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.