New build deposit percentage guidance?

dpusaSeptember 25, 2012


We are building with a builder - not in a subdivision, but the Company owns the lot and we have worked with them to spec the house plans and details.

As part of the first draft of the contract, they are asking for 10% deposit, however the Company which is the builder is also the selling agent as they have real estate division within them. We are hesitant to put 10% completely down, unless it is in an independent ESCROW -- but want to get everyones thoughts and practices people have used.



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We put down a total of 5% with the builder when all was said & done for the lot & house construction (he owned both).

Includes: lot deposit, design deposit, construction engineering & permiting.

    Bookmark   September 25, 2012 at 12:35PM
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pbx2 - Was the 5% put into an ESCROW account or paid directly to the builder? I ask as the builder has drafted the contract and all the exhibits but the building company is also the selling agent too.

    Bookmark   September 25, 2012 at 4:04PM
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Any others that can weigh in?

    Bookmark   September 25, 2012 at 9:29PM
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Have a lawyer who is familiar with local law and practice review the contract. It is all but certain that a contract they prepared is biased towards the builder in every possible way. The deposit may be the least of your worries!

    Bookmark   September 26, 2012 at 12:43PM
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rwiegand - THanks for the reply. No absolutely, we are having an independent lawyer review both the contract and every exhibit on our behalf.

    Bookmark   September 26, 2012 at 1:41PM
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We're doing a major remodel and addition and only pay for work that has been completed--no upfront money at all. We do pay promptly, every two weeks for the work that has been done. The situation may be very different I suppose if you don't already own the lot or if there is a bank involved.

    Bookmark   September 26, 2012 at 2:29PM
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Many builders want some up-front money, both as "ernest money" and to defray their start-up expenses. If the contract (and builder's reputation and recommendations appear fine), I wouldn't object to 10% down.

Just remember to hold 10% back at the end to ensure proper and satisfactory close out. If the builder can reasonably ask for 10% up front, every owner can reasonably withold the final 10% until occupancy and resolution of all punch-list work. It's a standard in all AIA contracts.

Best wishes!

    Bookmark   September 26, 2012 at 7:23PM
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Sophie Wheeler

10% is common and reasonable.

    Bookmark   September 26, 2012 at 8:03PM
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