What to Ask Before You Sign a Contractor’s Contract
7 min read · Last updated August 10, 2026
- California caps a home improvement deposit at $1,000 or 10 percent of the contract price, whichever is less, under Business and Professions Code Section 7159.5.
- The FTC’s Cooling-Off Rule gives you three business days to cancel a contract signed at your home or anywhere other than the contractor’s regular place of business, for sales of $25 or more.
- A lien waiver signed at every payment draw, not just the final one, is the only document that proves subcontractors and suppliers were actually paid with your money.
- Get three written estimates before you sign anything, and match each contractor’s license classification to the actual scope of your project.
In this article
- The payment schedule and your state’s deposit cap
- The change-order clause: how it should work and how it gets abused
- Lien waivers at every payment draw
- The three-day right to cancel, and when it does not apply
- FAQ
Priya got three quotes to replace her roof in Sacramento: $14,200, $16,800, and $19,500. The contractor with the lowest bid asked for $7,100 down before ordering a single shingle, half the total price up front. California caps a home improvement deposit at $1,000 or 10 percent of the contract price, whichever is less, so that $7,100 request was already illegal before Priya read another word of the contract.
The payment schedule and your state’s deposit cap
Read the payment schedule before you read anything else. California’s Business and Professions Code Section 7159.5 sets the rule for that state plainly: a down payment on a home improvement contract cannot exceed $1,000 or 10 percent of the total contract price, whichever amount is less, and the contract itself must print that limit in bold type. Most states cap deposits somewhere, but the amount and the wording vary by state, so check your own state contractor licensing board before assuming California’s number applies to you.
Beyond the deposit, the rest of the schedule should track the work actually completed, not the calendar. A schedule that reads “25 percent at signing, 25 percent at delivery of materials, 25 percent at rough-in, 25 percent at final walkthrough” ties every payment to a milestone you can see. A schedule that front-loads most of the money into the first two payments gives the contractor your cash before most of the labor happens, which is exactly the leverage a deposit cap exists to remove. Get a written estimate with line-item detail before you sign, not a lump-sum number, so you can hold each payment against a specific, finished piece of work. None of this substitutes for verifying the contractor’s license and bond first. A capped deposit from an unlicensed contractor is still money you may never see again.
The change-order clause: how it should work and how it gets abused
A change order is a written amendment to the contract for work outside the original scope, priced and signed by both parties before that work starts. That is how it should work. It gets abused when a crew simply does extra work first, then hands you a bill during the final walkthrough and treats your surprise as your problem. A contract with no change-order clause at all leaves you with no leverage to dispute that bill later, because you never agreed to a price in writing.
Ask for two specific protections before you sign: a requirement that any change order be priced and signed before the additional work begins, and a stated cap, often a percentage of the original contract, above which the contractor needs a separate written approval rather than a verbal one. Match the contractor’s experience to the scope of your project here too. A crew that routinely underbids the original scope and makes its margin back through change orders behaves very differently once that loophole is closed in the contract language itself, and the same underbidding pattern is one of the red flags to watch for in a contractor quote before you ever get to the signing table.
| What to check | Where it lives in the contract | Why it matters |
|---|---|---|
| Deposit amount | Payment schedule section, usually near the top | Must sit at or below your state’s legal cap before you sign |
| Change-order pricing | A dedicated change-order clause, sometimes an addendum | Stops a verbal “extra work” agreement from becoming a surprise invoice |
| Lien waiver requirement | Payment schedule or a separate lien-waiver clause | Confirms subcontractors and suppliers were paid at each draw, not just at the end |
| Cancellation rights | A disclosure page, required by law for home-solicitation sales | Confirms whether you still have a window to cancel after signing |
Lien waivers at every payment draw
A lien waiver is a signed statement from a contractor or subcontractor confirming they were paid for a specific portion of work, and giving up their right to place a mechanic’s lien against your property for that amount. Homeowners who assume paying the general contractor in full protects them are often wrong. If the general contractor never paid the plumbing subcontractor or the lumber supplier, either one can file a lien directly against your house, even though you already paid in full for that exact work.
Ask for a lien waiver at every payment draw, not only the final one. A conditional waiver signed at each draw, tied to that specific payment, closes the gap between what you paid and what actually reached the people who did the work. Skipping this step is the most common way a homeowner ends up paying twice for the same job, once to the general contractor and again to settle a lien from someone the contractor never paid.
The three-day right to cancel, and when it does not apply
The Federal Trade Commission’s Cooling-Off Rule, codified at 16 CFR Part 429, gives you three business days to cancel a contract of $25 or more if it was signed at your home or anywhere other than the contractor’s regular place of business, such as a trade show or a kitchen-table sales pitch. The seller has to give you written notice of this right and two copies of a cancellation form at the time you sign. The clock runs until midnight of the third business day after the sale.
This right does not cover every contract. It generally does not apply if you initiated the contact and the sale happens at the contractor’s own permanent place of business, and some emergency repairs you specifically request the same day fall outside it too. State home-solicitation laws sometimes extend the window further than the federal rule does, so if your contract was signed anywhere other than a contractor’s office or showroom, read the cancellation disclosure page before you assume you are locked in. All four of these checks belong in the same walkthrough as the rest of the vetting process laid out in how to hire a contractor without getting burned, not as a separate step you can skip once you like the bid.
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Frequently asked questions
What’s the most a contractor can legally ask for as a deposit? It depends on your state. California caps it at $1,000 or 10 percent of the contract price, whichever is less, and requires that limit printed in bold on the contract. Other states set their own caps or percentages. Check your state contractor licensing board before signing rather than assuming any single number applies everywhere.
What is a change-order clause and why does it matter? It is the section of the contract that governs how extra work outside the original scope gets priced and approved. A good one requires a written, signed price before the work starts. Without it, a contractor can perform extra work first and present the bill afterward, leaving you with no agreed price to dispute.
What is a lien waiver and when should I ask for one? A lien waiver is a signed statement that a contractor or subcontractor was paid for specific work and gives up the right to file a lien against your property for that amount. Ask for one at every payment draw, not just the final payment, since an unpaid subcontractor can lien your house even after you paid the general contractor in full.
Does the three-day right to cancel apply to every contract I sign at home? Not automatically. The federal Cooling-Off Rule covers sales of $25 or more signed at your home or away from the contractor’s regular place of business, but it generally excludes sales you initiated at the contractor’s own office and some same-day emergency repairs. Some states extend cancellation rights further, so check the disclosure page in your specific contract.
Should I get three quotes before signing anything? Yes. Three written, itemized estimates let you compare the same scope of work across contractors and spot a bid that is unusually low because it is skipping a permit, a lien-waiver requirement, or proper materials. The lowest bid is not automatically the best choice once you can see what each number actually includes.
