How Much Down Payment Should I Deposit With a Contractor?

How Much Down Payment Should I Deposit With a Contractor?

That’s a question that runs down the mind of every property owner, residential or commercial.

It is inevitable that at some point you will need to make some renovations or upgrade or build a whole new property.

That will necessitate hiring the services of an external contractor. The big question we often get as property managers is, how much should I put down as a down payment for the work?

The truth is there is no rule engraved on stone that dictates this. Everyone in the industry seems to do what they think is right. That has opened up more property owners to being fleeced by contractors who take a sizeable portion of the contract value and will either not deliver at all or no longer have the motivation to deliver the work to the expected standard.

From 25 years managing properties and as a contractor in Los Angeles here are three ideas you should consider before deciding how much to make as a down payment.

1. Is the contractor someone you know or someone who someone you know knows?

That sounds like a tongue twister. For the sake of this article, by someone, I mean both an individual contractor and an entity.

This is important for both the contractor and you the landlord. Both parties are wary of each other, mistrust is equally shared. Contractors ask for larger deposits because they are not certain or they too have been burned a couple of times by some property owners.

Working with someone you have worked with before means there is trust between both parties, you trust that when you make a down payment the contractor will not just buy materials but will also show up the next day to do the work and will actually deliver the expected job.

On the other hand, dealing with a referral means the trust is borrowed from the person referring. Which is totally different from a contractor whose number you picked off Craigslist.

When deciding how much to make as a down payment, you can extend more leeway to the person on top of the trust chain.

That in mind, consideration needs to be put on the nature and size of the job.  Idea three helps to define how you would handle this.

However, for regular maintenance works with figures of $1000-3000, I have been comfortable giving 50% as a down payment but you will get cases of even 100% payments for someone you totally trust.

However for larger projects that go into tens of thousands, hundreds of thousands or millions means that the contractor has now more dollar figures reasons to fleece you.

2. Weigh in on your state laws.

Laws are written to define structure and provide guidance to how parties in the contract.

For instance in California the law governing home improvement contracts, the Business and Professions Code section 7159.5 states, (3) “If a downpayment will be charged, the downpayment may not exceed one thousand dollars ($1,000) or 10 percent of the contract amount, whichever is less”.

There is a law for every aspect of contract, commercial or residential, big or small.

Every state has its own laws check with them if in doubt.