An earlier blog post elicited the following comment.
" . . . I would never give a downpayment to somebody working on my house."
Because there are other homeowners (and contractors) with that opinion, I need to respond.
First, as Greg reminded us with his comment, "Money changing hands means a commitment has been made." A contract happens when an offer is made, the offer is accepted, an agreement that outlines the offer is signed, and a down payment is made. Now, it is possible to complete a job without a written agreement or a down payment, but doing that leaves somebody (guess who) wide open to being used or screwed out of their money rightfully due. At least once a week we talk to contractors losing money because of the lack of a written contract or a down payment. It's not pleasant for anyone.
As a homeowner, it's easy to talk to someone about making changes on your home. It's easy to have them start work. It's tough to write a check. As a contractor, you need to know that the homeowner is both able and willing to pay for the work being done.
In my experience, there are four kinds of contractors.
"A" contractors run their business like a business and make good money.
"B" contractors run their business like a business most of the time and make a living most of the time.
"C" contractors run their business like a hobby, make a living some of the time, but often (like today's market) take a second job so they can keep their bills paid. If they are married, their wife's income is usually the primary means of support.
"D" contractors are the ones we hear the most about even though I believe they are the smallest group. They are either con artists or complete flakes, the guys that cause over 90 percent of all the problems in this business.
"A" contractors will not work without a well-written signed contract, will not make changes without a change work order written and signed up front and will not start any job without a down payment. There are exceptions of course, but not many. They start and finish jobs as promised, communicate with customers in good times and bad, and pay their bills on time so their customers don't have to worry about liens or any other problems. They will not be the lowest price contractor, but if your contractor is an "A" contractor, you can sleep at night and not worry about the investment you are making in your home.
"B" contractors do most things right, but still fall into the trap of "trusting" customers to "do the right thing" and often don't get change work orders signed, have poor payment schedules on their contracts, let owners dictate payment schedules, and suffer the results more often than not. Here again, there are exceptions, but not many. Many "B" contractors, when they get tired of losing money or they get taken one too many times, tighten up their business practices and become "A" contractors. Most "B" contractors start and finish jobs as promised and communicate with their customers well, but if they are getting taken by a customer on one job, the financial problems it can cause in their business might impact other jobs. The price from a "B" contractor will probably be fair, but might be too low for them to survive financially. If your contractor is a "B" contractor, your job will probably proceed well but problems with another customer can put your investment at risk.
"C" and "D" contractors almost always will quote you the lowest price. Most "C" contractors are honest people who mean well, but they haven't yet educated themselves well enough in their business to be successful. They often do outstanding work, but if they are losing money they get tired of doing outstanding work for no return. Who wouldn't? Some "C" contractors find help and become "A" or "B" contractors - the rest go out of business, usually deep in debt. Although they have no intention of hurting any customers, if you are one of the last customers, you can lose.
I won't waste your time describing what "D" contractors do or don't do to cause themselves and their customers problems. You can watch it on the news.
Where I am going with all this is that when an owner refuses to give the contractor a down payment, they eliminate their ability to hire an "A" contractor. They might get a "B" contractor, but more likely they will have to hire a "C" or "D" contractor. I personally don't know a single "A" contractor who will start a job without a down payment of some kind, and strict payment schedule language in the contract that gets them paid promptly for work done. I don't mean payment in 30 days or whenever the owner gets around to it, I mean within a few days.
Many who read this will not believe getting paid upfront is possible, that you don't have to wait 30 or 45 or 90 days to be paid. Beliefs are based on our own experience and the experience of those around us that we know and trust. If you are a contractor and you are not getting paid on time for your work, if you are not getting down and progress payments for the work you are doing, then maybe it is time to educate yourself on how "A" contractors get this done.
If you are the homeowner, what's your criteria for picking a contractor?