Must you refund a deposit if the homeowner cancels before work starts?

Work it through

You're the contractor. Pick what you'd do, then see how each choice plays out.

1. AReview your contract's cancellation terms. If you haven't incurred costs, refunding the full deposit is the right thing to do even if the contract doesn't require it. Forcing someone into a project they don't want guarantees problems
   Correct

   If no materials were ordered and no work was performed, your actual damages from cancellation are minimal (perhaps some estimating time). Retaining a $3,000 deposit when you've incurred zero costs is legally questionable and ethically wrong — and it's an easy MHIC complaint. A full refund with a professional response ('We understand, feel free to call us when you're ready') protects your reputation and license.

2. BKeep 20% as a restocking/administrative fee per the contract terms
   Legally defensible but questionable

   If your contract specifies a cancellation fee, you may be within your rights. But $600 for zero work performed feels punitive to the homeowner. If they complain to the MHIC, you'll need to justify what that $600 covered. 'Administrative fee' for two weeks of holding a deposit isn't compelling. The goodwill of a full refund is worth more than $600.

3. CRefuse the refund — a signed contract is a signed contract
   Wrong

   Holding $3,000 with zero work performed is the kind of practice that generates MHIC complaints, Guaranty Fund claims, and negative reviews. Even if the contract technically supports your position, the optics are terrible: contractor takes money, does nothing, refuses refund. The MHIC and courts generally expect retention to reflect actual damages, not punitive holding.