There is one indicator that has never failed, and it comes up when they ask for the deposit. It usually comes up when everything seems to check out, and we agree on a price. Then they ask for a big deposit. Here in Virginia, the Department of Professional and Occupational Regulation recommends that you give no more than 30 percent of the total job cost in an upfront deposit. So if they demand 50 percent or more, I pretty much always put on the brakes.
That is when it happens. The contractor protests too much. If they ask for 50 percent and I say I feel more comfortable with 25 percent, the situation can work out two ways. They could say, “Hey, Justin, I understand your position, but this particular job has a lot of materials I’m going to have to buy upfront.” Well, we can talk about it, and if they have good justification for the increased upfront costs, then we can work something out. The second possible reaction is a showstopper. In essence, the contractor protests too much. They grow very indignant and act offended. They try to treat you like you are the crook, like you do not know what you are doing.
Absolutely every time this has happened, even if I am successful in getting them to agree to a lower deposit, the contractor takes that draw and either disappears or turns out to be completely incompetent in their work and then disappears.
A few years ago, I had a home I was getting ready to sell. During the home inspection, the inspector said the circuit breaker panel was out of date. It was an old 100-amp panel, and he recommended installing a 150-amp panel. The buyer then demanded this, and it was better for me to pay the $2,500 or so for the work than to just scrap the entire contract and start over. But now we had only about two weeks until closing.
I did not have a good master electrician in that area, so I had to hit the Yellow Pages. I found an electrician who came up at the top of the Internet search for that city. He had a van with his company name and logo on the side. He produced a license and a license number that both checked out.
We worked out the price and the timeline, and he demanded all the money upfront. When I said I was not comfortable with that, he flew off the handle and said he did not know if he even wanted to work with me now. Well, this was not the first time this had happened to me, and my instincts said walk away. We were a week from closing, and I did not have time to find a new electrician. I agreed, and he proceeded with the job.
I always demand the contractor get and show proof of permits, and he got a permit. He did the work and got all paid out. The property went to closing, but a couple of weeks later I got a call from a gentleman asking me how his license was used to pull permits on my property.
The electrician I hired had worked for this other company years ago and had pulled permits in his company’s name several times, illegally. It turns out that the work was never final-inspected. When we did get it looked at, the job was a disaster and dangerous. I had to find another electrician to fix the work at my cost. The original electrician disappeared.
You would think the authorities would put a guy like this in jail for fraud. But they do not really do much to these types. If you are a good contractor, the licensing authorities, building departments and civil law system will eat you alive. If you are a shyster who pops up and disappears, then you are too much work to go after, and the police are too busy chasing drug dealers and murderers.
It just happened to me again working on a project in Washington. We selected a plumber whose bid was basically the same as the next guy in line. Of course, he scrutinized my contract in detail, which I thought was a good sign. But he then told me he needed 65 percent of the contract costs upfront. He became indignant, telling me he gets $1,000 just to pull a permit.
I put on the brakes. But I had a partner on the deal. He negotiated the deposit down a little and wanted to proceed. He paid the deposit directly and felt he had a good relationship with the guy because he had done a couple small jobs with him in the past.
Surprise, surprise, the work did not get started the next week like it was supposed to. He said he would knock it out the next week. He did not. By the third week, all of the other subs were done, and everything was waiting on the rough plumbing. After five weeks, nothing was done, and the project had been sitting empty and silent for weeks.
Now I am back to the drawing board interviewing plumbers again and getting prices. The total delay will probably be close to eight weeks when it is all said and done. We will be lucky to get this place on the market before the dead of winter sets in. This will probably costs thousands, if not tens of thousands of dollars, and we will never see a penny back of that deposit we paid him because our only option is to take him to court. Good luck with that.
If a contractor demands a huge deposit with no good justification and then acts offended when you point it out, stop everything. Strongly consider looking at someone else. At the very least, you better go back and double-screen that contractor.
Good contractors do need to protect themselves. Many of them have problems getting paid. But good contractors should also realize that there are a lot of bad actors out there and that homeowners too have reason for concern. If a contractor cannot take the time to politely justify their deposit request, then there is a big problem.
Justin Pierce is a real estate investor and real estate agent who regularly writes about his experiences buying, renovating and selling houses in the Washington area.