How Much Deposit Do Builders Need?

Starting a new build or remodeling project requires funds to pay for labor and source materials. Some projects require a significant amount of money than others, depending on size and specifications. In most cases, a builder will ask for a deposit or a down payment as the project kicks off. The question is, how much deposit do builders need?

*Please note that these numbers mentioned in the article are just estimates and should not be considered absolutes. These are subject to market changes*

How much deposit do builders need at the start of the project?

The amount of deposit you should give a builder should be between 5-33% of the total contract price. There are specific factors that determine the exact percentage you ought to pay. It includes the total cost of the project and laws within that respective area. Keep reading as we explore the amount of deposit you should give a builder.

This is a common question asked by many people intending to build their own homes. On the other hand, some builders intend to take advantage by asking for more than they should. If you come across such a builder, it’s a red flag you should not ignore.

Additionally, some project owners might feel they are not liable for financing a builder’s business or work they are yet to deliver or even start. Conversely, a builder might need the deposit to pay for materials, rent equipment, or subcontract other services. Therefore, there has to be a realistic balance between a project owner and builder on such an issue.

So, how much precisely should builders get as a down payment? It varies from location to location.

Generally, a builder asking for a substantial deposit is a big red flag; they might have financial instability or even lack it in their business. Basically, they don’t have the funds and credit to pay for the project’s upfront cost unless they get a deposit. Also, builders asking for a massive deposit than what the law outlines is illegal.

Why paying too much deposit is not good?

Paying too much/ excess deposit is not good for reasons. They include:

• Most domestic insurance companies might don’t cover advanced payments on work not delivered if the builder disappears, dies, or becomes bankrupt.
• If your selected builder is not an honest person, you risk them taking the money and not finishing the project as agreed. In addition, it can result in a legal battle that is time-consuming and costly.

Is paying a deposit to builder important?

Builders asking for too much deposit is not good. However, a reasonable percentage is essential in a project, especially when it’s a big or complex project such as a custom build. 

A deposit paid to a builder illustrates that you (the customer) you’re committed and serious about the project. Additionally, it might make a builder prioritize and accelerate the start of your project amongst clients on their list. Lastly, a deposit secures the contract once signed.

A balance between what a customer should pay as a deposit and what a builder is asking for is critical. For this reason, a customer should not give a builder a large percentage of upfront to a builder.

How and when to pay a deposit to a builder?

By now, you understand how much deposit you should pay to your builder. Let’s explore when you should pay the deposit and how you should do it.

There are specific instances where you’re required to pay a deposit. Deposit should entail money for materials, custom-ordered products, and labour expenses as the project starts.

The most important part of paying a builder deposit is how you do it. It’s crucial not to pay any deposit to a builder before agreeing to a price and contract. So, how should you give a deposit in the right way? Below are helpful tips you should utilize as a customer if you have agreed to a contract with a builder:

• Ask for an accurate builder quote with details of breakdown cost and the deposit needed.
• When a builder asks for a deposit to pay for materials, insist you be given an invoice or receipt from their supplier of the materials bought.
• Opt for a stage payment plan with costs proportional to the work completed. The stages include base, frame, lock-up, and finishing.
• Avoid paying a deposit until the builder gives you a domestic building insurance policy.
• Lastly, avoid getting ahead of a project by paying too much deposit.

Undertaking any construction project requires the involvement of both a builder and a customer. One of the critical aspects that come along is funds, specifically deposits. Therefore, you should be aware of how much and when to pay the deposit to a builder.

5 to 10% of a project’s total cost is a reasonable amount of deposit to a builder in most places. Therefore, avoid paying a substantial deposit like that of 50% of the total cost. You should actually avoid hiring a builder who asks for such a percentage.