Homeowners always have issues with regards to how much to pay a builder when the home renovation process first starts. What is a proper down payment? Should payment be paid during development, but before the work is complete? And when is the last installment due?

In funding for home renovation projects, every customer has heard tales about builders receiving cash payments and not coming back.

This article will explain the homeowner “payment difficulty” posed above. To discuss the questions about how and when to make secure payments to builders, we have to differentiate between projects of different sizes and complexity. We will divide home improvement projects into 3 different areas:

• Small Maintenance or Repair Projects
• Custom Projects
• Larger Renovation Projects

Small Maintenance or Repair Projects

Small electrical or plumbing repair is included in a small repair project. Other examples will include, fixing a window or door. These small projects are normally completed in one day and their payment is made either as an hourly charge or some fixed fee. In such small works, payments are normally made after completion of the work. 

When the project is completed successfully the full amount is paid to the contractor. In such small works down payments are not necessary.

Custom Projects

Custom projects include some specialized work in which services are provided for some unique works. Custom kitchens and bathrooms are the best examples of this category. In such projects, materials are purchased by contractors, which are specifically used for such specific work. In such works down payment is mostly required to purchase the specific materials. 

A custom bath or kitchen order mostly requires a down payment of 20% to 30% in order to purchase the materials. This down payment is a kind of security for the contractor, that the homeowner will not change his mind after giving the order. The rest of the amount is paid after the successful completion of the project. 

Large Renovation Projects

Any large project should contain a detailed draw schedule. The homeowner pays these draws or “progress payments” when certain parts or phases of the project are completed. A draw schedule for a $100,000 second-story addition might look like this:

Payments to be made as follows:

  1st DRAW

10% DEPOSIT

$10,000

10%

  2nd DRAW

Second Floor Deck Installed

$15,000

15%

  3rd DRAW

Windows Installed

$15,000

15%

  4th DRAW

Close-In and Inspection

$10,000

10%

  5th DRAW

Drywall Taped

$10,000

10%

  6th DRAW

Prime Paint

$10,000

10%

  7th DRAW

Plumbing Fixtures Set

$10,000

10%

  8th DRAW

Hardwood Finished

$10,000

10%

  9th DRAW

Final Inspection

$5,000

5%

  10th DRAW

Punch List Complete and Final Release of all liens

$5,000

5%

  TOTAL:

 $100,000

 100%

In such large remodeling plans, make sure you and the builder are clear about when the final amount is due. Mark in writing when the last payment is due. In many big plans, there is regularly some outstanding work to be completed, as you may still be waiting for a custom fixture or light fixture. It’s not fair to keep the whole final payment if some component or material is on back-order, and the contractor can’t control delivery and completion.

In cases such as this, agree with the builder to withhold the cost of the labor and materials for the outstanding work, but if the rest of the project is complete, pay the balance of the final payment. This type of collaboration and understanding allows you and your contractor to work together to build your project to the satisfaction of everyone involved.