By Mike McClintock
Special to the Tribune
January 3, 2008
Both are a recipe for trouble. But when the project is an expensive alteration to your home and nest egg, negotiations over payments can be intense.
Payment practices vary a lot. As the Federal Trade Commission points out, only some state laws limit the amount of money a contractor can request as a down payment.
Notice the commission's word "request" not "require." In Maryland, for example, the Home Improvement Commission says, "pay no more than one-third of the contract price as down payment." In Georgia, consumer advice from the state is to "limit your down payment to no more than 25 percent of the contract price." To check into legal limits where you live, contact your local consumer agency or the agency that issues contractors' licenses.
In some cases the laws are strict. In California, for example, the Contractors State License Board says, "The down payment cannot be more than $1,000 or 10 percent of the contract price, whichever is less." This covers all major improvement work with no exceptions, including the common contractor ploy of seeking substantial funds ahead of time to buy materials. The League of California Homeowners (http://www.homeowners.org ) is one of several consumer groups that endorse these parameters.
But in many areas the down payment is simply what the traffic will bear.
In Illinois, for instance, the attorney general's Web site (http://www.ag.state.il.us/consumers /homerepair_construction.html) offers many good tips on contracting for home improvements. But when it comes to that first installment, word is "your down payment should be as little as you can negotiate with the contractor." That's fine if you're an intimidating bargainer and the contractor is a mild-mannered fellow who needs the work. It's not so fine if the contractor is an old hand, in demand and belligerent about getting 50 percent up front.
It's just a down payment, but there's more at stake than a few bucks or percentage points one way or the other. It sets the tone for the project. If you can agree on equitable payments up front, problems later on can probably be worked out in the same spirit. If not, things may go from bad to worse as the job progresses.
To prevent that, sensible contracts generally tie payments made to work done.
Make a small down payment to get started (when the first materials are delivered) and reserve an equal amount as final payment when the job is finished. Reserving only a token final payment can cause some contractors to lose interest in finishing, much less working through a checklist of touch-ups. Divide the balance among major milestones or inspections, for example, when the addition is closed in, when the mechanical work is done and when the finishing work is completed.
You may have to bypass contractors who demand one of these significantly less sensible and one-sided ideas.
THE FIFTY-FIFTY DEAL. Some contractors say half-now and half-later is a reasonable compromise -- the mathematical middle ground. But that's half the money before they produce a dime's worth of work.
Imagine their reaction if you turned the tables. The contractor excavates, pours concrete, frames the addition, shingles the new roof -- about half the job -- all before receiving a cent. No contractor would sign up for that, so why should you?
PAYMENT FOR PRELIMINARIES. Some contractors say they need a down payment to cover all the meetings, checking the site and working up the estimate.
That's baloney. On small, specific jobs, such as repairing an appliance, contractors may charge a flat fee for the house call whether or not you accept the on-site estimate of repairs. But for major home improvements with plans, building permits and down payments, meeting and checking and estimating are simply parts of doing business as a contractor.
Sometimes that preliminary investment pays off with a contract and sometimes it doesn't.
UPFRONT MONEY TO COVER MATERIALS. This is more baloney. A professional contractor might not be incorporated and have dozens of employees, but he shouldn't have to shop cash-and-carry. Reputable contractors have credit just like reputable people.
If the contractor can't charge some lumber and concrete you've got the wrong contractor. Aside from that, contractors don't buy everything upfront, just enough to start the job, and a pro should have more than enough resources to do that.