Demand for payment up front sets off alarms

angieslist.comJanuary 9, 2013 

Question: I am having my house re-sided and the contractor cannot do it until the spring. The contractor wants me to provide him with a cashier’s check for the full amount of the job for him to hold until he does the job next May or June. I’ve already given him (a deposit). – Charles B., Williston, N.D.

Answer: Please do not give this contractor any more of your money! Unless the job requires special materials that the contractor needs to order in advance, your contractor should not need additional money up front.

Many contractors ask for a deposit, or down payment, of some sort to hold your place on their schedule or to pay for some materials in advance, but consumers should never pay the full amount in advance. In a nationwide poll of service companies on Angie’s List, the average down payment reported was about one-third of the cost of the total job. Nearly 75 percent of the contractors polled also said they are willing to negotiate on down payment terms.

I recommend homeowners always tie payments to progress on the job. For example, pay one-third of the project cost up front to secure the job and cover the materials, then another third once the materials are delivered and work has begun and the final third once the job has been completed and to your satisfaction.

Payment terms should be clearly spelled out in a contract signed by both you and the contractor. Be sure the contract includes a termination clause, in which you can cancel the job without penalty should the contractor fail to meet guidelines established in the contract.

Some states have specific laws related to down payments. In California, for example, contractors are not allowed to take a down payment of more than $1,000 or 10 percent of the cost of the job, whichever is less. In your case, North Dakota requires contractors who take down payments to finish jobs within 90 days of an anticipated completion date included in a contract. If the contractor and customer do not establish a completion date, the job should be finished within 180 days of the contract being signed.

That your contractor is asking for all of the money up front in a cashier’s check but can’t perform the work for six months is a big red flag to me.

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