I personally would have a problem with a contract like that. If i was building a new home i would allow my banker to handle it as follows. The banker would dispense money to the contractor after completion. Meaning he would have a list of stuff that needs to be completed before he can get another payment from the banker. Another draw off of the construction account. Now to answer your question that is a sizeable amount of money whether it is a unreasonable request can only be answer by contractors here. Which may or maynot want to chime in. The banker will issue x amount of dollars for the following to be completed. The contractor may not get another draw off of the contruction account until this has been completed and inspected by the banker.

 

Yes you are in a dilemma .. I can ONLY talk about my business and what we do.. We do require 50% down in our contracts just to cover materials and the rest due upon completion. However we have done jobs with no down payment and expect payment when completed. Commercial accounts are a different ball game and when they tell us to do it even though our contract say’s 50% down they don’t, but we complete the work and it we get paid later.. Now if your contractor will not try to work with you even a little bit maybe you should look else where. If he will not work with you now, he may not work with you later if a problems arise. Just my 2 cents…..

 

Wait a cotton picking second. Did I read this correct? You expect the builder to enter the most financially taxing phase of a new home (the begining) and use his own money to float your project.

Think about this for a second, doesn't that sound like one of those shabby we'll show ya how to get rich for 39.99 deals?

He's building your house, if you don't trust him, then for god sakes don't hire him.

Bob

 

One more thing, the only deposits on projects that large I've ever seen hit down near 5k we're from what I call Mickey Mouse Contractors. They're in bed with everybody, Have no skill or trade to speak of, the 5k's not going to get spent where ya think, and for some reason they still think polyester is fashionable.

Bob

 

There's mistrust on all sides here.

I know that we have recently revamped our contract because of being shafted by homeowners after the project was finished.

I make sure the first payment covers ALL the necessary materials required for the job. Period. I might take living expenses in the second payment this way our "profit" is on the end.

If a homeowner decides not to pay the final payment (they will usually pay enough to make sure we continue working until completion) the only thing I lose is our profit. I can pay my suppliers and keep our family afloat.

I don't care what your financial situation is as a builder, you do NOT want to risk your reputation with your suppliers. That would quickly put anyone out of business.

There are just as many shady homeowners as there are contractors. Both sides need to recognize that there is a certain amount of mistrust from the get-go just based on past experiences. Sure, you trust your contractor, but you have a contract to protect you right? He is simply protecting himself as well.

Recognize you will have to meet your contractor half way. I agree with Bob. :thumbsup:

 

I personally wouldn't expect a contractor to put out Any of his own money. I would just have the banker set up the account so that he gets the money to do x once that is completed then he can draw again to do y. Building a new home is a sizeable amount of money.

 

Sounds like your banker could be the problem. You will hear a lot of different opinions on this, but I can tell you we do it like this: The first phase is getting the site ready and setting forms. All materials except form material come in advance. The plumber moves in and does the rough in (slab home), then he gets paid to date. We pour the footing and the floor, concrete and labor to date are paid. Framing begins with material paid and labor when complete: So on and so on. I do not put my money in customer materials, and I do not draw up-front cash to start a job. I expect to paid on each phase of the job, and I expect the materials to be paid in advance.

If your builder has a good reputation and you have verified with others that this is his standard practice, then he may not be out of line, since he obviously is working on the one check routine, meaning he is covering materials in his price.

 

I do not put my money in customer materials, and I do not draw up-front cash to start a job. I expect to paid on each phase of the job,

Just wondering how you would pull that off?

Bob

 

I set up accounts for the materials through my suppliers...( A great way to qualify the customer). If they can't get set up, then they probably can't pay me. I do not mark up material costs in building, and I won't be hung with a material bill. I know others want to sell the whole package, I am happy with the labor and contracting fees.

 

I expect to paid on each phase of the job, and I expect the materials to be paid in advance.

My point exactly. That is exactly how i would have the banker set up the new construction account. So you could draw off of it after each phase was completed.:thumbsup: Example once you complete phase 1 they you can get a draw for phase 2 once that is done then you can draw for phase 3. and so on.

 

Mad Footer:

I am a remodeling contractor and only did one project that went "through the bank". It was an addition with renovation to the kitchen and a bunch of other stuff. The bank would not budge on the no downpayment issue. So the homeowner gave me a 20% deposit out of their money, and fortunatly they had other work to do that was not in their home improvement loan, and I kept the deposit all through the project and applied it to the final invoice. But from a contractor's point of view, it was a real pain in the a**. We had to take out an additional builder's risk policy for the entire loan amount. After pre set milestones were complete, we had to submit all notarized partial waivers and sworn statements, along with their paperwork, then after they approved the package, they would send out an appraiser to verify that what I was invoicing for was indeed completed. He then did his paperwork, sent it in, then I had to wait for the money to be sent to the title company for disbursement. Each payment took approx. 10 business days to get.

