Hello everyone! I have a business related question for everyone here, when you sign a contract, do you as for a deposit? and if so, how huch do you ask for,10% 20% or more? I have a client who is questioning the amount of the deposit, and as of now, we have 42% of the work completed and have only recieved about 20% of the payment schedule. I thank you for your time and looking forward to your responses.
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Here in Maryland we are mandated by law how much you can take at contract signing. After that, it's what ever you set.
How much is the mandated amount?
I'm a little green with the bigger money deals, but on the last 2 I've asked for what I would need to buy materials, pay all subs, and pay myself for a reasonable part of that period.
Then I've taken that big check, and opened a separate money market account, under the client's name, in my business account at the credit union. I find it easier to keep the money separated and dole it out accordingly.
Depends on the job size and how much special order materials, among other things. I have done small jobs with special orders where I got 70 or 80% up front. I have done small jobs where I didn't ask for anything until I was done.
Typical whole house remodel, we do 30-30-30-10%. When I start the job I try to figure where the sub & material bills will come due and make sure I'm covered. Kitchens and baths sometimes have a higher front end
depending on what size of job you are doing I would be uncomfortable being that far behind the curve. You're playing banker
The job is about 75,000.00. we are at about 42% completed, and all the client has paid me is 16,000 and now the excuse is that the guy at the bank is sick, and can not come to evaluate the progress, what should I do, register a lien on the farm? continue work and hope to get paid? what?
So as it stands now, you are the bank financing the project...how about you take a few days "out sick"?
You should have gotten 16k as a deposit before starting. If you are at 42% completion now, you should have received about 50k by now.
Call the bank yourself, ask them to send an agent so that you can get your draws up to the level of completion. If there really is a bank involved, there are strict guidelines about payments.
In the meantime, something else comes up that takes you away from the job for a few days, while you see if you are to be paid.
I wouldn't hope to get paid, I would get paid for the work already done before I did one more hour.
Does your contract address this?You have a feel for these clients having worked with them, from your answer it seems you don't believe him about the bankerAt this point I would be tempted to have a talk with the clients and explain that at this point the job will need to halt until payments are up to date. You're very sorry but you can't afford to continue to fund this project, you hope they understand your position.the lien will do nothing in the short term.as far as continuing and hoping I guess it depends on how much you trust them and/or if you would rather stop the bleeding now or wait until it's 59,000As I said, you have a better feel for the client then anyone else does
Barry E-Remodeler
Time to stop! Look at the copy of the check you got first, can you remember where it came from? Call the bank.
Talk to your customer, about the fact you need to be up to date (and should be in front at this point)
I insist on 30% with order (more if special order stuff) 30% on start day, 30% depending on the timeline, balance on completion.
continue work and hope to get paid?
Whatever you do don't do that.
What are the terms of the contract you had him sign?
Also if you have already begun work under the contract, then any payments made after this are not deposits they are payments for work in progress.
It is tempting to trust in the good intentions of the people you work for, but as a very wise, very old man once told me " We live in a world where trust to the goodness of human intention is rewarded with extinction"
Two evil clients and $100k plus down the crapper later, I realized that he was referring to my world. Naive but refreshing !
The guy with the hammer needs to be sick until the guy at the bank gerts better.
Why would you finance this project without getting a good interest rate for this short term loan?
Family.....They're always there when they need you.
I'll sign and start a $700,000.00 job with out a deposit but we do charge for the design and estimate.
------------------
"You cannot work hard enough to make up for a sloppy estimate."
How muh you charge for the estimate SN? Curious being I have a gig coming up bigger'n I'm used to. Probably in the hood of over $5-600,000+ for a remodel. I was curious about payments myself on a job that size and bigger.
Told them I need a cpl a tho for the estimate/proposal which I'll apply towards the first payment if they sign up. Gonna sub the main part of the exterior framing, sparky, plumber etc etc. They have no problem with the cpl of tho for the estimate/proposal.
