A down payment of 10% to 25% is sensible when negotiating terms with your contractor, though it might be higher if they need to order special materials
Negotiating payment terms with your contractor is one of the lesser joys of being a homeowner. However, the process to determine a down payment can help to show you how cooperative the contractor will be throughout the project—and may even reveal some red flags. Reputable contractors will have their own line of credit to work with—and most will be willing to compromise.
Why Do Contractors Ask for a Down Payment?
While it may seem counterintuitive to pay for something you haven’t received yet, there are a few good reasons why a contractor asks for a down payment:
Materials
Labor
Pulling permits
Ensuring payment for the job
With down payments, you can both meet in the middle. The down payment provides your contractor with the peace of mind that you’ll uphold your end of the bargain—without forcing you to put up all your money right away.
How Much Should a Down Payment Be?
Generally, a standard down payment is between 10% and 25% of the project cost. You might see up to 30% for smaller jobs, such as paying professional house painters. Those dealing with more in-depth and costly projects, like general contractor down payments, tend to be closer to the 10% price range.
Special circumstances might make your project an outlier of this rule, especially when your contractor has to spend money upfront. For example, if you’re negotiating a down payment for a bathroom remodel, the down payment may include the full cost of any special order or custom fixtures. This larger down payment assures your contractor that they won’t be on the hook for that money if the project falls through.
However, use your best judgment: Asking for a down payment of over 50% upfront is a big red flag, even if the contractor attributes it to purchasing materials.
Contractor Down Payment Terms by State
Certain states have laws that limit how much a contractor can charge as a down payment. In California, for example, contract jobs can either charge 10% of the project price or $1,000 flat—whichever is less. Maryland, on the other hand, specifies no more than 30% of the contract’s price.
While these down payment terms exist in some states, not all have them in place. To find out if there are any legal limits where you live, contact your state’s licensing agency for contract workers.
Negotiating Payments by Project Milestones
The ideal contract has a payment schedule that goes by project progress rather than requiring a large deposit before anything gets done.
Many contractors are willing to work with homeowners to establish payment schedules as certain milestones are met on the job. For example, if it’s a concrete-pouring job, you could offer the contractor three equal payments:
One for delivery of materials
Another after the concrete gets poured
The final payment once the concrete has cured
As the homeowner who is commissioning the project, it’s reasonable to withhold at least 10% as your final payment. Avoid paying in full upfront, and definitely avoid paying anything before the contractor has evaluated the project in person.
Your Contractor’s Down Payment: The Bottom Line
If you’re looking at a down payment that seems excessive, you don’t have to grit your teeth and sign the contract anyway. Many contractors are willing to negotiate down payment terms—and the more experienced ones won’t rely on that money to pick up basic materials.
If the contractor is uncooperative before the project starts, this could foreshadow other problems during the project. A rational contractor understands that you shouldn’t have to pay in full before they complete a job, just as the contractor shouldn’t have to wait to get any payment that they are owed. The right local general contractor or specialty contractor will be reasonable and accommodating from the start.