If I ever do another one of those, I will definetly add money for the pita factor.

But, I would never do a job without a deposit.

Hope this helps.

RJC

 

I set up accounts for the materials through my suppliers...( A great way to qualify the customer). If they can't get set up, then they probably can't pay me. I do not mark up material costs in building, and I won't be hung with a material bill. I know others want to sell the whole package, I am happy with the labor and contracting fees.

That's usually how i do it too. Once in a while a customer will insist I handle the materials, which I consider to be a PITA. Around my area most customers already have accounts at the lumberyards, which makes it real nice to just have them put all the materials right on their account.

On new houses, if I have to handle the material bill, I will ask for 10% upfront. This is so I can get the truss packages ordered & delivered, and also a good deposit to work off of for a couple of weeks.

Mad footer, I would say that a different banker would be in order for you. The GC has to get materials ordered & trusses paid for before he starts, so why should he have to use his money for this?

 

The bank is the one that is getting paid for the use of the money, it should be their part of the contract.

 

I'm with maj, If I have to provide materials, then of course, there will be a substancial deposit, since I know everyone does it different, I order the framing package and roofing all at once. The brick is ordered before dirt work begins, ect, ect.

I have stated in other posts, I don't put a job on the board until the money is down (metal roofing) or materials ordered, and since I prefer the customer pays the material bills direct, it is up to the supplier to qualify the customer. If the customer can't pay me, I will know it in time to place a lien and move to another job, but it hasn't happened yet.

Something else about banks and the way we do business: Unless the supplier insists on COD, the homeowner will have a few weeks typically to pay, and the phase the materials are used for will be completed.

 

O.k. this having the customers set up accounts sounds weird

I am sorry your husband passed away Mrs. O'leary but you need to go to these three lumber stores. 5 plumbing suppliers , three tile stores etc etc.
That way if you do not find it at one store then it won't hold the job up waiting for the new account to open?

Seems like taking a pad of paper and an ink cartridge to you c.p.a.?

I recently ordered a corner Jacuzzi for a customer. It listed at $3600. I sold it to them for $3200 and I paid $1800.
Why would I want them to buy thier own stuff?? :sad:

Just seems strange to me?

 

O.k. this having the customers set up accounts sounds weird

I completely agree. We mark up all our materials and labor. It's industry standard in CT. That's just throwing away free money IMO.

Most of the time clients hire someone because they don't want to deal with all that stuff.

WE can't open accounts because we haven't been in business long enough and have crappy credit.

We have to pay as we go, which is why we get money up front to cover the materials costs.

 

30% to get started. I buy everything that way I have what I need when I need it.

 

In CA we're only allowed 10% down, but I wouldn't start a job without that and then a large amount to follow as soon as I actually start work. And, yeah what's up with having the customer buy all the materials? Thats where ya makes your money!

 

I know it must sound strange to most the rest of the country, but here goes, and take it easy on me this time for heavens sake.

Mostly, the big difference is the regional thing again. As I have stated before, I am in a small rural community. Almost everyone knows everyone. If there is someone new in town, it doesn't take long before everybody is trying to find out who they are & what they do.

So the way it works around here........ Most people already have accounts at all the local lumberyards & supply centers. If it is something that needs to be ordered through a specialty house or supplier, then the ho's usually take care of it, That way they get what they want, and are responsible for any problems. I would say that about 60% of my jobs are handled that way. The other 40%, I run materials through my account, then just handle the paperwork with a little extra tacked on for my time & the pita factor.

If I were to break the mold and charge what some of you do, and heaven forbid, add 50% markup on materials,......... I would be out of business immediately!!!!!!!! People around here are fully aware of what materials cost and absolutely would not go for a contractor adding anything for markup. They'll find someone else who will do just labor.

I am fully aware of how contracting is SUPPOSED to work, but it just doesn't fly around here!!!!:no:

OK, go ahead and beat the $hit outa me, I'm ready this time..:boxing:

 

If it works for you, why would you care what anyone else said or thought?

 

theres a huge difference between new home bldg and remodeling. a mortaged new home pays draws thru the bank. but i remodel and don't care how much $ you do or don't have, i'm not ordering 800.00 sink and faucet sets, 7000.00 cabinets and scheduling templates without a deposit allowing me to operate on my customers $ not mine. done this for 20 yrs. the prospects that won't agree become the next guys prob not mine.

