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By Jim Donovan

PHILADELPHIA (CBS) — We’ve all heard horror stories where someone gives a contractor a $5,000 down payment and then never hears from them again. An important part of a home improvement project is the down payment. In this week’s Angie’s List, Jim Donovan explains how much is too much.

If you hire a contractor to do just about any home improvement project there’s a good chance you will have to put some money down before things get started.

“Down payments for home improvement projects are normal, but keep in mind you don’t have to pay what the contractor initially requests. Everything is negotiable,” said Angie’s List founder, Angie Hicks.

Most contractors will ask for down payments starting around 20% but some can go as high as 50% to cover the cost of materials.

But don’t let them convince you to go any higher.

“Unless you have custom materials, your contractor shouldn’t require the full cost of materials in order to start the project,” said Hicks.

If a contractor insists on a very large down payment or complete payment, you should consider it a red flag.

It’s best to set up a payment scheduled based on targeted completion dates.

“Tie all future payments to progress, and hold back final payment until you’re completely satisfied with the job,” said Hicks.

Also, have all details requiring payment terms included in a written contract. It’s also best to pay with a credit card this way you have recourse if something goes wrong.

Here are some other scenarios that could merit a down payment:

· If the contractor has to invest in costly materials or other expenses upfront.

· If the project involves unique, challenging or custom materials.

· To secure your spot on the contractor’s schedule.

Angie’s List down payment tips:

· Negotiate your down payment: Most contractors will ask for down payments starting around 20 percent, but don’t be afraid to negotiate. Some states limit the amount of money a contractor can request as a down payment, so determine your state requirements.

· Beware of large down payments: It’s not uncommon for contractors to ask for as much as 50 percent down. That might be OK if you’re covering materials, but that’s as far as you should go.

· Tie payment dates to job completion: Give yourself options in your contract to deduct or delay payment if completion dates are missed to encourage the contractor to meet your time frame. Be specific about amounts and clearly define terms.

· Hold back at least 10 percent until the job is completed to your satisfaction: Before you make your final payment, do a final walk-thru of the project and make sure everything on the punch list has been completed to your satisfaction. If the project isn’t fully finished, set a completion date for that portion of the project and don’t make the final payment until you’re happy with the work. The last thing you want is for a two-week project to go on for two months while those “little things” remain undone.

· Get it in writing: Have all details requiring payment terms included in a written contract and make sure you read and understand the contract before signing. And never pay for a project with cash; always use a credit card so you have recourse in case something goes wrong.

Reported by Jim Donovan, CBS 3

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