I'm used to 1/3 payments but jobs this size that can take up to a year to complete I'm thinking might need to be divided into a lot more payments. Easier on them and should be fine with me as well especially being it'd make the last payment much smaller.
Whatcha think?"Revolution is not something fixed in ideology, nor is it something fashioned to a particular decade. It is a perpetual process embedded in the human spirit". abbie
"Give them what they want" abbie
I generally charge a "design fee" for all that is required to set the budget, do the selections, develop the design concept and permit / engineering drawings and specifications of about 4% of the cost of the job. Generally that's $10,000 to $25,000 payable half on acceptance of the preliminary drawing and half on acceptance of the permit drawings. The first estimate happens as part of the preliminary design phase and sets the budget we agree to draw to.
Budgets are broken down into the 25 "home tech" cetegories and optioned as good-better-best. at all times they have three prices for their set of plans based on their selections decisions.
The contract doc's add a fourth line the "contract" line and the good-better-best lines slide off. during final negotiations i'll have a 22" monitor going in the corner with their budget on it and I'm sliding options into the contract line and watching how they change the final price until we hit the stuff they want for the price they need. No "how much cheaper can you do it for?" and instead "if we take away the central vac and knoch the home theater down to 8K can we get to the solar hot water?"
For just an estimate you are looking at what is commonly called a "professional Services agreement" and 1% of the budget should be fine. You are sellig them your expertise in selections management and value engineering but no design services so for a 100,000 job it would be 1,000.
I don't think it needs to be refunded personally, but if that is what works in your market it's all the same. In the old days they liked the refund because it let them slide the design fee into the mortgage by moving that cost into the construction budget today things are appraising at 60% of cost to build so it makes no difference, the bank won't lend them the money to pay for the design even if you call it structural steel in the estimate...
Mine is non-refundable because I like to tell them if they think my price is out of line they are absolutely free to go get another price from another builder to check and the whole "refund if you buy from me" could make my price look inflated next to the other guys price. (It would have to be to cover the cost of $25K of drafting fees I'll be refunding) but they can do the math and see what the deal is as easily as any. I mostly just think it's worth saying that I bring value to the table and this is what the dollar amount on that value is. Ilike thinks clean and out front that way. Sets us on a pattern of open-ness. ------------------
"You cannot work hard enough to make up for a sloppy estimate."
And I bill on a monthly basis determined by the percentage of completion of each line item in the final 25 line items with profit a part of each line item so the profit comes in proportional to the completion of the job (perhaps loaded a little to the front end)
It works for me but many think it's crazy that I'm always out on my own money and they have a point and others think I should charge a "slotting fee" to reserve a place in my schedule in case an owner gets cold feet or appraisal/ financing issues.
I used to have a lumber escalator clause that was stached in my favor and tied to the lumber composite price index on the day we set the floor joists but that fell away over the years and now I just give a fixed price with allowances and take my licks if lumber goes up and count my profits if they go down. ------------------
"You cannot work hard enough to make up for a sloppy estimate."
for a job of that scope , i'd ask for a proposal fee of $3k
but this part ....<<<<<which I'll apply towards the first payment if they sign up. >>>>
how are you going to do that ?
does that mean
you will also have a line item in the estimate for "prepare estimate " ?
ie: the estimate is part of the job cost.... if you give it back, how do you recover that cost ?
Mike Hussein Smith Rhode Island : Design / Build / Repair / Restore
Andy, you have to check with attorny generals office ,but to the best of my recollection, in NY you can get any deposit you want, but it must be in escrow account or a bond, until it is earned.
frammer....that's true. It does have to be kept in my business acct.
I kinda like the idea of getting weekly or bi weekly paymets after a nice sized deposit on jobs that are real big. That should sort of keep everyone happy. A big deposit for materials up front then weekly payments that keep the bills and salaries up to date.
I never thought of doing things that way until this thread.
