How Do You Pay Your Contractor?
My ex was/is a contractor, so this was never an issue for me when we were rehabbing houses. He generally got paid after the work was done. However, now I'm flying solo. So...how do you pay your contractor? 1st part upfront, in middle, at end of job? When dealing with an unknown, but apparently established contractor, what do you do to assure that the job gets done, or at least that they don't run off with the money?
Not uncommon to do 40% upfront, 20% near completion, 20% when completed and after inspection (the holdback). Apart from the scope of work to be covered (to include the work, estimated time of completion, etc), you'd want this addressed in a written contract between yourself and the contractor.
40% up front? Hmmm...that's a hefty amount. I know to get a contract. I'm just thinking out loud. Lately, I've been doing that quite a bit at this site. It's becoming my personal "rei" diary.
i never actually PAY, i just make sure that my frig is always stocked with cold beer and old pizza - always get surprise visits to collect payment.
but, really depending on the length of the project, i ask a few contractors to get the lowest price and most flexible terms, then pay at set milestones. for instance, i had a kitchen redone before i started doing that kinda stuff myself and i paid 25% up front and then at 2 more intervals of progress, and final payment when done. if u get one bid at a time, you'll prolly be pressured to put up half to start - way too much!
most times contractors here with the best prices are the least accessible - so if you pay too much up front, you're beat and will never hear back from them again and you'll be left with a kitchen where everything it was, is on the floor with a foot of dust and nails sticking up out of the moldings for you to step on.
In California it is illegal for a contractor to take more than $1000 upfornt (10% on smaller jobs). Try to schedule payments based on actual job progress and always keep at least 10% until all punch list items and warranty work is 100% complete.
Though there is some negotiating, a good contractor will tell you what he needs. In my company we are always a month or two out and so are not "real hungry" if it is someone I like, trust, and have done business with. I may not charge them anything up front until completion of the job. Especially if it is two weeks or less and < 20K.
A lot of it will depend on the contractors billing cycles and up front costs.
I would say away from the "cheap" contractors. Last year we figured that 40% of our business was following up other contractors an repairing their shoddy work.
[addsig]
Only $1000 up front in CA. That may be the only positive thing I've heard about that state.
Everyone has their own payout schedule.
I think you have to decide for yourself. I've given as much as 50% up front if I know (or have gotten positive feedback about) the contractor. Then the balance with a 10% holdback. Written contract, written change orders, lien releases, completion date, and per diem liquidation damanges for late finish. Also, I need to have a copy of the license if any, and a insurance certification.
Regarding the insurance: A guy high on a ladder is an independent contractor. When he hits the pavement, he's your employee.
I'll relate a personal anecdote, a bad one, to show you what can go wrong.
Gen partner(GP) in a rental in which I'm only an LP, borrowed $20k then contracted to rehab the rental, and before I could warn or stop him, PAID THE WHOLE THING just after the contractor started.
Then, of course, the K'r had domestic problems, his business tanked, and he went N* with $ before job was finished...so GP had to come up with more $ to finish.
Lesson: DO NOT pay Kr much up front, no matter what his/her sad story might be...and you'll hear some pitiful tales.
*to a true Southerner like me, when a crook "carpetbags" ( scams & disappears), he's gone NORTH...whence cometh the original carpetbaggers :
As a real estate professional you should never have to pay up front. I never have and never will.
depends on where your located. Here n central NJ you have two ends of the specrtum.
1) is the guy that works "from the back of his truck" generally from what i have seen/heard this guy has no cash for materials. He tells you what to purchase you buy it he installs it. He is paid cash when project is finished. The qualiy of his work is OK half the time they know what they are doing.
2) is the reputable firm(HARD TO FIND) this guy is allways busy and does not take jobs unless they are worth his time. Typically they get as much as 50% up from and 40% close to completion 10% retention subject to punch list completion. Work with these big boys is OK also.
I think that you as a contractor need to say to yourself which way do you want YOUR buinesss to head. Each secenairo has its plus and minus. Its all up to what you want to apper to your customers.
40% up front...wow!.........
That would be nice....with new construction I dont ask for 1 penny upfront. I only bill based upon what is complete.
However with remodel work, if I do not know the person very well......I have asked for the amount of money needed when material are dropped on the jobsite.
I am actually there when the materials are there to be dropped.....when check is in hand.....the drop the material and my guys go to work.
Owner will pay me weekly for my labor and a portion of my profit.
I have 5% withheld until I deliver the C.O.
(certificate of occupancy)....at which time I collect the remaining balance.
I am amazed the amount of upfront money people are willing to give to individuals with out any materials on the job, yet alone work complete.
We pay our Contractor 20% up front 30% in the mid 30% at the end holdind 20% after completion for 30 days as warrt.
The work must be completed in time to flip the house in less than 90 days. Thats fixin,replacing any thing broken,worn,outdated ,etc. and a fresh coat of paint
We have been using the same company for years and they do everything for us with a great relationship that is what makes it great.