Contractors requesting deposit - is this standard?

[Jennifer Jacobs]

Hi Everyone,

What do you do when your contractor asks for a deposit?

My partner and I have always done our own rehab. The next project we are working on we can’t do ourselves and are looking to hire a contractor.

We’ve contacted several reputable companies and all of them are asking for a deposit of 25-50% up front.

Is this standard practice?

We’ve all heard stories from rehabbers who put down a deposit and never hear from the contractor again.

The companies we’ve contacted all have offices, professional websites, and several references that we checked.

I’m wondering how safe is it to give a deposit with a company that is established.

What has your experience been?

I understand from the contractors point of view they don’t want to do all this work and not get paid. But from the owners perspective it’s the same thing - they don’t want to pay out money for work that might not get done.

What is the best way to serve both parties so that they both feel secure?

[Sean Walsh]

Diane, I am a GC in California and that is the law here. 

Any reputable contractor is going to have accounts setup  at all of his suppliers  and typically will not have to pay those accounts for 30 days. In my opinion, if a contractor  can not float doing some work for 30 days  it speaks a lot of their financial position  and would trigger  alarm bells in my mind. I have heard of contractors out there who will ride the deposit out and as soon as it gets low they focus their efforts on the next job that gives them a good size deposit and let the other ones go on the back burner. Not good when you're trying to flip a project and get your money back! They might still get the job done, but it could be the difference of you putting your house on for the spring and summer Market versus a fall Market which could be detrimental to a sale. The more you owe the contractor, the quicker he is going to want to get the job done and the sooner you are on the market! As a contractor, my recommendation would be to keep hunting until you find someone who is hungry for the work and willing to work with you.  just food for thought as well, a contractor can put a lien on a property if he is not paid so the property cannot be sold. That might help in negotiations to mention. " do not worry, if I do not pay you when this project is done, you can always put a lien on my property and I will not be able to sell without paying you which is the whole point of this venture to begin with." :0)