The proposal I'm working on will easily be over $500,000. Almost more then i feel comfortable dealing with but in these bad finanial times I better look at it as a blessing.............as long as I figure the $$$$ out right. I love ShelterNerd's tag line.
"You cannot work hard enough to make up for a sloppy estimate."
On all my jobs b/4 this one I always split things up into 1/3 payments...occasionally 1/4's
On real small jobs 2 payments.
Once these people sign my proposal (praying) I may even have to think of hiring an accountant for the first time in a long time to help me along the way.
When I had one and two guys working for me keepingt heir hours was bad enough.
Coming in 10-15 minutes late or having to leave early etc etc...really adds up so I had to write down almost every minute and then argue withthem at the end of the week that 15 minutes late each day= $15-20-+ x 2 guys or more. They just never got that. I hate that end of it. I'd always try and add some more time to the end of the day to keep the hours straight to avoid arguments.
The next time I hire guys I'm gonna be REAL CLEAR about being on time!!!
I even at one point when doing my house here and had 3 guys woirking for me ....I bought a time clock but the thing was a used piece a garbage so that was the end of that.
Anyway....back to my proposal...ugh"Revolution is not something fixed in ideology, nor is it something fashioned to a particular decade. It is a perpetual process embedded in the human spirit". abbie
"Give them what they want" abbie
Congratulations on the sizable job. Cant wait for the redistribution of profits.
Family.....They're always there when they need you.
In general, I like to get 25-30% as deposit. And then progress payments as the job goes. I really try to avoid getting behind.
Like Mike Smith says, you're not the bank.
BTW, is the client just now questioning the amt. of the deposit, after the contract was signed?
yes, she had a schedule of payments with the contract
Then you need to get her to abide by the contract.
Thank you all for your input. I have renegotiated with the client, she is going to pay the bill weakly, or I will stop progress on the job, and to the bills, as agreed, I am chargeing her a 12% admin. and profit charge
she is going to pay the bill weakly
Bad place for a typo. Or maybe that's what she really meant. I hope she will pay "weekly". "Put your creed in your deed." Emerson
"When asked if you can do something, tell'em "Why certainly I can", then get busy and find a way to do it." T. Roosevelt
She's been paying the bills weakly up to now.
Glad you spoke to her. Hope everything works out in the end
Barry E-Remodeler
jim...... the quid pro quo is.....you do the work....they pay the money
you want to start off on the right foot.....unless it's contrary to your state law.... always get a deposit with the signed contract
then , get a substantial payment when work commences...
then make sure the PAYMENT schedule keeps you ahead of the expenses
and make the final payment small enough so if they try and stick you, it won't put you under
I started out years ago in the storm window business. They were all custom made. Even after years (and many clients) if I was stuck with a window (mismeasure, etc) I could Never find a client where I could use that window. Remodeling is like building a prototype in place. All different, could have easy/difficult access, use/no use of a garage on site, and how much "help" you were going to get from the HO.So I was used to getting 100% of the window cost at the time the contract was signed. I even did a little fill in work for a handyman company and they said I was the only guy to show up with a contract and up front check--every time.
So as a GC I spent days drafting a contract. Estimate was 1-2K. Applied to job if I got it. Usually, 25% down and additional if I had to order windows like you did.
Contract had pay points built into it. (All different but imagine the progress of a job--on job set up, excavation, tear-out, framing, rough plumbing, rough elec, drywall, tape finish and texture, painting, interior millwork, etc., etc. At each point you get paid for labor. Any change order is paid in full upon signing.
The handyman service had a system that gave a "no less than" figure and a "no more than" figure. Being smaller jobs the HO paid for all materials and had to transport them. We always found that we had to do "a little more" so we would split the diff. Amazing how that is accepted in any sale. Take time to structure your contract, stay ahead on costs, have them sign off upon completion. Tyr
I don't know if this would work for everyone, but in Calif. we can't ask for more than $1k or 10% deposit, whichever is less. But I have been setting all my jobs up lately on weekly payments. ie, 14 week job, 14 weekly payments. No pay, we go do something else until the money shows up. Its been working out good so far.
