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How Much Deposit Should You Pay Your Building Contractor

Starting a new project on your home such as an extension can be an exciting time but there can be some stress when it comes to trusting your building contractor and handing over money. Paying a deposit before works have started can be a conflicting matter as it involves a high level of trust from both your building contractor and as a customer.

When contractors ask for an initial deposit, it is usually used to cover the first lot of material costs to get the job off the ground but as a customer, how do you know how much you should be handing over. 


Firstly, before any works are agreed upon, it is key that there is a contract in place between yourself and building contractor. This will outline what work is expected to be carried out and any payment terms set in place. Each building contractor will have different terms so be sure to read through all paperwork before signing to make sure you are comfortable.


A deposit is not just an initial payment for materials but also a form of security for your contractor as they will have blocked out an adequate amount of time to complete a job and if the customer were to cancel last minute, the contractor would lose money by having to find another job to replace that blocked out time. So not only does there need to be trust from the contractor but also trust from the customer that work will commence.


Do not pay for any major building works in cash. If your contractor is requiring you pay any form of deposit or continued works with cash, it could mean they are not running their business through the books. Whilst this may seem appealing if offered a lower price than others, it leaves you completely liable for any payment issues during the project as there will be no trail or evidence of payments being made. 


It can be hard for new building contractors to gain the trust of a customer as they may not have an extensive project portfolio behind them. However, it does not mean they are not trustworthy. If you are looking to hire someone who is less established than others, make sure to research the work they have done, ask for any images of work and speak to their previous customers to gain feedback on their project. 


Depending on the scale of the work you are having done, you shouldn’t be paying anymore than 15% maximum for an initial deposit as this is more than enough for your contractor to start with. After this, the general system that most contractors use is for the work to paid for in installments throughout the project, whether this be weekly or monthly. These installments mean there is a consistent cash flow for labour and material costs. It also avoids the customer being left with a larger payment at the end of a project which more often than not can cause issues for the contractor in not receiving payment.

So when agreeing a deposit to pay your contractor, remember to read up on the company you have hired, check their reviews and portfolio so you are sure to trust them with your project and creating your new dream home.