 

Maj and I have similar markets. I make my living on our work, I don't need or want the material mark-ups, nor do I want to frame my income level based on projected sales. Fine with me however others do it, but what I do works for me in my area. What you guys do there would work for a very short time here. The local pirates that follow that business model are about all gone now, I have a 9 month backlog of work, and my customers are quite happy with the arrangement. The option is available that I will, if they absolutely insist, purchase materials and give them a one check option. If I were doing that, I would have to have a substantial down.

Here is another example of how contracting is different across the country. If I had to put up with the BS I hear you guys deal with in California or the east coast, I would go back to teaching school.

 

Oh Maj, I didn't mean to imply you didn't know what you were doing. I was even going to add that it must be a different kind of market where you are, which is COMPLETELY understandable.

We live in an area with a bunch of overpaid pencil pushers who move out to the "country" to "get away from it all".

They wouldn't know the difference between a 2x4 and a 2x6 even if they were accountants. Seriously, a buncha stupid smart people out here.

I'm sure it's a regional thing. It's standard around here to do the markups and 67% is what's recommended by the state in the Contractor's Guide. :thumbsup:

I know it must sound strange to most the rest of the country, but here goes, and take it easy on me this time for heavens sake.

Mostly, the big difference is the regional thing again. As I have stated before, I am in a small rural community. Almost everyone knows everyone. If there is someone new in town, it doesn't take long before everybody is trying to find out who they are & what they do.

So the way it works around here........ Most people already have accounts at all the local lumberyards & supply centers. If it is something that needs to be ordered through a specialty house or supplier, then the ho's usually take care of it, That way they get what they want, and are responsible for any problems. I would say that about 60% of my jobs are handled that way. The other 40%, I run materials through my account, then just handle the paperwork with a little extra tacked on for my time & the pita factor.

If I were to break the mold and charge what some of you do, and heaven forbid, add 50% markup on materials,......... I would be out of business immediately!!!!!!!! People around here are fully aware of what materials cost and absolutely would not go for a contractor adding anything for markup. They'll find someone else who will do just labor.

I am fully aware of how contracting is SUPPOSED to work, but it just doesn't fly around here!!!!:no:

OK, go ahead and beat the $hit outa me, I'm ready this time..:boxing:

 

I dunno, but I get the vibe that you think we are ripping people off or something by charging mark up on our materials and labor. Our work certainly is where we make our money as well and we definately don't push clients to purchase more materials than necessary to make our living.

We use Cost Estimator software which automatically determines area rates for materials and labor. We plug in a percentage of mark up and it adds that to our cost. This is how we come up with our pricing.

What do you base your labor costs on? Is it hourly? By the task? Perhaps your "labor" costs come out to more than OUR "labor" cost and combined with our markups, we end up about the same (adjusting for differences in cost of living).

It's not at all underhanded and I resent the implication that it is so. I'm not criticising how you do your pricing. Understand that the way WE price is on the up and up simply because that's how we work. Pirates. That's a bit harsh dontcha think?

Maj and I have similar markets. I make my living on our work, I don't need or want the material mark-ups, nor do I want to frame my income level based on projected sales. Fine with me however others do it, but what I do works for me in my area. What you guys do there would work for a very short time here. The local pirates that follow that business model are about all gone now, I have a 9 month backlog of work, and my customers are quite happy with the arrangement. The option is available that I will, if they absolutely insist, purchase materials and give them a one check option. If I were doing that, I would have to have a substantial down.

Here is another example of how contracting is different across the country. If I had to put up with the BS I hear you guys deal with in California or the east coast, I would go back to teaching school.

 

We use Cost Estimator software which automatically determines area rates for materials and labor. We plug in a percentage of mark up and it adds that to our cost. This is how we come up with our pricing.

What do you base your labor costs on? Is it hourly? By the task? Perhaps your "labor" costs come out to more than OUR "labor" cost and combined with our markups, we end up about the same (adjusting for differences in cost of living).

There is nothing wrong with a mark up on materials. Everything we buy is marked up. My mark up helps pay for warrenty work, adminstration and a little profit. Profit is not a bad word.


I would be weary of relying on any software to determine my labor rates - WAY to many variables. I keep 15 min incraments of my days so I know exactly how long it takes me to do a task in specific circumstances. I record them and keep them for reference for other jobs. I remodel and no computer knows how long it takes to protect a chandelier hanging 23 feet in the air. I do not compete on price - only service and quality.

There are several ways that you could include all of your overhead and profit in your labor figure and this has been discussed at length other places - let me know if you want more information.

As far as the topic at hand - my deposit is minimal and I keep progress payments very frequent and at very defined times.

Glassbuilt said it best - If you do not trust your contractor - do not hire them, don't waste either's of your time.