Kitchen and Bath, Renovation | 22.10.2015

How Much Is Reasonable For A Renovation Deposit?

The amount that a renovation deposit should be for a project is very dependent on the type of construction project and when it will begin. In general, the contractor wants the deposit to ensure that their up-front costs are covered and to be reimbursed in the event that the customer changes their mind (or something catastrophic happens), whereas the homeowner is hoping for as small a deposit as possible as we’ve all heard the stories of the disappearing contractor. In the end, the amount needs to be fair to both parties.

When a project has custom materials, such as cabinetry or windows, these have to be ordered well before the project starts. Once they are ordered, the contractor has an obligation to accept and pay for them. Therefore, the deposit amount needs to cover any ordered materials, as well as any design, project planning, scheduling, and permit fee costs. These are all costs that are incurred prior to the first hammer swing and should be included in the deposit amount. On most projects of this scope a 50% deposit is expected.

Projects that do not have this level of complexity generally have a smaller deposit requirement. If the materials are primarily composed of off-the-shelf items, then your deposit is designed to reserve your spot in the schedule. Once the labour is scheduled, the contractor may have to turn down other work for your timeframe, so the deposit acts as a security deposit for the contractor if the homeowner changes their mind. So, depending on materials, you may be looking at a range of a 10-30% deposit for a project that is more labour than material cost.

A quick note on progress payments during a project. In any project, the general contractor is acting on the homeowners’ behalf and therefore should be spending their money as opposed to their own. Most payment schedules are therefore structured so that the customer entrusts an amount of money to the contractor to carry out a particular task. When that task is complete and the next task is about to begin the contractor comes back looking for the next progress payment. When the renovation is complete the only amount that should be left outstanding is the contractor’s profit which is usually around 10% of the project.

In summary, deposits and payment schedules are all about fairness. The homeowner needs to be fair to the contractor and ensure that their costs are covered by the payments, and the contractor needs to be fair to the homeowner and not ask for too much too far in advance of the money being spent on the project. Each project is different and needs to be assessed as to what works best for both the contractor and homeowner.

Happy Renovating.