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Paying Contractors Up Front

Paying Contractors

Paying Contractor | This small new home has been under construction for over a year. There could be many reasons it’s taking so long and one of them might be the contractor was paid too much money up front. As it turned out, the homeowner did pay too much money to the contractor, the contractor abandoned the job and the homeowner had to declare bankruptcy. It could have all been avoided. (C) Copyright 2017 Tim Carter

"When you pay a contractor money in advance, you hope the contractor is going to show up, do the work right, and not make off with your money."

Paying Contractor Up Front Checklist

  • Moderate or excessive deposits put you at a huge disadvantage
  • Deposits are only required if job has special-order or custom non-returnable materials
  • Contractors don't pay employees, subs or suppliers in advance!
  • Watch How-To-Hire-A-Pro video series below
  • CLICK HERE to Get Tim's FREE & FUNNY Newsletter!

A little over a week ago, I devoted part of my free weekly AsktheBuilder.com newsletter to a polarizing subject. I did this because I had received a spate of emails from homeowners just like you who had hired out work to be done in the spring and the contractors were demanding to be paid a substantial amount of money up front before they did the work. This made many uncomfortable and they reached out to me for advice.

Paying Contractor Video

Please watch this video. It's the first in a four-part series. The other three videos are below.

Don't Hope For Things You Can Control

I wanted to devote this column to that topic and to touch on the second biggest reason your home improvement dollars may go down the proverbial drain. Believe it or not, that situation has the same root cause as the up-front money issue - hope.

When you pay a contractor money in advance, you hope the contractor is going to show up, do the work right and not make off with your money.

Hope is an emotion you employ when you can't control the outcome. Here are examples of things you can hope for:

  • You hope the weather next week will be nice
  • You might hope to get rescued from a deserted island
  • You might hope to win the lottery

Control Your Contractors

Forget about hope when it comes to contractors! You can control your money and when a contractor gets it and you can absolutely ensure that you’ll get top quality work that will stand the test of time.

When I broached the payment issue in my newsletter, I knew I’d make lots of homeowners happy and many of the contractors on my list bristle. Money is a very sensitive topic.

Free & Fast Bids

CLICK HERE to get FREE & FAST BIDS from local general contractors. Be sure to ask them the questions below!

Money Is Your Only Leverage

Here’s what you need to know about paying contractors up front for a job. When you do this, you put yourself at an immediate disadvantage. If your contractor takes off or does poor work, you’ll never ever get all your money back plus attorneys fees should you pursue legal action.

On the other hand, contractors or suppliers can easily place a lien on your home in most states and they’ll get paid when you sell your home as long as the lien doesn’t expire.

Do Some Jobs Require Deposit Money?

Yes, there are jobs where a deposit is normal and required. If your job requires the purchase of non-returnable custom-ordered products, the supplier often asks for a 50-percent deposit. The contractor needs to supply this or you the homeowner can pay it directly to the supplier.

What Should I Ask The Contractor?

But in all other cases, it’s not wise to pay up front money. If a contractor asks you for a deposit like this, be prepared to ask these honest questions:

Mr. Contractor, do you pay your employees in advance?

Do you pay your sub-contractors in advance for the work they do for you?

Do you pay your suppliers in advance or do you have open accounts and are billed monthly?

Do you pay your truck service center in advance before they repair your truck?

Since you don’t pay anyone in advance, why are you asking me to do it?

Why Do Some Contractors Need Deposit Money?

I’ll give you a few reasons: The contractor might be using your money to pay off his last job. Your contractor may be in a cash-bind in his business for any number of reasons. Do you really want to do business with a capital-strapped individual? The contractor may not have credit at local supply houses. Why is that? I could go on and on and on with reasons.

John Hoeh The Bricklayer

When my newsletter is published, an announcement shows up on my AsktheBuilder Facebook page. The bricklayer in Cincinnati, Ohio, that used to do all my jobs saw it and this was his response, “As a contractor, I've always believed I will make you happy to pay me!! Have never asked for a dime up front. Great advice as usual Tim!

CLICK HERE to get FREE & FAST BIDS from local general contractors that have the same attitude as John Hoeh!

Do Professional Contractors Worry About Payments?

John Hoeh, the bricklayer, is a pro.

Professional contractors have no fear that you’ll pay them. They know they’ll satisfy you. They have plenty of cash in their business account. They don’t need your deposit to make payroll that week or to pay for the supplies they need.

