Paying A Contractor In Cash

Posted on October 6, 2003 by Tim Carter

Paying A Contractor In Cash

Pay a Contractor in Cash | This is the Big Green. It's dangerous to pay a contractor in cash. Be SURE you get a signed receipt and better yet, a notarized affidavit BEFORE handing over the cash.

DEAR TIM: My contractor has offered me a 10% discount if I pay him in cash. This seems like too good of a deal to pass up. Is there a danger in doing this? P. V.

DEAR P.V.: Paying your contractor in cash can be very risky. Generally, building and remodeling projects cost hundreds and thousands of dollars. Usually, business transactions dealing in sums such as these are not done with cash.

WATCH THIS VIDEO to see what a CPA has to say!

What's a Good Way to Pay in Cash?

If you decide to pay your contractor in cash so as not to pass up the deal, you must do several things. I recommend that the payment transaction occurs at your bank at a prearranged time. You should not get the money and take it to your home or to the contractor's office. This is very dangerous.

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Should I Get a Signed Receipt?

The contractor must produce a receipt for the amount you are giving him. Make him sign the receipt in your presence and mark the receipt 'PAID'. Have his signature notarized.

Is a Notarized Affidavit the Best Receipt?

A notarized affidavit is the best legal receipt. This is your protection against a valid mechanic's lien being filed against you and your property. The contractor is swearing under oath that as the date on the affidavit he's been PAID IN FULL for all work. This means that he can't file a valid lien for the days BEFORE the signing of the affidavit. The date on the affidavit should be the same day as you hand over the cash.

Obtain a signed, notarized affidavit from the contractor at the same time. This affidavit should clearly state that all workers and material suppliers have been paid. If they have been paid, they will gladly supply a similar affidavit stating that they have, in fact, been paid. Demand these documents.

Should I get Materialmens' Certificates Too?

Yes, if your state has this document, get those as well. This certificate signed by the material suppliers states that they've also been paid in full for the material they delivered to your home. Not all states require this, so call the supply house accounts receivable employees and ASK THEM. Don't trust what the contractor says. A supply house can also file a valid lien on your property if they've delivered material and NOT BEEN PAID.

After you have received all of these documents and you are satisfied with their accuracy, you can then hand over the cash to the contractor. Remember, do this at your bank in the presence of a bank officer. This person will witness that you, in fact, paid the contractor. This same person is often a notary public and will notarize all of the necessary signatures. Dealing in cash can be dangerous, simply because it cannot be traced. You must have a receipt!

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When To Pay Contractor

Posted on October 6, 2003 by Tim Carter

DEAR TIM: My contractor has asked to get paid in three installments, 1/3 at each time. Is this fair for both myself and my contractor? J. D.

DEAR J. D.: Not necessarily. The best way to pay your contractor is to make agreeable periodic payments based upon the amount of work he has completed. Do not pay for work which has not been performed.

Get a list of each phase before your project begins

Before your job begins, you must obtain from your contractor a breakdown of the costs of your job. This breakdown will list each phase of the project (demolition, rough carpentry, electric, drywall, contractor's profit and overhead, etc.).

When your contractor submits a bill to you, he must list each category and the amount of work completed for each item. You must verify if it is accurate. Make sure that he is not asking for too much money in any one category.

Pay Contractor as a phase is completed

The contractor is entitled to collect a portion of his overhead and profit at each billing. However, he should only receive an amount in proportion to the percentage of the job which is in fact complete. You should always hold back a portion of the contract amount until the entire job is complete.

Remember, you must always have enough money in your possession to finish all uncompleted tasks as well as a proportional amount of the contractor's profit and overhead. This arrangement is fair to both parties.

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Contractor Cash Advance

Posted on October 6, 2003 by Tim Carter

DEAR TIM: My contractor has asked for money "up-front" before he starts my room addition job. I don't feel comfortable doing this. Should I give him the money? M. M.

DEAR M. M.: There are very few occasions where you should advance money prior to the start of a project. Only when your project requires a special planning or a custom ordered item which is non-returnable, should you advance money to your contractor.

You should advance only the cost of that item or an agreed upon amount for the planning services. In the event you pay for plans in advance, be sure to stipulate that the plans are your property, not the contractor's. Certain state laws may also allow or require cash deposits. If you live in such a state, be sure that the deposit does not exceed the maximum amount allowed by law.

