CSLB Contractor's Law & Business Practice Exam

According to the Business and Professions Code, what is the maximum down payment allowable for home improvement contracts over $500?

1. $500 or 5% of the total price

2. $1,000 or 10% of the total price, whichever is less

3. $1,500 or 15% of the total price

4. No down payment is required

The correct answer is: $1,000 or 10% of the total price, whichever is less

The correct response highlights the legal limitations set forth in the Business and Professions Code regarding down payments for home improvement contracts exceeding $500. Specifically, the code allows for a maximum down payment that is either $1,000 or 10% of the total contract price, whichever results in a lesser amount. This regulation was established to protect consumers from excessive upfront payments, thereby reducing the risk of financial loss if a contractor fails to fulfill their obligations. In practical terms, this means that if a home improvement contract costs $7,000, the allowable down payment would be $1,000, as it is the lesser of the two options. Conversely, for a contract of $8,000, the maximum down payment would be $800 (10% of $8,000), as that amount is below the $1,000 limit. Understanding this rule is essential for contractors to ensure compliance with legal standards, as violations can lead to penalties and damage to their business reputation.