GC draw problems. Think we are being taken for a ride.

10 years ago

Multiple issues with our builder. One, excavation came in $10,000 under budget. This is suspicious because the other bids we got had accurate excavation bids. We took this to mean our contractor was more honest however he just submitted all the paperwork to draw the full amount of the allowance and says he will pay us this $10,000 after we close and square up. Obviously this amounts to an interest free and uninsured loan. There are numerous other under budget items so the total is $15k that he's trying to draw on of work that will NEVER be done. He is stating our home is on hold until we pay this and don't worry because we will get it back in a few months.

Problem 2) Draw #1 which includes everything up to roofing (electrical rough in, drywall, etc haven't been started yet) is 50% of the total house cost. This seems excessive or no? We are set up to have him take 4 draws but I certainly wasn't expecting him to take 50% the first draw including 50% of the GC fee which is substantial. This builder is part of a company that builds about 70 houses per year, all in the 400,000 and up range. We've talked to people who have been happy with them but they had to have been blind because we've been taken for such a ride already and they lie nonstop.

Please help! Thank you.

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Comments (9)

cold_weather_is_evil
10 years ago
>> and says he will pay us this $10,000 after we close and square up.

HAH! Got a registrar of contractors you can call and talk to about this bum? Oh wait! You can't if you're in on the scheme with him!
Circus Peanut
10 years ago
Draw #1 which includes everything up to roofing (electrical rough in, drywall, etc haven't been started yet) is 50% of the total house cost. This seems excessive or no? We are set up to have him take 4 draws but I certainly wasn't expecting him to take 50% the first draw including 50% of the GC fee which is substantial.

What does your contract specify? That would have been the time to object to the % amount of draws, not now after all has been signed and is underway, unfortunately.

Check out your local registrar to see whether there are any other complaints against this business.
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deegw
10 years ago
It certainly sounds fishy to me but it all depends on your contract. Did your attorney look at the contract before you signed?
User
10 years ago
What does your bank say? Your contract? Your attorney?
kirkhall
10 years ago
As long as you hold on to the final payment, and it is big enough (with the insured/bonded value of the GC--that YOU'VE verified is in effect) to cover any work that hasn't been done yet, I see no reason not to pay what your contract states you are to pay.

Presumably, you still have more than the 15k to pay on the whole contract...

If your early allowances were over actual, you still pay the allowances. And, later, when all changes have been finalized, you subtract out the overages from your final payment. Make sure you've always got more in your hand (with bond value) that you can finish the project.

For example, if he has a 12k bond, and you have 60k worth of work to complete on the house, make sure you still have at least 48k in your pocket (if he bails, you'd collect on his bond to pay another contractor to finish up). Just don't overpay when all is said and done.

This post was edited by kirkhall on Mon, Apr 14, 14 at 17:57
TiredMama
Original Author
10 years ago
Thanks everyone!
bus_driver
10 years ago
I never built with borrowed money, so have no experience. Is it true that you must pay interest on these draws, beginning as each is made? If so, you are paying interest to borrow money to lend to the builder at no interest-- and these are personal,unsecured, loans as the builder has offered no collateral to you.
Not the kind of deal that would interest me-- as a lender.
redheadeddaughter
10 years ago
I think it's great you are coming in "under" your allowances! In my recent discussions with builders, it seems pretty common to settle this up at the end. It can provide for a buffer of sorts in case you end up high on an allowance down the line. As long as an accounting is kept, this is pretty standard in our area.

I'm not sure how a construction loan could be seen as an no interest loan to the builder? The loan is provided to the owner, who in turn hires the builder to do work. Interest accrues for the owner whether you pay during construction or have it rolled into the loan later... which seems fair. Often times builders are working with an awfully narrow margin, and delayed payments just dealing with a draw system. It's a pain in the neck... cash builds are much easier for everyone I'm sure.

If they are able to negotiate a better excavation deal or minimize costs along the way... isn't that a good thing? Even if it's only on paper until the final draw?

It sounds like it might be a wonderful build experience if 1) they are coming in under budget and 2) you have friends who are living in homes they built... and are happy!

As for the 50%,
redheadeddaughter
10 years ago
Oh it didn't post it all... I think I'm posting too much today. ;) But as for the 50% with the first draw: the bulk of the big site costs are usually in that first draw (excavation, foundation, framing, rough plumb and electrical, roof, etc.. I think that's pretty close, depending on how large your lot is and how much excavation. In our build I think it will be closer to 60-65% to get the roof on - but we have alot of site work.