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Contractor glossary

Cooling-off rule

Updated

Definition

The FTC Cooling-Off Rule gives buyers until midnight of the third business day to cancel certain sales made at their home, workplace or a seller's temporary location, for a full refund. It covers home sales of $25 or more and requires the seller to tell the buyer about the right to cancel.

Also called: FTC Cooling-Off Rule, Three-day cancellation rule, Door-to-door sales rule

What it covers

The rule applies to sales made at the buyer's home, workplace or dormitory, and at places a seller uses only temporarily, such as a hotel room, convention center or fairground. It covers purchases of $25 or more at the buyer's home and $130 or more at those temporary locations 1. For a contractor, that means most kitchen-table contracts and many home show sales.

The buyer can cancel for a full refund until midnight of the third business day after the sale. Saturday counts as a business day; Sundays and federal holidays don't 1.

Example: A homeowner signs a contract at their kitchen table on a Thursday. Friday is business day one, Saturday is day two, Sunday doesn't count, and Monday is day three. They can cancel until midnight Monday, unless Monday is a federal holiday, which pushes the deadline to Tuesday.

What the seller must do

  • Tell the buyer out loud about the right to cancel at the time of the sale 2.
  • Give a copy of the contract or receipt that explains the right to cancel, in the same language as the sales presentation 1 2.
  • Give two copies of a cancellation form, one for the buyer to keep and one to send back if they cancel 1.
  • Refund on time. Within 10 business days of receiving a valid cancellation, the seller must refund all payments and return any trade-in 2.

Have a lawyer check your contract and cancellation form against the federal rule and your state's rules, because many states have home solicitation laws of their own.

Common misconceptions

  • "They called me, so it doesn't apply." The rule's definition of a door-to-door sale includes sales made "in response to or following an invitation by the buyer," when the buyer agrees to buy somewhere other than the seller's place of business 3.
  • "It's an emergency, so it doesn't apply." The emergency exclusion is narrow: the buyer must have initiated the contact, the work must be needed for a bona fide immediate personal emergency, and the buyer must give you a separate, dated and signed statement in their own handwriting that describes the emergency and waives the right to cancel 3.
  • "The deposit is non-refundable." A buyer who cancels a covered sale inside the window gets a full refund, whatever the contract says 1.

The rule doesn't cover everything. It excludes, among others, purchases not mainly for personal, family or household use, sales made entirely online, by mail or by phone, and sales completed after negotiations at the seller's permanent place of business 1. A commercial property manager's contract usually falls outside it; a homeowner's does not.

What it means for scheduling

Don't spend a deposit on special-order materials, pull permits or book the crew until the window closes. Write the cancellation deadline on the contract and on your schedule, and order the next morning. How much deposit to ask for covers how to sequence deposits around the window.

Go deeper

GuideHow Much Deposit Should a Contractor Ask For?How to size a contractor deposit from what you'd lose if the customer cancels, check state limits and cancellation rights, and write terms customers sign.Roofing guideHow to Get More Roofing CustomersHow roofers win more customers: honest free inspections, storm response that follows the FTC Cooling-Off Rule, job-site marketing, agent referrals and follow-up.Plumbing guideHow to Write a Plumbing EstimateHow to write a plumbing estimate: fixture-by-fixture scope, allowances, permits, code items, exclusions, camera findings, repipe options and changes.Solar guideHow to Write a Solar ProposalBuild a solar proposal from 12 months of usage: production assumptions, equipment and warranties, price per watt, financing, incentives and honest savings.
DepositA deposit is a payment the customer makes before work starts, credited toward the final price. Contractors use it to cover materials bought for the job and to hold a place on the schedule. Some states limit how much a contractor can collect up front on home improvement work.EstimateAn estimate is a contractor's expected price for a job, based on the scope as it's understood before work starts. It tells the customer the price could change if the work turns out different, but whether it binds you depends on its wording, the customer's acceptance and your state's law.Payment termsPayment terms are the conditions on your estimate, contract and invoice that say when payment is due, how the customer can pay and what happens if they pay late. Common terms include due at completion, due on receipt, net 15 and net 30.Scope of workA scope of work is the written description of exactly what a job includes and what it excludes: the tasks, materials, quantities, locations and standards of finish. It's the part of an estimate or contract that defines what the price buys, so anything outside it needs a change order.Change orderA change order is a written amendment to your contract that changes the scope of work, the price or the schedule, approved by the customer before the changed work starts. It records what changed, the added cost or credit, the new contract total and any new completion date.

See every term in the glossary

Sources

  1. Buyer's Remorse: The FTC's Cooling-Off Rule May Help Federal Trade Commission
  2. 16 CFR 429.1, The Rule (Cooling-Off Rule) Electronic Code of Federal Regulations
  3. 16 CFR 429.0, Definitions (Cooling-Off Rule) Electronic Code of Federal Regulations

Rules and figures change, and many requirements vary by state and city. Check the current version of each source and your local authority before acting, and talk to a licensed professional about your specific situation.