Pre-pay for "Changes"

1 month ago

We have made an offer on a house already under construction. Exterior walls are up and interior studs set. We made the offer with a flooring upgrade and asked that the jacuzzi tub (not installed) be replaced by a closet for more bathroom storage. Builder has responded to the offer but wants payment in advance ($16K) for the “changes”. Builder does not have a long history and has only built “a few” houses in the past. I’m reluctant to pay him this money before closing because if he does not complete the house, I’m doubtful I’d get the money back. I also think his upgrade price is way high. Is asking for advance payment on upgrades common?

Senior Legal Associate Levelset

It’s good to be wary of down payments that seem excessive or out of proportion with the overall contract price. While other states limit the amount a contractor can charge for down payment on residential projects, it doesn’t appear that Alabama has any such limitation. Still, it’s typically a good idea to try and limit how much is paid upfront.

As a very conservative rule of thumb, paying anything more than 50% of project costs before materials are bought and work is performed would be rather high. Something in the 10-30% would likely be more appropriate (though, admittedly, that’s a large range). AlabamaLegalHelp.org recommends a down payment of no more than 33% in this Guide to Avoiding Construction Ripoffs.

While asking for a large downpayment may be a red flag, double-checking all licensing info can help to soothe concerns. You can search Alabama’s license roster here to check on a contractor’s licensure status. If they’re unlicensed, or if their licensure information looks sketchy or appears to be borrowed, that should be red flag. Contractors performing Alabama home improvement contracts must be licensed.

Asking for referrals may help. If a contractor refuses to provide references of prior jobs, that might be another red flag and cause for concern.

Alternatively, asking another contractor to provide a quote on the job – including what kind of down payment they’d expect – would provide some context to the first offer, too.

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