What You Need to Know About Contractor Deposits

When you hire a contractor to start a home improvement project or renovation, paying a deposit up front is often part of the deal. However, if you decide to go in a different direction with your project or don’t want to continue altogether, can you get your deposit money back? Read this before you make any payments or sign any contracts.

Should I Give a Contractor a Deposit for My Home Project?

It’s normal for a contractor to ask for up to a third of the total project cost, except in California and Nevada, where state law limits down payments to 10% of the total estimated job cost or $1,000, whichever is lower. If a contractor asks for more than that up front, beware of red flags and protect yourself from contractor scams. 

One way to proactively protect yourself from getting ripped off is to use a credit card or check to pay the contractor deposit rather than cash. This way, if any disputes arise down the line, your credit card company or bank can help you navigate the situation.

Can You Ask a Contractor for a Refund of the Deposit?

If the contractor you hire does a poor-quality job or doesn’t finish the work both parties agreed upon at the beginning of the project, you can ask them for a refund or partial refund as applicable. 

The first step is to check the fine print on the original proposal. Usually, there may be information or fine print about the return of deposit conditions on the back.

If you decide you want a refund of the deposit within three days of signing a contract, you can cancel if it’s within the mandatory federal waiting period of the signing. According to the U.S. Electronic Code of Federal Regulations, homeowners have the right of rescission, meaning they’re allowed three business days to decide if they want to buy the contracted goods or services from a home improvement contractor. If a homeowner decides they don’t want the service any longer, they can cancel the contract and not be charged if it’s still within the three-day waiting period.

If you’ve tried various tactics to get your money back and the contractor still won’t agree, it may be worth hiring an attorney for help for larger, more pricey projects like a home renovation or addition. Contract attorneys can cost up to $120 per hour, so you’ll have to decide if that cost is comparable to the amount you lost in the deposit before you hire.

Options If a Contractor Takes Your Deposit and Disappears

If the contractor disappears with your money, there are several different options you can try with or without the help of a lawyer. The first thing is to call your pro several times or send a letter outlining your expectations.

Depending on state law, if the signed proposal didn’t have all the essential elements of a binding construction/home improvement contract, it might not be legal and could be a way to get out of the contract.

A legal contract needs to contain these elements:

• Who (parties to the contract identified)

• What (scope of work)

• Where (where work is to be done)

• How much (compensation total and payment terms)

• When (a timeline of the period during which the work is to be done)

• Date

• Signatures from both parties

If you read over a contract you’re given to sign and it doesn’t contain these elements, you may want to reconsider hiring the contractor who gave it to you and browse around for other options. 

Before hiring any contractor, it’s a good idea to look at reviews, get a few different quotes, check on their qualifications, and ask plenty of informed questions before you commit to signing a contract.