Pay Contractor In Advance
Paying a Contractor in Advance
Yesterday I received an email from Marie who lives in Massachusetts.
She asked the following question:
"I have been getting quotes to clean and stain my decks. In the quotes, they have all been saying that they want money up front (1/3 or 1/2).
I don't like this idea. Is this the norm?
They are protecting themselves, but I'm not protected at all. They are companies from HomeAdvisor."
Marie Nailed It
Unfortunately, it appears it's becoming the norm, Marie. Your observation is spot on because as soon as you give up money in this situation, you're hoping the contractor is going to come back and start the job.
You hope for things you can't control like the weather, if you might get rescued from a deserted island, etc.
You can and should negotiate the CONTROL of your home and your money.
IMPORTANT TIP: Money is the only leverage you have. It's foolish for you to base your actions on hope.
Contractors Have Rights
The contractor you're thinking of hiring and material suppliers have strong and tough rights in most states. They can put a lien on a piece of property for nonpayment of a bill for work performed or material supplied. It's NOT HARD for a contractor to place this lien on your home. It costs very little.
If you sell your home before the lien expires the contractor or material supplier AUTOMATICALLY gets their money at the real estate closing. You can't stop this from happening.
On the other hand, if you forward money to a contractor and he fails to show up or he fails to perform as promised, you have to pursue expensive legal action.
You NEVER WILL GET BACK YOUR MONEY PLUS legal fees. The law in all states puts you at a horrible disadvantage if you have to sue a contractor.
Keeping possession of your money until the promised work is complete is the only protection you really have.
Ask These Questions
When a contractor asks for a deposit in a situation where no special order materials are required for the job, you can short circuit his request by asking these blunt questions.
Don't hesitate to ask them and do it in a calm and collected manner. There's no need for confrontation. I feel these will make sense and they're fair questions to ask:
Mr. Contractor, do you pay your subcontractors in advance for work they do?
Mr. Contractor, can you tell me if you pay your employees in advance?
Mr. Contractor, do you have a charge account at local supply houses where you'll buy the materials for the job?
Mr. Contractor, do these supply houses require you to pay for my materials in advance or will you have to pay the bill in a month or so?
Mr. Contractor, when you get your truck worked on, do you pay the repair shop owner in advance? If "Yes" is your answer, what's the name of that business?
Mr. Contractor, since you don't have to pay anything in advance for my job, why are you requiring me to pay in advance?
Trust Is A Two-Way Street
A bold contractor may actually answer the last question saying to you, "I don't trust you. I don't trust that you'll pay me once the job is done."
Your immediate reply is: "Trust is a two-way street. You're asking me to trust you and your workers with my most expensive asset. If you goof up the job or don't produce the promised results, I'll be able to hire someone else who can and not be out anything but time. The money you're supposed to get will go to them."
Pros Have Little Fear
A true professional is only worried about a deposit in situations where the materials for the job are custom and non-returnable. It's reasonable for you to forward a deposit in these cases. If you want complete protection, then pay the money directly to the material supplier or buy the materials yourself and have them on site before the contractor arrives.
A professional contractor knows he'll deliver the quality you deserve. He knows you'll pay them. The professional has no fear. He's got plenty of money in his business account. He just wants you to pay him as soon as you two agree.
The Compromise
Remember, everything is negotiable. You can negotiate a fair payment plan to quash the trust barrier both you and the contractor are feeling.
Break the job into small parts and pay that part at the end of the day when the work is done to your satisfaction.
Prewrite out the checks to the contractor in his presence and show them to him. Put them in an envelope and say, "When you get each of the parts of the job done, I'll hand each check to you, even if it's at noon."
You can compromise and you need to show good faith that you have every intention of paying. Writing out the check(s) in advance is a good way to do this.
How To Hire A Pro and Pay Them Videos
Watch these four videos to see how to completely protect yourself, your home and your money. Video #3 is very important.
Trust begets trust.
This year I had a driveway put in and no upfront cost to me. I got the bill like 3 days later and I wrote out a check and sent it to him then. I also used your contractor guide for concrete to help me find the contractor. The only time recently I paid a contractor upfront for work was last year when I had a door replaced. I had to pay for the door in advance.
Correct. I'm sure the door was special order and it's reasonable for the supplier / contractor to ask for that money. I have NO ISSUES in that sort of situation.
Last summer I hired some pool installers off of Craig's LIst. They did side jobs from their normal contract work with a major pool company here in Cincinnati, claiming tons of experience and skill. It was a total nightmare and I'll never hire anyone off of Craig's LIst again. Shoddy work, unexperienced people doing the work installing the pool completely wrong. Bad news.
Angies List has been a bit better. The window installers I hired from the list were "subcontractors." They had hired people who had been recently laid off from another really bad company that had gone belly up. I had some brick removed to enlarge a window and they actually installed the brick so wrong that they had to remove it TWICE to fix it. It still looks very bad. They installed flashing above my bay window that has absolutely no support behind it so it pushes in and we got tons of bugs in the house. They provided absolutely no support for the bay window and cut a hole in the soffit and left it open behind the unsupported flashing so the stink bugs got everywhere in the house until I used spray foam to kind of seal the top of the flashing.....still pretty disgusted.
