Last Payment to Contractors- what % of job cost and when?

Question

Hey guys--

what is your rule of thumb for general contractors with how much of the total job cost you pay them at the end (in terms of a % of overall job cost), and when do you pay it?  i.e. after final punch list, after you've had all inspections from permits you've pulled, after the property is under contract and buyers home inspector inspects it (I assume that's too long to wait), or some other way

I am having contractors looking for payment before I am comfortable paying, so I want to know what recommended practice in this area is.

thanks for any help

Kevin Priester · Answer

Johnathan....if you are feeling uncomfortable about paying a contractor,  then definately hold off...In the future you could let your contractors know that you will be holding 10% of your contract price until your final inspection AND after you receive a lien release from them and all their subs...this is a common construction practice so a legitimate contractor should not put up a fight about this request....its to protect you.

Rich Weese · Answer

Jim- it varies. You're talking about a small job with a small time contractor. Most don't have a lot of extra cash. You can rite a contract that protects both parties.You won't need pemits or CO's for the jobs you've listed. Protect yourself on these deals. Lots of horror stories out there for people paying up front.

On my TX subdivision, I pay 5K up front. This pays for permit, plans approval and water hookup. I normally pay approx 4-5 draws based on progress of home. Final draw is after CO is obtained and ALL work is approved. A CO may be obtained without carpet and a few other items being completed, so be prudent. Good luck. Rich
p.s. If you want some help with a contract, just ask here on BP. You'll receive suggestions, and they should be free.

Dave Barnard · Answer

You may want to check with your state's contractor licensing agency to verify your states laws. Here in CA, the law requires a written contract for any home improvement project over $500.00. In the contract there must be a DETAILED, written payment schedule in the contract. The payments to the contractor cannot exceed the value of the work performed (with the exception of the down payment). Also the down payment cannot be more than one thousand dollars ($1,000) or 10 percent of the contract price, whichever is less, for a home improvement job.
With that in mind, have your contractor word the pre-agreed upon payment schedule in the contract. Let your contractor know up front verbally that your final payment will be 10% of the contract price and will not be paid until final inspection by city inspectors (or your own inspection). If he does not agree to this then you'll have to find another contractor or re-negotiate. Just make sure whatever you agree upon is in writing and that your contractor is not violating any state laws.

Rich Weese · Answer

Jim- never let the amount paid get ahead of the work done. That is a sure way of them not taking the money and running. They certainly don't need 50% up front. On most jobs, that will pay ALL the materials. They only need a portion of the materials money at a time. Good luck. Rich

Kevin Priester · Answer

That is great advise Mike.....Jim you really should not give any contractor 50% up front..Find a new contractor...

Mike G. · Answer

50% upfront sounds very risky to me.  Too easy for them to delay the job or walk and leave you hanging.  I have granite countertops and flooring put in with no money paid until the job is finished.  I'd say look for other contractors.

Jim Stardust · Answer

Rich, what kind of protections can you put in a contract if someone is willing to take the money and run?

Jim Stardust · Answer

What about contractor that want to do a single job, like put in a flooring or install a countertop, I'm in the mix of hiring two installers and they're both asking 50% upfront, though one lives down the street from me.  The other one needs the money to order carpet from a wholesaler, I doubt he'll want me to pay the wholesaler myself?

Will Barnard · Answer

Kevin gave a great response. Just as important, never pay a contractor upfront for anything until after the first week of work is performed (at least for major jobs, some jobs are only a few days).
Some dishonest people will ask for some ridiculous 50% upfront, that should be a red flag. never pay that kind of money upfront and if they want money for materials to start, have them give you the item list and then go pay for it at the store where the items will be purchased.

Also, Kevin pointed out that you should receive a lien release from your general and any and all subs. This is very important!

Last Payment to Contractors- what % of job cost and when?

Most Popular Reply