Under California law, what is the maximum percentage of the total contract price that can be collected as a down payment for a home improvement contract exceeding $1,000?
Correct Answer
C) 10% or $1,000, whichever is less
California Business and Professions Code Section 7159.5 limits down payments for home improvement contracts to 10% of the contract price or $1,000, whichever is less. This protection prevents contractors from collecting excessive upfront payments and protects homeowners from potential financial loss if contractors abandon projects.
Why This Is the Correct Answer
California B&P Code §7159.5 caps home improvement contract down payments at 10% of the contract price OR $1,000, whichever is LESS. This 'lesser of' rule is intentionally strict — on large contracts, 10% could be a substantial sum, so the $1,000 absolute cap protects homeowners from large upfront losses if a contractor abandons the project.
Why the Other Options Are Wrong
Option A: 25% with no dollar limit
25% with no dollar limit would expose homeowners to significant financial risk on large projects. No such rule exists in California home improvement law. A 25% down payment on a $100,000 kitchen remodel would be $25,000 — far beyond what §7159.5 allows.
Option B: 20% or $2,000, whichever is greater
'Greater of' rules favor the contractor, not the consumer. California uses a 'lesser of' standard to maximize homeowner protection. '20% or $2,000, whichever is greater' would result in higher down payments and is the opposite of what the statute intends.
Option D: 10% or $1,000, whichever is greater
'10% or $1,000, whichever is GREATER' would remove the consumer protection on smaller contracts. For example, on a $5,000 project, 'greater of' would allow a $1,000 down payment (since $1,000 > $500 = 10% × $5,000). The statute uses 'whichever is LESS' to cap the down payment at the smaller of the two figures.
Memory Technique
Mnemonic: 'California homeowners get the LESSER deal on down payments — 10% or $1,000, whichever is LESS.' The state always picks the smaller number to limit contractor upfront collection.
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