A fair payment schedule is one of the most important components of a home improvement project. On one hand, every dollar owed to a contractor is more leverage that the homeowner has to make sure a project is completed to their satisfaction. On the other hand, payments must be reasonably scheduled — especially for larger, longer remodels or additions — so that contractors can pay for supplies, subcontractors, etc.
There are two main ways that payment schedules are set up: based on time intervals or based on project milestones. For example, a time interval payment schedule — such as the one in the State of Massachusetts Home Improvement Sample Contract — might call for one payment upfront, two payments on specified dates, and a large final payment reserved until the client is satisfied.
The other type of pay schedule, based on project milestones, ties payments to certain benchmarks. A room addition, for example, might pay a different percentage for different project goals:
- 10% upfront
- 10% for finishing drywall and paint
- 15% for finishing carpentry
- 15% for passing plumbing inspection
- 15% for passing HVAC inspection
- 15% for passing electrical inspection
- 20% for completing final punch list and passing any final municipal inspections
When negotiating your down payment, the National Association of the Remodeling Industry says a typical down payment for a remodel is 25 to 33 percent. However, many states limit the amount that a contractor can charge upfront. For example, the California Contractors State License Board stipulates:
If the contract calls for a down payment before work starts, the down payment cannot be more than one thousand dollars ($1,000) or 10 percent of the contract price, whichever is less, for a home improvement job or swimming pool, excluding finance charges. There are no exceptions for special order materials.
Exorbitant initial fees are often a sign of home improvement scams, so check your local laws to see if upfront payments are capped.
As for final payments, always save at least 10-15 percent of the total cost of the project as the final payment. This preserves your leverage and helps ensure that your contractor will finish the job. Be mindful, however, that nothing motivates your contractor like a paycheck, so work with your contractor to set a reasonable and regular pay schedule. Once the final payment is made, don’t forget to receive a lien release, certifying that you have honored your end of the bargain.
REMEMBER: If the project timeline gets thrown off, as it often does — by slow materials shipments or inclement weather, for example — be sure to protect yourself by modifying the original agreement. For help with this, see the DexKnows.com guide on “How to Add a Change Order to Your Contractor Agreement.”