Many contractors have established credit with their suppliers. They pay these companies on a monthly basis. Often these same terms are available with subcontractors. These individuals sometimes will often be satisfied with a payment from a general contractor within 15 to 30 days of completion of their work.

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Rest assured that your contractor will not pay his suppliers in advance for standard in-stock items. I absolutely can guarantee you that he will not pay his subcontractors in advance. If a contractor needs money prior to the start of a project, it is possibly a sign of his financial weakness. Maybe this individual does not have established credit. Maybe he is in a cash pinch because of poor business management.

The deposit from your job may be used to pay bills on his current job or maybe even a past one! Advancing money up front reduces your leverage power at the end of the job. Why? Because you are also basically giving the contractor his profit before he has started the project. This is an extremely dangerous thing to do.

Financially strong contractors do not need money at the beginning of a project. They generally have sufficient cash reserves to carry a project for 30 or more days. Contractors pay their suppliers and subcontractors on a regular basis for completed work or delivered supplies. You should consider doing the same with your contractor.

CLICK HERE to get FREE & FAST BIDS from local remodeling contractors.

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Preconstruction Anxiety

Posted on October 6, 2003 by Tim Carter

DEAR TIM: My wife and I are getting ready to start a large room addition project. We are both experiencing anxiety. Our contractor is as cool as a cucumber. Is this normal? A. N.

DEAR A. N.: Generally speaking, yes. Your feelings of anxiety are well founded. The project you are facing is complex and will be very disruptive.

You will have to make numerous decisions. Sometimes, you will not be given much time to think about them.

You will host strangers on a daily basis. Your normal daily routine will be disrupted. There possibly will be massive quantities of dust.

Your contractor, on the other hand, does this for a living. He is accustomed to the difficulties. He will hopefully deal with them so as to minimize the disruption you will experience.

If you have selected a good contractor, his "cool as a cucumber" attitude is probably a result of his confidence.

If you are unsure, ask him pointed questions as to how he intends to deal with your concerns. Hopefully, his answers will relieve your anxiety.

Construction Blueprints

Posted on October 6, 2003 by Tim Carter

DEAR TIM: My husband and I want to remodel our kitchen. We would like to relocate the sink, install a larger window, new cabinets, etc. Do we really need "plans" or can we just tell our contractor what we want? E. G.

DEAR E. G.: You need plans. Every successful project has a plan. A plan can be a highly detailed set of blueprints or a simple set of written instructions accompanied by some simple sketches.

A well thought out and detailed plan verifies that what you want to do is possible. This is a vital step in the building process which is frequently overlooked. Countless projects have been started without a plan only to find out that what you or the contractor wanted to do is not possible. When this happens, you generally get stuck with paying for the mistake.

The plan also becomes the core of the contract between you and your contractor. It serves as the only viable way of communicating what you want to the contractor. Plans are a must, don't get stuck without one!

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Contractor Bid Differences

Posted on October 6, 2003 by Tim Carter

DEAR TIM: I just received five bids for my remodeling job. There is a wide difference in prices and work to be done. Why so much confusion? T. T.

DEAR T. T.: You did not have clear and concise plans and specifications for the contractors. You probably talked to each contractor and told him what you wanted.

Each contractor has figured the job differently. There is no guarantee that each contractor is going to do the same amount of work as the others. Some may have bid doing too little, others bid doing too much. They may be using different materials. They possibly are using the wrong materials for the job.

This confusion can be avoided by having precise instructions for each contractor to follow. These instructions can be a basic set of plans and specifications.

These plans and specifications have specific information which contractors must follow. Each contractor must perform the same task or set of tasks.

When you have contractors bidding using specific instructions, the bids should be very close in price. This should make it very easy for you to determine who can give you the best value for your money.

Eliminate Delays with Job Schedules

Posted on October 6, 2003 by Tim Carter

DEAR TIM: We are getting ready to do a major remodeling of our kitchen. We want to eliminate delays so that we can use our kitchen again as soon as possible. What steps can we take to achieve this goal? Q. T.

DEAR Q. T.: In a nutshell, you must do extensive 'preplanning' and scheduling of materials shipments and workers to eliminate delays. It is possible to eliminate delays, however, your planning must be flawless.

