Under California law, what is the maximum down payment a contractor can collect for a $25,000 home improvement contract?
Correct Answer
C) $1,000
For home improvement contracts, the maximum down payment is $1,000 or 10% of the contract price, whichever is less. Since 10% of $25,000 is $2,500, the maximum allowed is $1,000.
Why This Is the Correct Answer
California Business & Professions Code §7159.5 limits the down payment on home improvement contracts to the lesser of $1,000 or 10% of the contract price. For a $25,000 contract, 10% = $2,500. Since $1,000 is less than $2,500, the maximum allowable down payment is $1,000.
Why the Other Options Are Wrong
Option A: $5,000
$5,000 represents 20% of the contract — far above the legal limit. There is no 20% down payment rule in California home improvement contract law.
Option B: $12,500
$12,500 is 50% of the contract price. Collecting half the contract value upfront is precisely the predatory practice California's down payment cap was designed to prevent.
Option D: $2,500
$2,500 is 10% of $25,000 and would be correct if the 10% calculation produced a lower number than $1,000 — but it does not. The rule requires taking the lesser of the two values, and $1,000 < $2,500, so $1,000 governs.
Memory Technique
The rule is '$1,000 or 10%, whichever is LESS.' For contracts over $10,000, the $1,000 cap always wins. Think of it as: for larger jobs, the cap is just $1,000.
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