A deposit does two jobs for a contractor. It pays for materials before the first board goes in, and it tells you the customer is serious. The trouble is that the same deposit, in the wrong hands, is how homeowners lose money to people who never show up. So some states put a hard number on how much you may take before the work starts, and the numbers are very different from one state to the next.
This is how the rule works in five states that write it down, what “special-order materials” means when a state allows more for them, and how to build a payment schedule that never runs ahead of the law.
Five states, five rules
| State | The rule | Where it is |
|---|---|---|
| California | The down payment may not exceed $1,000 or 10% of the contract amount, whichever is less. After that, no payment may exceed the value of the work performed or material delivered. | Bus. & Prof. Code §7159.5(a)(3) and (a)(5) |
| Maryland | No payment before the contract is signed; no deposit of more than one-third of the contract price before or at signing. | Bus. Reg. §8-617 |
| Pennsylvania | No payment before the contract is signed. On a contract over $5,000, no deposit above one-third of the price, or one-third plus the cost of special-order materials designated in the written contract. | Home Improvement Consumer Protection Act §9(9) and (10), 73 P.S. §517.9 |
| Massachusetts | On an agreement over $1,000, a deposit before work starts may not exceed the greater of one-third of the total price or the actual cost of special-order or custom-made materials or equipment. | G.L. c.142A §2 |
| Florida | Takes a different route: an initial payment of more than 10% of the price obliges you to apply for permits within 30 days and start work within 90 days after the permits are issued, unless the work needs no permit, you have just cause, or the customer agreed in writing to longer. | Fla. Stat. §489.126(2)(a) |
These are the rules for home improvement work on a residence, and each statute has its own definitions of what that covers. If your state is not on this list, do not assume it has no rule. Every limit above sits in a home improvement or contractor licensing law, so start your search there.
The same job in all five states
Say a deck builder signs a $24,000 composite deck. The railing is a custom system made for this deck, costing $9,000, which the supplier will not take back once ordered. Here is the most the builder could take before starting, state by state:
| State | How it works out | Up front |
|---|---|---|
| California | 10% is $2,400; the cap is the lesser of that and $1,000 | $1,000 |
| Maryland | One-third of $24,000 | $8,000 |
| Pennsylvania | One-third, plus the $9,000 railing if the contract designates it as special order | $17,000 |
| Massachusetts | The greater of one-third ($8,000) or the railing’s actual cost ($9,000) | $9,000 |
| Florida | No cap in this section, but anything over $2,400 starts the 30-day permit and 90-day start clocks | Clock starts above $2,400 |
The California number is the one to watch. On that deck, the builder cannot fund the railing order from the deposit. What California allows instead is a progress payment once the material is delivered, because the payment then does not exceed the value of the material delivered.
What counts as special-order material
Pennsylvania’s act defines it precisely: material, product or equipment “that is not a stock item and must be specially ordered from the factory or distributor,” produced or processed for a specific contract, not returnable “for a refund or credit,” and with “no usefulness for other home improvement contracts.” Custom-sized windows, a made-to-measure railing or cabinet run, a special-color roofing order: maybe. Lumber from the yard: no.
Two Pennsylvania rules go with it. The contract must list “the amount of any down payment plus any amount advanced for the purchase of special order materials,” and the two “must be listed separately” (§7(a)(9)). And misrepresenting “an item as a special order material” or its cost, with intent to defraud, is one of the acts the statute names as home improvement fraud (§8(a)(6)). So keep the supplier’s quote and its no-return terms with the contract. If the item is special order, you can show it; if it is not, do not call it that.
California’s bond exception
California has one way around the $1,000 cap. A contractor furnishing a performance and payment bond, a lien and completion bond, or a bond equivalent or joint control approved by the registrar “is exempt from paragraphs (3), (4), and (5)” and “may accept payment prior to completion” (§7159.5(a)(8)). The same paragraph says a licensee must have been licensed in an active status for at least two years before applying for the blanket performance and payment bond it refers to. Ask your surety and the Contractors State License Board how it applies to you before you rely on it.
Writing a payment schedule that stays inside the cap
The cap only covers the money before work starts. A good schedule handles everything after it the same way: each payment is tied to something the homeowner can see.
- Start with the deposit line, at or under your state’s cap.
- Tie each later payment to a milestone: materials delivered to the site, a phase finished, an inspection passed. California requires exactly this: a schedule “in dollars and cents specifically referencing the amount of work or services to be performed and any materials and equipment to be supplied” (§7159.5(a)(4)).
- Never bill ahead of the work. In California that is the law for every payment after the down payment. Elsewhere it is still the schedule a homeowner trusts.
- Hold a real final payment for completion. Massachusetts says it outright: “No final payment shall be demanded until the contract is completed to the satisfaction of the parties thereto.”
For the $24,000 deck in California, that could look like this (the figures are an example; the test is that no payment runs ahead of the work done and the material on site):
| Down payment, at signing | $1,000 |
| Railing and framing lumber delivered to the site | $9,000 |
| Footings and framing complete | $6,000 |
| Decking installed | $5,000 |
| Railing installed, final walk-through and completion | $3,000 |
| Contract price | $24,000 |
California also dictates how this looks on paper. The contract carries the heading “Downpayment” with the statement “THE DOWNPAYMENT MAY NOT EXCEED $1,000 OR 10 PERCENT OF THE CONTRACT PRICE, WHICHEVER IS LESS,” and a “Schedule of Progress Payments” with a statement in at least 12-point bold type that ends: “IT IS AGAINST THE LAW FOR A CONTRACTOR TO COLLECT PAYMENT FOR WORK NOT YET COMPLETED, OR FOR MATERIALS NOT YET DELIVERED. HOWEVER, A CONTRACTOR MAY REQUIRE A DOWNPAYMENT.” (§7159(d)(8) and (d)(9)).
What happens if you take too much
The statutes name the penalties; what a board or a court actually does in a given case is up to them. In California, violating the down payment rule or the no-payment-ahead-of-work rule “is a misdemeanor punishable by a fine of not less than one hundred dollars ($100) nor more than five thousand dollars ($5,000), or by imprisonment in a county jail not exceeding one year, or by both” (§7159.5(b)(1)), and the court must impose the maximum fine when the violation happens in a place damaged by a natural disaster for which the Governor or the President has declared an emergency. Maryland’s Home Improvement Commission may impose a civil penalty of up to $5,000 for each violation (§8-620). In Pennsylvania, any violation of the act is deemed a violation of the state’s Unfair Trade Practices and Consumer Protection Law (§10).
And Pennsylvania adds a refund rule worth knowing whatever your deposit: if no substantial portion of the work has been done and more than 45 days have passed since the contract’s start date, a contractor who gets a written refund request by certified mail must refund within ten days (§9(2)).
The short version
The deposit and the schedule are only two of the things a contract must say; the rest are in What a Home Improvement Contract Must Say. For getting paid on time once the schedule is set, read Getting Paid Faster: Deposits, Progress Payments and Due on Completion.
General information, not legal or tax advice. Rules change and vary by state; check with the agency named above or a professional for your situation.