DOWN PAYMENTS

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While some general contractors like to get a substantial deposit before starting a project, banks do not do business this way and nor should you. The first payment should not released until all permits and approvals are in place, proof of insurance is provided, lien waivers are signed,  and a substantial piece of work is completed, such as the foundation.

The contractor may want a down payment to pay for materials and rental equipment, and to pay his help and subcontractors such as excavation and foundation contractors. In some cases, the contractor may need to make a substantial deposit of his own on special-order materials. The contractor may argue that it is not his job to finance the project out of his pocket, while your position is that you do not want to finance the contractor and pay for work not yet completed or materials not yet delivered.

What’s fair?  I don’t believe it’s reasonable to ask for a large down payment. The contractor will not have to pay for materials until after his monthly bill comes in and subs know they will not get paid until the general contractor is paid. Also, it is not your job to provide the contractor with working capital. If he does not have credit with suppliers or subs, and does not have enough cash to make payroll, that’s not a good sign. On the other hand, if the job involves a substantial deposit on special-order materials, it is reasonable to make a contribution towards the deposit.

On the other hand, it’s not the contractor’s job to finance your project. He has a right to be paid promptly for work completed. Instead of a large down payment, try negotiating one of  these options (or find another contractor):

More frequent payments: Instead of five large payments, make ten smaller payments, but still tie them to work completed and materials delivered to the site.

On special-orders: You make the deposit yourself and purchase the materials. If things blow up, at least you will own the expensive windows, SIPs, or custom millwork when it arrives.

Agree to a small down payment, but reduce the first one or two progress payments to avoid getting too far ahead on your payments






Comments

  1. Hi. I paid a contractor a $7,000 deposit, which he used it to buy wood for my patio cover before getting HOA approval. The HOA won’t approve wood, only Alumawood.
    My old patio cover was wood. I have lost $7k dollars. Is contractor responsible at all?

    • buildingadvisor says:

      Sorry to say that the contractor is probably not responsible for the cost of these materials. This is a legal question and I am not a lawyer, but can provide general information.

      Unless you had it written into your contract that the contractor was responsible for getting HOA approval, or would not purchase materials until HOA approval was secured, it is unlikely that the contractor would be held legally responsible. Sounds like he was acting in good faith on information you provided and could not be expected to know the details of your HOA regulations.

      At this point, I would suggest discussing with the contractor whether any or all of the materials are returnable. Most lumberyards will take back unused materials in good condition. There may be a restocking fee or contractor charge for the time he spent purchasing, handling, and returning the materials.

      If they are not returnable for some reason, perhaps the contractor would be willing to buy the materials from you for future projects. Worst case, you can try to sell the materials yourself through Craigslist or a local classified ad.

      You might also try appealing the HOA decision, especially if it seems arbitrary, inconsistent with other rulings, or in conflict with written HOA rules and regulations. However, design review of exterior finishes and modifications is well within the legal authority of HOAs so the association has the final say.

      Best of luck in finding a good resolution!

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