The first step is to make sure that you have an excellent set of drawings for your project. Your contractor and his sub-contractors will rely on these documents heavily. If there is an error on the plans you will have a delay. I guarantee it.

Before any work begins, you must request from your contractor a very detailed schedule of how long each aspect of the job will take. There are many aspects to the job, so make sure that they are all listed. Make a separate list of all the materials you intend to use for your job. You must pre-select every item. Remember, some items will have to be ordered.

Ask each supplier how long it will take to obtain each item. Add a minimum of 3 days to whatever you are told. Request order confirmations from all suppliers, because , believe me, people forget to order things. Make repeated follow-up phone calls to insure that things are on schedule.

After you have all of this information, you must create a simple time line chart showing when each aspect of the job will occur. You must prepare this chart, because each sub-contractor and material supplier will need to see when his services or goods are required. Distribute a copy of this chart to all parties and ask them if it is reasonable. If they agree, cross your fingers and hope for the best. Remember, once the project is underway, make frequent reminder calls to all suppliers and workers to keep your project fresh in their minds.

Adding to a House Book No builder or designer's library should be without Adding to a House written by Philip Wenz. Here is the ideal book for designers and builders who understand basic construction but have not had access to a single source of information that covers the entire process of planning, designing and building an addition. Adding to a House is also perfect for home owners who intend to contract the work out and want to understand the process so they can make intelligent decisions and work effectively with people they hire. This book will help you avoid costly mistakes, make sure no potential problems are overlooked and handle tricky construction details. By following the advice in this book designers, builders and home owners will be able to create an addition that solves space problems and increase the value of a house. This book is published by Taunton Press, one of my favorite book publishers, and has wonderful color photographs and easily understood illustrations.

Permits Don’t Mean Quality Work

Posted on October 6, 2003 by Tim Carter

DEAR TIM: I am getting ready to remodel my basement. My contractor has told me that a building permit is not necessary for this type of job. I feel uneasy about doing the job without a permit. Will the building inspector make sure that I get a quality job? P. Y.

DEAR P. Y.: Your instincts are right on target. Generally speaking, a building permit is required for most remodeling jobs. Based upon the description of your job there is no doubt in my mind that a permit would be required. Make sure your contractor obtains a permit.

However, do not rely upon the building inspector to be the judge of the overall quality of your project. Usually, the building inspectors are charged with the responsibility of enforcing the minimum standards of the building code. Often, certain aspects of a job can be installed per code and, believe it or not, be of very poor quality.

If you have questions regarding quality standards and the building code, request to be present when your building inspector shows up for routine inspections. The inspector will in most cases answer your questions. After all, he or she inspects many jobs and sees different levels of craftsmanship on a daily basis. Don't hesitate to ask his or her opinion.

AWOL Builder

Posted on October 6, 2003 by Tim Carter

DEAR TIM: My builder has deserted me. There are several things to finish on my job. However, even though I am holding back $2,750.00, I can't get him back to finish. Why would he not want to collect the money that I still have? U. A.

DEAR U. A.: Based upon the list of items you described which need to be completed, I feel I know the answer to your problem. Believe it or not, the value of the work which remains to be completed is probably in excess of $6,000.00. If your builder does not return to finish, it appears that he will have gotten more money from you than he deserves.

This is a common problem. It can be avoided very simply. You must only advance money to your builder for actual work completed. You probably would not be in this situation had you obtained a detailed cost breakdown at the beginning of your job.

Job Scheduling Made Easy

Posted on October 6, 2003 by Tim Carter

DEAR TIM: My project is half completed. No one has shown for a week to work. I called the contractor and I am getting the run-around. How could I have avoided this? M. O.

DEAR M. O.: Your contractor could possibly have a valid excuse. However, he should tell you what his problem is without you having to ask. Most probably, he is experiencing a scheduling delay dealing with either labor and or materials.

You can minimize delays on your project by requesting a schedule from your contractor at the beginning of your job. This schedule shows when each task will start and finish. It should show when special order items must be ordered. This is important because often they must be ordered weeks in advance.

The schedule also is helpful to sub-contractors. Your contractor can see that each sub gets a schedule. They can see when they are expected to work on your job. This allows them to adjust their schedules so that they can be at your job when needed.

Related Column: Scheduling Finish Work