool in the box and offered them all to my customers. I let them buy materials, I let them shop with me, I even let them help me. My money should not be funding your project.

Starting any business is a leap of faith and if you want to succeed you will do whatever it takes to keep forward progress. Being upfront, honest, and open, have been the keys to my success. Most legitimate negotiations have a give and take.

1/3 deposit, 1/3 at rough inspection , 1/3 at finish inspection is a great model on most bath, kitchen, addition jobs 3-10K. More than that the draw schedule is a good practice.

I often remind myself there are three sides to every story, ours, theirs and the real one.

I am appreciative to those customers that were easy going enough, and trusting enough to help get my electrical business afloat. Knowing my customer base also afforded me the ability to conduct business and reap the rewards of many satisfying referrals.

StephenGallagher

a. How did you come across this contractor? any personal reference? How long do you know this contractor? are they licensed & insured? How's their social media rating? Do they care enough about their public/social media reputation? 

b. You should have a rough estimate if the material cost would need 50% down to begin with. What stopping them to ask another big deposit before finishing your job? Will they have enough motivation to finish the job on time? 

You have to be able to address these questions before proceeding. 

Working with unprofessional / cheap contractor is worse than working with best-value  professional contractor.

Good luck. 

Originally posted by @Stephen Gallagher :

@Victor S.

You are welcome to that opinion, but it is no different than a first time investor piggy backing on someone else's deal or using someone else's money for their investment.

It is all perspective.

When I first started my electrical business I had nothing. I used every tool in the box and offered them all to my customers. I let them buy materials, I let them shop with me, I even let them help me. My money should not be funding your project.

Starting any business is a leap of faith and if you want to succeed you will do whatever it takes to keep forward progress. Being upfront, honest, and open, have been the keys to my success. Most legitimate negotiations have a give and take.

1/3 deposit, 1/3 at rough inspection , 1/3 at finish inspection is a great model on most bath, kitchen, addition jobs 3-10K. More than that the draw schedule is a good practice.

I often remind myself there are three sides to every story, ours, theirs and the real one.

I am appreciative to those customers that were easy going enough, and trusting enough to help get my electrical business afloat. Knowing my customer base also afforded me the ability to conduct business and reap the rewards of many satisfying referrals.

StephenGallagher

 Agreed. Not everything is black and white, and there should be exceptions. Trust is very hard to come by these days. All the best in your biz!

Another alternative that I have utilized both as a contractor, and as a GC who has to utilize subs at times, it breaking the job up into thirds.  1/3 to secure the job, 1/3 at a designated portion of the work being completed, and the final 1/3 upon completion.  

Having said that, when dealing with customers or sub contractors that I have a relationship with, these distributions are unnecessary.  With our plumber for example, we pay him 100% upon completion depending on the scope of the job.  If we are doing full plumbing and heating in a house, we give him half to gather the appropriate materials and half upon completion.  

You have to utilize judgement, and take into account the relationship with the person in question.  A one size fits all approach will prove to be counterproductive in the long run. 

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