How much deposit should I pay a contractor?

Deposit demands are the single most diagnostic moment in contractor selection. Legitimate contractors operate with bonded financing or supplier credit and do not need large customer deposits to start work. Fraudulent contractors demand large deposits because they are either insolvent or planning to take the money and disappear.

State-imposed deposit caps:

- California: 10% of contract value or $1,000, whichever is less (Business and Professions Code §7159). - Maryland: 1/3 of contract before work begins, then milestone payments. - Massachusetts: 1/3 cap, with milestone payments. - Minnesota: 10% deposit cap. - Most other states: no statutory cap, but industry practice is 10% or less.

What a reasonable payment schedule looks like for a $50,000 kitchen remodel:

- $5,000 (10%) deposit when contract is signed, materials are ordered, and the contractor has documented their material supplier relationship. - $10,000 (20%) when demolition is complete and rough plumbing/electrical inspection passes. - $15,000 (30%) when cabinets are installed and tile is in. - $15,000 (30%) when appliances are in and project is substantially complete. - $5,000 (10%) holdback released after final building inspection signs off (typically 30-60 days post-completion).

What is wrong with paying more up front:

- A 50% deposit removes the contractor's incentive to finish on time. Your leverage drops to zero. - A 100% up-front payment means you are financing the contractor at zero interest. If they go bankrupt, your money is gone. - A deposit larger than the value of materials they would purchase up front (typically 20-30% of contract value) is almost always evidence of cash flow distress at the contractor — they need your money to pay their existing bills.

Red flag phrasing:

- "I need 50% up front to lock in material prices." Materials are not paid up front by reputable contractors; they have supplier credit. - "Pay me now and I'll start next week." Legitimate scheduling does not require advance payment. - "Cash discount if you pay everything up front." This is a fraud signature, not a legitimate offer. - "My supplier requires a deposit and I'm passing it through." Ask for proof — supplier name, invoice. Refuse if not provided.

Storm-chaser variant: insurance check endorsement. The contractor asks you to sign over your homeowner's insurance check directly. This is functionally a 100% up-front payment and is the storm-chaser fraud signature. Never endorse the insurance check.

Payment methods that protect you:

- Credit card. Chargebacks within 60 days are your strongest recovery tool. Many contractors will not take credit cards on full project payments — try to pay at least the deposit by credit card. - Personal check. Provides a paper trail and gives you stop-payment options if work is not started promptly. - Joint check (for milestones with subcontractors). Made out to GC and sub jointly, both must sign.

Payment methods to refuse: cash, wire, cryptocurrency, gift cards, money order. All of these are fraud-irreversible.

Groundcheck (earthmove.io/trust) catches the contractor patterns that correlate with abusive deposit demands — phoenix-company history, mechanics' liens against the contractor (indicating cash-flow distress), recent bankruptcy filings, OSHA citation patterns. A "Caution" or "Critical" verdict alongside a 30%+ deposit demand is a hard stop.