How much should an HOA pay a contractor up front, and what do we do when they ask for half?

By OurHOA · General information · Revised October 19, 2026

How big a contractor deposit an HOA board should pay, how to tie the rest to finished work, Florida's 10 percent rule, and what to say when a bid asks for half.

Part of the HOA board handbook: vendors, projects and upkeep.

The short answer

Pay a deposit only for what the contractor has to commit before the crew shows up, which on most HOA jobs means materials ordered for your project and nothing else. Every other dollar should follow work you can walk out and look at. A good default for a small association is a deposit of 10 percent or less, with special-order materials paid against the supplier's invoice. Half the price up front for a fence, a pool resurface or a parking lot overlay puts association money ahead of the work, and the association carries that gap until the crew catches up. The rules below come from Texas, Florida and Colorado statutes. Your state's law and your declaration and bylaws may say something different, and a large contract deserves a read by the association's attorney. This is general education, not legal advice.

Why the deposit is the board's risk

Once the association has paid more than the value of the work in place, it is an unsecured creditor of the contractor. If the company closes, gets overbooked or walks off, the board is chasing owners' money through a demand letter or a lawsuit, and the job still has to be finished by someone else at a higher price. Our guide on recovering when a contractor abandons an HOA project walks through that cleanup. Most of it is avoidable if payments never get ahead of the work. Some states treat construction payments as trust money. Texas Property Code 162.001 makes payments to a contractor under a construction contract for improving specific real property trust funds, 162.002 makes the contractor a trustee, and 162.031 says a trustee who knowingly diverts them before paying subcontractors and suppliers has misapplied them. Colorado's C.R.S. 38-22-127(1) says money disbursed to a contractor on a construction project is held in trust for subcontractors, laborers and suppliers, and subsection (5) treats a violation as theft. Those laws help protect the people downstream from liens. They do not get the association's deposit back from a contractor with an empty bank account.

Florida draws a line at 10 percent

Florida Statutes 489.126(2)(a) covers a contractor who takes an initial payment of more than 10 percent of the contract price to repair, restore, improve or build on residential real property. That contractor must apply for the permits within 30 days after the payment and start work within 90 days after the permits issue. The exceptions are just cause, work that needs no permit, and a written agreement by the payer to a longer period. If the contractor misses those dates, 489.126(2)(b) has the payer send a written demand by certified mail, return receipt requested, to the address in the contract. Section 489.126(3) separately bars a contractor holding more money than the value of work performed from refusing to work for 90 days, or for a shorter period the contract sets. Violations are crimes graded by the amount, from a first-degree misdemeanor under $1,000 to a first-degree felony at $200,000 or more. Two cautions. Ask counsel whether your common area counts as residential real property before relying on the statute. And never sign a clause agreeing to a longer start period without reading it, because that written agreement is one of the exceptions. Even outside Florida, 10 percent is a sensible ceiling for a deposit on labor.

Build a payment schedule tied to work

Ask every bidder for a schedule of values: the price split into line items such as mobilization, materials, each phase of work and cleanup. Then pay against it. Here is a sample for a $60,000 perimeter fence replacement. - At signing: $3,000 (5 percent) for mobilization and the permit. - Materials: up to $18,000, paid only against the supplier invoice, and only after the panels and posts are delivered to the site or the supplier confirms the order in writing. - After the north run is installed and inspected by a director: $15,000. - After the south run and gates are installed: $15,000. - Final $9,000 after the final inspection, a punch list walk and receipt of final lien waivers. The board never has more than one phase of money out ahead of the work. The final payment is large enough that the contractor wants to come back for the punch list. For bigger projects, add retainage, a percentage held from each payment until completion. Our guide on closing out an HOA construction project covers how to release it.

When the bid asks for half up front

Do not just say no. Ask what the money is for. A contractor who has to buy $25,000 of custom pool tile or a specific asphalt mix may have a real cash problem. One who wants half to hold a spot on the calendar is asking the association to finance the business. Options that meet a real materials need without paying for labor in advance: - Pay the supplier directly, or write a joint check to the contractor and the supplier. - Pay for materials on delivery to the site, with a signed delivery ticket. - Accept the larger deposit only with a performance and payment bond from a surety, naming the association. - Tie the deposit to a written start date and a refund if the date slips. If the contractor wants cash, wants the full price before starting, or refuses every option, take the next bid. The FTC lists demands for full payment up front and cash-only terms as signs of a home improvement scam, and says not to make the final payment until the work is done. A difference of a few thousand dollars in bid price is cheap compared with losing a 50 percent deposit.

Paperwork that goes with every payment

Each payment request should match a line on the schedule of values, with photos and a director's sign-off that the work is there. Two signers approve, per your spending policy, and nobody changes the payment address or wire details on the strength of an email. Call the contractor at a number already in your file. Collect lien waivers from the contractor and major subcontractors and suppliers with each progress payment. In Texas, Property Code 53.281 and 53.282 make a waiver unenforceable unless it substantially follows the statutory forms in 53.284, which include a conditional waiver and release on progress payment. Use those forms exactly. In other states, ask the attorney which form your state uses. Keep the schedule, each invoice, photos, waivers and canceled checks in one project file. If a supplier later files a lien on common area, that file is the board's defense.

Wording the board can copy

Contract clause: 'Owner will pay a deposit of $[amount], not to exceed 10 percent of the Contract Price. Payment for materials will be made against supplier invoices upon delivery to the site. All other payments will be made according to the attached Schedule of Values after Owner verifies the work. Each payment is conditioned on Contractor's delivery of conditional lien waivers from Contractor and from each subcontractor and supplier paid from the prior payment. Contractor will apply for all permits within 30 days and start work within 30 days after permits issue.' Motion: 'I move that the board approve the contract with [Contractor] for [project] at $[price], with a deposit not to exceed $[amount], payments under the attached schedule of values, and authorize the president and treasurer to sign.' Owner update: 'The board signed a contract for the fence replacement at $60,000. The association pays a 5 percent deposit and then pays only for finished, inspected sections, so owners' money is never far ahead of the work.'

Mistakes boards make

Paying half because the contractor was the cheapest bid and said that was standard. Paying for materials that are still in the contractor's yard, or that were never ordered for this job. Letting a director approve a progress payment without walking the site. Skipping lien waivers on a small job, then meeting the unpaid supplier's lien at closing on a home sale. Agreeing to a longer start window buried in the contractor's form contract. Changing wire instructions because of an email. And signing before the board has voted, which leaves the officer, not the board, explaining the deposit to owners.

Sources

These guides are general education for HOA boards and residents, not legal, tax, or financial advice. Rules vary by state and by your community's governing documents - check with a professional for your situation.

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