How To Hire A Pro Videos

Watch these four videos to ensure you get a pro and the BEST VALUE for your money.

Excuse: Deposits Prevent Cancellations

One of the subscribers to my newsletter is a contractor and he objected to my feelings about up-front money. He said he does it because homeowners back out of his contracts and hire a contractor they find later at a lower price. When I asked him how frequently this happens, he never responded. I found that silence troubling.

Create Specifications To Get Job Done Right

Let’s talk about you hoping the job gets done right. Just two days ago I received an email from a man in Tennessee. He hired some contractor to repair a sunken area in front of his garage door. The homeowner was none too happy with the repair because the sticky asphalt rocks got tracked into his garage by his car tires.

When I did an autopsy on his situation it became painfully obvious the homeowner didn’t spend the time required to discover how to do the job the right way. He just called contractors up, they told them how they’d fix it and the homeowner hoped it would all work out.

Listen to this SHORT five-minute podcast to see how easy it is to ensure things go right for you:

Had this homeowner spent some time online, he’d discover that the settled blacktop needs to be cut out and removed. Depending on the amount of settlement, the cut line might be back as much as 8 feet from the garage door so the driveway has a nice gentle transition to the concrete garage slab.

He’d also have discovered that cold patch blacktop is not really meant for repairs like this. All one had to do was read the label on the bag. Regular hot-mix asphalt put on top of compacted gravel fill was the only way to create a repair that might last twenty or more years.

CLICK HERE to get FREE & FAST BIDS from local general contractors that have the same attitude as John Hoeh!

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Summary
Paying Contractor Up Front Big Risk - $ Is Your Lever
Article Name
Paying Contractor Up Front Big Risk - $ Is Your Lever
Description
Paying a contractor money up front is a bad idea. He doesn't pay for his materials, employees or subs in advance, so why should you pay him in advance?
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Publisher Name
AsktheBuilder.com
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4 Responses to Paying Contractors Up Front

  1. I think your advice sucks.
    Listen to this professional.

    https://youtu.be/R3buk63O2GE

    Visit HBA of Berks County on the web: http://www.HBAberks.org

    As part of an on-going educational series of business topics, Executive Officer Christian D. Malesic, MBA, IOM presented "PA HICPA & Contracts in Plain English" to a live audience of HBA members. This video compiles segments from the talk on why contractors should require a deposit and how much. Of note is that PA's Home Improvement Consumer Protection Act (HICPA) of 2008 limits deposits to 1/3 for jobs in excess of $5,000; but, the law does not speak to jobs under that amount.

    The Home Builders Association of Berks County, PA, USA provides education & continuous improvement seminars, round-table discussions, and training on business & construction topics of all shapes & sizes on a frequent basis. Beginning in 2012, the HBA started recording some of these sessions and editing the content into packets of concise, usable information as a service to our members and the business community at large.

    If you find this video helpful, please "LIKE" it, "COMMENT", and "SUBSCRIBE" to our channel.

    • Anthony,

      You're entitled to your opinion as is the person in the video.

      Here's why your comment rings hollow.

      First and foremost all you have to do is read the countless complaints homeowners have against builders and contractors with the BBB, state AG offices, and any other organization that fields complaints.

      The core issue in just about every complaint is a contractor that didn't finish the job or did HORRIBLE work and the homeowner had already paid him. The homeowner has NO LEVERAGE without enought money to finish the job.

      Second, builders and contractors do NOT pay their suppliers in advance, their employees in advance, nor their subcontractors. What's good for the goose is good for the gander.

      As I said above, the only reason a supplier deserves pre-payment is for custom materials that can't be returned. And even then, most suppliers only ask for a 50-percent deposit.

      If you feel it's such a great idea to pay for work and services in advance, start doing it for EVERYTHING you buy.

      Let us all know how that works out for you.

      In closing, any great professional builder or contractor has no issues being paid in stages on a reasonable basis for completed work. Why? They know they're going to satisfy the customer and they have enough financial resources to pay bills for 30 days.

  2. We typically build cabinets and furniture with 50% deposit. I can negotiate it down to 25% for large jobs. Without some money up front I will find other customers: I have worked on a verbal order and gotten stiffed, but even without that wonderful experience, it takes money and materials to run a job so pay upfront for this is normal.

    Tell me, do you go to Home Depot and order cabinets and expect not to pay up front?

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