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Pay a deposit or not?

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Posted by: from Toronto
11/9/2015 at 10:10:36 AM

Feedback please on whether a contractor should require an upfront deposit. I have heard many stories of people who have given money upfront and never saw the contractor again, or the company went bankrupt, etc. So needless to say I am very uncomfortable giving anyone an upfront deposit. And I don't think I should have to. Contractors have recourse if I don't pay them, I have NO recourse if they disappear with my money. They know where to find me and can sue me or put a lien on my house, etc if I don't pay them, but if they disappear with my money I likely will never be able to find them or if they go bankrupt I have no recourse. So I don't think it's fair that I should be paying a deposit upfront. Some of them say they need money to buy materials, why not let them home owner buy the materials if you're tight for money. Then again, if a contractor is tight on funds and can't buy materials, shouldn't that be a big RED FLAG?

I would like to hear the feedback of contractors on this. Am I being unreasonable?

REPLIES (8)
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Jason from Jason Adams in Ancaster
Date/Time11/9/2015 at 12:15:11 PM

In my humble opinion, the deposit is required for a legal acceptance of the contract. I have always asked for a deposit not only to cover the materials but also as a sign of good faith between both parties. I could put your materials on my credit or pay for them cash but this is money owed to me anyways.

I hope this helps.

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Louis from Titley Construction in Ottawa
Date/Time11/9/2015 at 1:06:59 PM

We always agree on a deposit, depending on the scope of the work it could be between 10 and 20%. It is part of a contractual agreement. If you are worried about giving $ to the the contractor himself, then trust has not been established and you should look elsewhere. For us deposit also establishes the fact that you will be able to pay for the renovations etc.., that funds are actually available.

In regards to being able to buy materials with the deposit, that is a fact, not a red flag. I don't think as a contractor we should have to finance any part of your project or spend our $ to buy your stuff. We already do a great deal of it throughout the renovations as our subs, trades, materials and employees get paid right away.

Since the majority of our jobs are of large scale, we would not enter into a renovation agreement without it.

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Date/Time11/9/2015 at 3:58:05 PM

Max,

For me, it depends on the size of the job. On a fair size project you should also have a contract that would define everything, including the payment structure. On very small jobs I buy the material and don't ask for payment until the job is done. On larger jobs, I ask for the cost of materials or request the client to purchase the items required. Part of the reason is that if there are any issues with the project, the contractor could be out the cost of the material, which is a true cost, plus the cost of time, which can be absorbed. So, bottom line is that if you are comfortable with the person/poeple that your are hiring,a deposit is fine, as it also shows "good faith". The amount should be discussed between the two of you along with the time frame for the job and what the deposit is intended for.

Hope this helps.

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Brian from Next Restoration in Rockwood
Date/Time11/9/2015 at 6:04:09 PM

I request my deposit the day I arrive to start the work.

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Paul from iRenoHomes in Mississauga
Date/Time11/9/2015 at 6:52:56 PM

I have to agree with everyone 10-20%.

What you should do is when the contractor starts on your project and you see that he has material on hand to start the work only at that time you give him the first deposit and to feel comfortable after that, make a payment schedule as work progresses.

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Date/Time11/9/2015 at 10:46:26 PM

I do all my business with 20 to 25% at contract signing it establish trust between contractor and client. If you don't trust your contractor then you should not do business with him. Clients who don't wanna pay any money upfront are a big red flag has many other contractor already mentioned. The first deposit is the most important has it shows that there are funds for the budget and that you'll get paid throughout the project.

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Date/Time11/9/2015 at 11:33:08 PM

Deposit?

For up to 10k no problem but, You must pay a deposit to start a legal binding contract, lets say your doing 5 projects and have to order 2-3000k in materials for each one customer, and you have five employees you pay ever two weeks at $1500 a week do the math its not inexpensive.

I challenge you to risk your money... put yourself in our shoes.... and trust me there is usually more risky owners than there ever will be risky contractors that's a fact.

If feel you should'nt have to pay a deposit then your not taking your time to research your selected contractor in my opinion.

Check everyone out, get three quotes, and check their reference's also as to go see their work, that should hopefully help solidify your decision.

As for the red Flag yes it would be a red flag to me if the homeowner did'nt pay the deposit is he trustworthy? I have heard so many horror stories and even lived a few of them.

You see it works in both directions,Trust is of the upmost importance, if your not feeling the love your hunch is probably correct Keep looking.

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Date/Time11/10/2015 at 7:33:30 AM

It is very fair & common for a client to provide a deposit. The variable can change on what that amount is (ie. Amount of total project, scope of work, etc.). A typical deposit for a project from $0-$200,000 would be 10%-15%.

If the client has completed their research and have been dealing with 4-5 builders to narrow down the selection to a final builder, then you should have qualified them during this stage. So leaving a deposit with your awarded builder should not be a risky decision.

You as the homeowner, does have procedure they can follow with respect to obtaining your deposit back if you needed to break the contract. This should be outline in the paperwork that you sign with the builder.

Each company has their own policy as to payment terms so it is entirely you to decide if you want to move forward with the selected builder on his terms.

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