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How Much of a Down Payment Should You Give a Contractor?

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Handing over hard-earned money to a home improvement contractor who hasn't even started a job makes most homeowners nervous, but too few question how much a down payment should be, and too many pay too much upfront.

A request for a down payment is not a red flag signaling problems are ahead. Often the cash secures your spot on the contractor's schedule or is used to purchase some of the job materials in advance. It is a red flag, however, if the contractor asks for the full project cost upfront.

But how's a homeowner to know what the right down payment price is? Surveys of contractors who are highly rated on Angie's List, consumers and industry experts all point to consumers needing to first know the project cost and then being prepared to negotiate a fair down payment.

A good practice is to never put down a large down payment — more than a third of the project's total cost — until the contractor arrives onsite with the materials needed to start the job.

"Oftentimes, customers want to give us money when they sign the contract because they want to make sure we'll be there to do the job and they want us to know they're sincere, but we don't do that," said Kim Wolfe of Morning Star Construction in Warren, Penn., whose company typically asks customers for a third of the payment due upfront and the rest upon completion.

"We make sure we're on the job and starting before we'll collect anything. I recommend that to all consumers. We get calls from people after another contractor took their money and they never see them again."

Some states have strict down payment laws. The California State License Board, for example, limits down payments to 10 percent of the total home improvement contract price, or $1,000, whichever is less. Pennsylvania's "Home Improvement Consumer Protection Act" limits down payments to one-third of the total contract price, plus the cost of special materials on jobs more than $5,000.

Most states, however, do not have regulations in place, meaning there is wiggle room for both the contractor and the homeowner to negotiate a fair down payment.

More than half the contractors who responded to a nationwide Angie's List poll said they are willing to negotiate on down payment terms. Many also said they are willing to work with homeowners to establish payment schedules based on targeted completion dates.

On more expensive jobs — those with a total cost exceeding $20,000 — Wolfe's company asks for incremental payments. Typically, it's a third due at the start, a third halfway through and the final third due upon completion. Homeowners should always hold back the final payment until they have inspected the completed project and are satisfied with the quality of the work. On smaller jobs, the company might not ask for a down payment at all.

"Payments are always outlined in the contract," Wolfe said.

Ryan Love, owner of By Him Construction, does mostly custom remodeling jobs that require special materials. Because of that, Love requires a 50 percent down payment for those jobs.

"A lot of what I do involves special ordering custom work, whether it be French doors or cabinets that need to be put into production," Love said. "Once it's it production, I've bought that cabinet or door. I know a lot of people feel like 50 percent is too high, and it's a trust issue, (but) I come recommended; I can be researched. My philosophy is, I'm not soliciting the consumer. The consumer is soliciting me. It's a touchy situation. Consumers are scared of giving money to people that they don't know, and rightfully so. But I'm scared of working for you when you just called me out of the blue to come do a $5,000 job and then pay me for it. Why do I need to fund your home project?"

What's important, Love said, is that customers research their contractor before ever handing over any money.

"I talk to people all the time that have horror, nightmare stories, because the homeowner didn't do their research first," Love said. "They're calling complete strangers into their house. I wouldn't give someone 50 percent down either, unless I did my research on them."

Angie Hicks is the founder of Angie's List, the nation's most trusted resource for local consumer reviews on everything from home repair to health care. To find out more about Angie Hicks and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

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