CaliforniaRemodelingContractor.com
something else is wrong here. The time for the client to have questioned the size of the deposit was before signing the contract and paying that deposit. Sounds like a classic confuse, delay, and obfuscate tactic. Get as much out of the contractor as possible before he figures out he won't be getting paid, then re-negotiate or find another contractor. You are already in too deep and need to get pro-active NOW.
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We do primarily small jobs. A big job for us is 30-40k. So we charge 10% at the signing, 50% of the balance the day the work begins and the balance upon completion. If it is a job that is going to take some extra time, say 5-6 weeks we will break it into thirds. I do the work but don't finance the jobs. DanT
In Massachusetts it's 1/3 down, 1/3 at the half way phase, and final 1/3 at the end/approval of the project. That's according to the State
Guidelines for contractors. I know quite a few contractors that have their own terms vs the State terms.
Then again I had a "client" who refused to give any down payment, and would pay when the job was done, as they have been burned by the "deposit" scenario by the previous 6 contractors, who took the deposit and ran.
Dumber and Dumber...
Edited 10/22/2008 9:11 am ET by Otis P. Driftwood
On signing, I get 50% of the estimate for $5-10K jobs; the balance is due on completion.
Medium jobs ($10-40K) 30% on signing; then 30% + 30% + 10% as we go along.
On larger jobs, I ask for 20% on signing, 10% on starting, and progress payments every two weeks based on invoices generated.
Dinosaur
How now, Mighty Sauron, that thou art not brought
low by this? For thine evil pales before that which
foolish men call Justice....
We get a 10% deposit that we hold in escrow until the end of the job, when it is credited to the final bill. Work in place is billed monthly. We do $50K to $2M jobs. On the big ones we will negotiate the deposit amount, but it's never less than 5%.
I structure our payment schedules based on the job size.
Less then 20k is in 1/3's Down Payment/Start Work/Completion (Great for cash flow)
Larger jobs have staggered progress payments, Typically a down-payment, start work, before sheetrock, substantial completion, and final completion. Final completion is no more then 5% of the total cost of the project. Larger then around 80k I might add one in for before rough mechanicals.
Either way it's usually a min. of 20% down when you sign, that coupled with the start of work payments puts us ahead of the client the whole way. In a rare instance we may get a little behind before substantial but not typically and not a lot of money.
Make your progress payments due "Prior to the start of ....." rather then "Upon completion of ....." so there is no argument when the payment is due.
You're local laws might dictate how much you can take down, our's do not.
If the client isn't paying on time talk to them, and ask for the check, if they start to argue explain your position, if that doesn't work, stop work until it's resolved.
Cash flow is just as important as profit and loss and your payment terms will make and break it.
When these topics come up, I alway wonder... how many of you would give someone a 1/3 scheduling deposit, and a 1/3 payment on the first day of work?
If I trusted them enough to hire them, the question of payment schedule is really academic......
Naive but refreshing !
I do after a little vetting. It all depends on the numbers too.
Shoot David, I gave my roofer a 60% deposit when I signed the contract. So I guess I am one.
what do your payment schedule look like?
I take it you think it is "wrong" to ask for 1/3 down and a 1/3 to start.
Did I say it was wrong? Didn't think so. If you ask, and your customers agree, then it's all good and between consenting adults. It's not my intention to start a debate, I am just genuinely interested in knowing if most of you guys would advance a significant percentage of the money to someone working on your house. I sub out a lot of work every year, and hire some done on my house every year, and have never been asked for, or paid, a deposit.
If the job is big enough for a deposit, its at least $1000 and I dont buy a nail with my own money. They provide funds for all parts. Their money runs out (less my personal labor) work stops.
Usually what I ask for on deposit carries me through until there is so much work done that they dont have a problem giving me th enext draw as they can see work has been completed.
Family.....They're always there when they need you.