[troymcclure]

I am considering a job from a cash buyer to build a custom home. My father-in-law is insisting that this qualified buyer spend the money to hire an escrow insurance company where we can draw invoices from. The buyer is not willing to do that and we are at a cross-road. Is this standard for cash buyers to escrow a portion of the build money?

 

[cleveman]

Isn't this covered in the general contractor courses?

 

[NDW]

A lot of people never had any formal education on being a contractor. A lot of guys start out as laborers, work their way to the top and then start their own company.

My mother had a custom home built, all with cash out of her pocket. There was never an escrow account though.

Work with his money, not yours.

I don't see why contractors get so worried on the big jobs. He stops paying you stop working.

 

[jproffer]

A lot of people never had any formal education on being a contractor. A lot of guys start out as laborers, work their way to the top and then start their own company.

My mother had a custom home built, all with cash out of her pocket. There was never an escrow account though.

Work with his money, not yours.

I don't see why contractors get so worried on the big jobs. He stops paying you stop working.

That's the key right there. Big job...small job....don't matter. Never use more of YOUR money than you're willing to lose. Progress payments...bank draws....shouldn't matter, make sure the payments keep up with the work. The payment should pay for the NEXT step, not the previous step. So if you do that, there's no reason to escrow anything. "We're getting ready to start the interior...it's time for another payment, unfortunately "....."Oh, you spent that on a trip to Jamaica??.....hmmm, guess you shoulda stayed there because THIS house aint gettin' done 'til you find some more money. Call when you're ready"

 

[Metro M & L]

That's the key right there. Big job...small job....don't matter. Never use more of YOUR money than you're willing to lose. Progress payments...bank draws....shouldn't matter, make sure the payments keep up with the work. The payment should pay for the NEXT step, not the previous step. So if you do that, there's no reason to escrow anything. "We're getting ready to start the interior...it's time for another payment, unfortunately "....."Oh, you spent that on a trip to Jamaica??.....hmmm, guess you shoulda stayed there because THIS house aint gettin' done 'til you find some more money. Call when you're ready"

This is the answer.

 

[troymcclure]

This is the answer.

Which makes a lot of sense. My father in law that has done a lot of custom homes says I should drop this potential client because he is refusing to put 50% of the total build cost (fixed labor, fixed fee contract) in an escrow account. The client says he does not want to loose control of his money and I don't blame him. This is my first time to do a home of a certain size/finish and do not want to loose the client who has gotten more than one bid from other contractors and will go elsewhere. My father in law is adamant this is standard and not to give in but I want to make this work and based on y'alls experience seems like my father in law may be off the mark...

 

[QCCI]

I think your father in-law is just being cautious. I don't blame him, anyone who will not even entertain the idea if escrow, I'd be cautious as well. It is designed to protect both parties, plus gives you the security that the money is there. But, like others have mentioned, if you can design a payment plan to stay ahead your golden! Make sure you have a good contract.

 

[mikeswoods]

In this area a title company is often used---the cost to the homeowner is minimal--and the title company makes sure all of the paperwork is in order so the home owner gets a clear title when the project is complete---

I understand why your father in law is hearing warning bells----this service is for the protection of the homeowner----why would a customer not want to do this---??

Perhaps you have not explained it properly to the client--his attorney would sell him on the idea---

 

[markarnold]

I would submit all material needs to him and let him buy materials. Be sure and collect your profit as you go.

 

[hdavis]

The issue surrounds the 10% upon satisfactory completion, or what ever percent you put in the contract. Up until then, the money should be coming ahead of the work.

 

[DBBII]

Talk to his bank. What you are trying to accomplish is to make sure the money is there to pay you. Maybe he puts the money in an account that is restricted to only paying you.

 

[SectorSecurity]

I would submit all material needs to him and let him buy materials. Be sure and collect your profit as you go.

And using this method you can say goodbye to any markup on materials you were planning to make money on. :whistling

 

[jproffer]

Talk to his bank. What you are trying to accomplish is to make sure the money is there to pay you. Maybe he puts the money in an account that is restricted to only paying you.

AKA: An escrow account ....so we're back to the original problem.