We hired a company off of Angies List to install a 225' long 8' Cedar fence and gate and they were worth every penny and AMAZING. They didn't require a dime upfront, were professional and I wish they did home remodeling.
Hi Tim, This is one of your best ever pieces of advice I have read in your posts.
We had our driveway replaced about ten years ago. The contractor asked for $1000 deposit to pay for the concrete company he had to pay in advance. He didn't come back for the rest of his money until a week after it was poured. Before that a bad storm caused the shingles & nails to lift up on about a third of our roof. The roofer didn't ask for anything. Sent his men to replace the whole roof. Two weeks later I was calling him to see when he was coming to get paid. He came a week after that. I got both of these guys from an associate who sells real estate, but I also had contacted others for bids. Maybe people should also go to a reputable real estate company an ask them who they recommend to their clients. Glad I used her recommendations.
i live in PA an we have a lot of contractors that take money up front" one third of the job cost" for jobs and don't deliver the work. the government is reacting to the problem and the one contractor that i know since he was a kid just went to jail for 16 years.
One factor not considered: the concept of "reserving" the time. Suppose a contractor agrees to do a job on relatively short notice say a week or two for example. He/She doesn't require a deposit. The homeowner (whoever) then decides to go with someone else. The contractor just lost the job and in all likelihood (depending on the job and season) the opportunity to cover that "reserved" time slot with another project.
Some might say get a signed contract. Well, yeah, however enforcing it is another story should the customer welch out. The time is lost forever if there's nothing to replace it. You can't put a lien on a canceled contract.
A deposit can be viewed as "consideration" or an agreement to act in good faith that can and should go both ways. I agree that the deposit, if necessary should be a fraction of the job.
Look at it another way - if a crew is involved and the cancellation is last minute and not rescheduled, who pays for the labor called to do the job?
We live in times that are no longer as trustworthy as they once were and it does, in fact, go both ways.
I know a contractor friend who framed an addition for a guy. They agreed on a price - no deposit - he did the work, The "guy" told him he would pay him half the cost agreed upon. Nothing was wrong with the work. The "guy" was just a plain "expletive deleted". The cartpenter (former contractor - let his license lapse as he was working for someone else for years & 40 years experience) was working under the table and the "guy" knew it. So he manipulated the carpenter. As a lapsed-licensed contractor he can NOT file a lien. The carpenter worked hard and got the job finished ahead of schedule and then was rewarded this way.
The moral of the story: It's a two way street. When labor is involved especially involving others - think twice how your going to do things otherwise you may get burned!
Tim, you and I have already talked about this, but I feel (like Ed says) trust has to go BOTH ways. It can't be that the contractor is guilty until proven innocent. It also can't be that all customers are out to stiff the contractor. Most people are reasonable, both contractors and customers.
On all special orders, we do require 100% material deposit. You already referenced that, and it's a common practice because it can't be returned.
For jobs under $5000, and no special orders, we just require a signed estimate. For jobs over $5000, we require 30% deposit. We look at it as time frame of when our expenses come in, vs. when we get paid.
We have payroll & payroll taxes EVERY WEEK. $5000+ jobs go longer than a week typically. So there is a REAL expense to the contractor to do that job, before he gets paid. Probably about 30% of it goes to wages & payroll taxes.
Customers are good, but rarely do we leave a job with the check in hand. Typically folks are paying around 2 weeks after we are done. So if I work for a week, then wait 2 weeks to get paid, I've certainly had a lot of REAL costs that I have paid. The customer has to pay for those, and so we get money up front for jobs that large.
Even larger jobs come with progress billing, either at certain milestones or weekly, depending on the job and the arrangement.
Customers can protect themselves against contractors that aren't reputable, by seeking them out in reputable places! Does the contractor have an office space? Do they have a license (if required)? How long have they been in business? What are their online ratings? What is their general reputation? Where do they advertise? Are they insured, and can their insurance agent (NOT THE CONTRACTOR!) provide a certificate? What do their references say? How long has their website been up? Etc., etc.
It has to be give and take both ways. The contractor works for years to get a quality reputation. The customer works hard to qualify the contractor. The customer gives a deposit, gets a receipt, and an approximate start date. It's still based on trust no matter what.
Oh, one other thing: it is now actually HARD to file a lien in NC. You can't file a lien unless you file it as a lawsuit. The lawsuit only happens if the sheriff is able to hand you the papers. It's $15/person for the sheriff to try to reach them twice.
You go to court, and if the sheriff wasn't able to notify them of the lawsuit, you have no case. You walk back down the stairs at the courthouse, and go home.
if you want to get the lawsuit perfected, you pay the sheriff again, hoping he will be able to get the papers to them this time. But you don't know until you show up to court IF they were able to serve them or not.
Or perhaps you decide it's too much trouble and hassle, and you're out the money that the customer won't pay you.
That's how it actually works here in NC. 🙁
The laws are all written against the contractor, and for the homeowner. There is little to no recourse if the contractor is stiffed.
That, and cash flow, is why we get a deposit on larger jobs.
But again, 99% of all customers are trustworthy!