Asking for a deposit: what the law lets you do

The cabinets are a special order and the shop wants half before it cuts anything. Your signed estimate is $14,000, you need $4,000 up front, and the homeowner asks the fair question: are you actually allowed to hold their money before you have done any work?

Almost always, yes. The interesting part is the almost. Nothing in federal law stops a contractor from taking money up front, but four separate bodies of rule shape how much, when, what you hand the customer first, and whether the money is even yours to spend. State law varies sharply, so treat everything below as the shape of the rule and confirm the specifics for your own state.

Four places a deposit rule can hide

These rules are commonly aimed at residential home improvement work and can depend on the job size and trade. The same payment setup can therefore have a different answer on a commercial job.

What a statutory cap looks like when a state has one

Some states cap the up-front payment on residential home improvement contracts by statute — the statutes generally call it a down payment rather than a deposit. California is the best-known example. Business and Professions Code §7159 sets out what a home improvement contract must contain, and §7159.5 carries the payment limits: as this is written, the down payment "shall not exceed one thousand dollars ($1,000) or 10 percent of the contract amount, whichever amount is less," and after that the contractor may not request or accept payment beyond the value of work performed or material delivered. Several other states have their own version, and no two are written the same way.

The caps take a few recognizable shapes:

• A percentage of the contract price.
• A flat dollar ceiling.
• The lesser of the two — the shape that surprises people, because on a large remodel the dollar figure wins and the percentage never comes into it. California is written this way.
• A cap on the deposit, with a separate allowance for special-order or custom-fabricated materials.
• A higher payment permitted only if you post a bond or use an approved payment control — California's own exception works like this.

Notice what a cap like that does to the job at the top of this article. On a $14,000 California remodel the down payment ceiling is $1,000 — not the $4,000 the cabinet shop wants — and California does not add a special-order allowance on top of it. That gap is why contractors in capped states either use the bond or joint-control exception, or write a payment schedule that pays for materials at delivery instead of at signing.

These figures can change. Get the current number from your own licensing board, and never carry a number across a state line. A cap can affect both license discipline and your ability to enforce the contract.

Signing at the kitchen table starts a clock

The FTC Cooling-Off Rule covers a sale you solicit somewhere other than your own place of business — $25 or more at the buyer's home, $130 or more at a temporary location like a fair or hotel room. The buyer may cancel until midnight of the third business day after the transaction, and the rule puts the work on you: hand over a completed cancellation notice in duplicate at the time of sale, and refund all payments within 10 business days of receiving a valid cancellation notice.

Skipping the notice is a violation of the rule in its own right. A number of state home solicitation statutes go further and say the cancellation clock does not start until the buyer has been given proper notice — the federal rule text does not spell that out, so how long your exposure actually runs is a question for a lawyer in your state, not for a template.

The exclusions are narrower than a contractor usually hopes. The repair exclusion applies only when the buyer initiated contact and specifically requested a visit to the buyer's home to repair or maintain the buyer's personal property. If the seller adds goods or services beyond the replacement parts necessarily used for that repair, the add-on is not excluded. The emergency exclusion also requires buyer-initiated contact, a bona fide immediate personal emergency, and a separate dated and signed handwritten statement that describes the emergency and expressly waives cancellation. Read 16 C.F.R. §429.0, rather than copying a competitor's form. States can add their own rules and longer windows.

So on a contract you solicited and signed at the kitchen table, do not place the special order or spend the deposit until the window has closed and the signed notice is in the file. If the job genuinely cannot wait, that is what the emergency waiver is for, and it has to be the buyer's own signed statement.

Money you are holding may not be yours yet

A few states treat construction money as project funds rather than ordinary revenue. Michigan's statute, for example, calls construction funds a trust fund for the payer, contractors, laborers, subcontractors, and material suppliers. The practical rule is useful everywhere: track each job's deposit, material purchases, and labor separately. Check your state before moving a deposit between jobs; the consequences can extend beyond an ordinary refund dispute.

Why "deposit is non-refundable" is the riskiest line you can write

A clause that lets you keep the whole deposit regardless of what happened can be challenged as a penalty. A card dispute is decided on the evidence you can produce, not just the wording in your contract.

So write cost recovery, not forfeiture. Two clauses, same deposit:

The defensible version wins on the facts, not on the language. It survives because you can produce the restocking receipt, the permit fee receipt and the dated hours — kept from the day you take the money, not from the day the customer asks for it back. Two details in it do quiet work as well. Saying the deposit is credited against the contract price stops the argument that it was a separate fee. And where a rule gives the customer a cancellation right, attach the notice to the contract instead of referring to it, because a referenced notice is one you cannot prove you handed over.

Getting the same clause onto every job

Write the clause once, have it looked at once, and then stop rewriting it. Keep the deposit wording and the cancellation notice as saved lines in DoneQuote, so the version that goes out on the estimate, the work order or the contract is the reviewed one — not something retyped from memory on the tailgate, which is where the clause that does not hold up gets written.