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Builder Payment Schedule - No financing

Posted by munzer1 (My Page) on
Tue, Apr 9, 13 at 2:19

I have a unique situation.

I am considering to build a custom home. I am not taking a loan from a bank but family loan for 2% interest rate. As far as the builder is concerned I have cash, all of it.

Builder wants me to put the money in a 3rd party escrow account. I don't think that is fair. I want the control of the money.

Overwhelming majority of the cases Bank owns the house that is being built until the home owner pays off the loan. Banks like to have their inspector to inspect the house before writing the check to the builder to protect its own interest. Banks want to make sure the house is build to the standard before writing the check because they are the one who will get stuck with the house until after the home owner pays off the loan. Whoever pays, has the control. In most caresses it is the bank.

Obviously, any home owner (or any purchaser, building or anything) whoever pays should have the control.

Builder puts in money only in small but multiple steps. Each steps are paid after the completion. At no time builder is going to spend $1.5 million. But for home owner $1.5 million is at stake toward the end if the house is not properly build.

All my research finding advises the home owner not to do business with any contractor who can't get started with his/her own money. They say, any reputable contractor should have cash reserve for their business, let's say painter, should be able to get started with their own money. Payment follows. But it is OK to give small percentage of, say 5% or so in advance for the current project. NOT 5% of the entire amount. But I am willing to be very flexible on this.

Currently, I got a project done through a general contractor for $55,000. I paid him in 5 installment as the work progressed. He asked $1,000 in advance, at the very beginning of the project and I wrote the check. That's OK.

Now, it is not fair to compare $55,000 with $1.5 million here. Because at no time builder will be under the burden of $1.5 million. This is why I asked the builder to give me a payment schedule and I will write the check as a milestone is reached.

Here is another way to look at it.
Since the home owner is paying and no bank is involved owner should have the right to fire the builder any time. But of course, the home owner must pay the builder for all the work up to that point. Home owner then have the right to bulldoze the half build house and start all over again. Home owner is not obligated to pay the builder entire $1.5 million say, right after the foundation. For example, hypothetically if the owner decide to stop the project right after the foundation then he should be able to do so. It is home owner money he should have the right.

If there is no payment then builder can stop the work.

As far as initial cash advance is concerned, any reasonable amount is OK with me. But after that initial 1st payment, all remaining payments will be only after the work is completed.

I am getting a family loan.


Follow-Up Postings:

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RE: Builder Payment Schedule - No financing

I'm faced with a somewhat similar situation. My builder explained it to me as follows. If I want to pay as you've described he would end up taking out short term loans to pay bills until such time as we catch him up on the price spent. In this day and age, depending on the builder you choose, its not a foregone conclusion that they have that kind of cash on hand to front/gamble on your property. The crash has reshaped the building industry from what I'm gathering. He explained that payment situation is doable, but he then would pass on any interest he accrues through the short term loan process, to us.

Also if you somehow expect the builder to front the cash as you've described, he then takes on the role of the "bank" in your example. Banks will nitpick greatly about what can be built based on resale. You've then put your builder in this situation. If something happens and you back out of the deal, he would need to make sure he has a sale-able home that he can finish on his own dime and sell, since you were unable to complete the deal. Our builder told us flat out that if we want to go that route, he's going to partially dictate design choices and it won't be a 100% custom home. Now this fact does somewhat hinge on who owns the property etc. You didn't provide those details.

Finally, I can see why he is leery of going this route without the guarantee of the money being available (via escrow). Banks are big, it is a fairer bet they can and will complete the deal. You are a person, the same cannot be said. Can the escrow account be setup such that the builder cannot access his payment portions via the schedule until you ok each milestone?

Best advice is find a good real estate lawyer that has actually done a similar transaction before and get their guidance.

This post was edited by niteshadepromises on Tue, Apr 9, 13 at 6:18


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RE: Builder Payment Schedule - No financing

Just an FYI, you need to talk to a tax attorney or CPA about that "family loan at 2%". If you don't meet certain rules in the Code relating to market interest on related party loans, the IRS will be able to impute a higher interest rate and treat your lender as though they were paid far more than you actually paid them, forcing them to pay tax on money they didn't actually receive. Speak to a professional.


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RE: Builder Payment Schedule - No financing

I can see why the builder wants to KNOW that you're going to be able to pony up the money. Say he brings his crews out and they put in your foundations . . . and you don't pay. Sure, he can stop work, and you're left with just a foundation. Sure, he can put a lein on your property, but that won't affect you 'til you go to sell it.

But in the meantime, he has to pay the workers who built that foundation. If you don't pay, HE has to pay their wages out of his pocket.

Also, he has promised his crews work on your build for X number of weeks. If you suddenly realize you can't pay for the foundation, his crews don't work for the remainder of those weeks.

I think having the money in a 3rd party fund is a fair solution. Incidentally, we'll also be doing a cash build, and I don't have a problem with putting X amount into an account for the house -- oh, I'd want assurances that everything would be handled professionally, but this sounds perfectly reasonable.


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RE: Builder Payment Schedule - No financing

The point of the escrow account is to give the builder some confidence that you are actually able to pay what you say you can pay, and that you won't spend the money you've promised him elsewhere in the meantime.

Also to give him confidence that you WILL pay what you've promised to pay, and you won't withhold payment because you've decided to punish him for something beyond his control.


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RE: Builder Payment Schedule - No financing

Thank you all for your response.

Currently, I got a project done through a general contractor for $55,000. I paid him in 5 installment as the work progressed. He asked $1,000 in advance, at the very beginning of the project and I wrote the check. the sub did not ask for an escrow account.

I have the land, my design, I just want to hire a builder to to build the house. I will pay as he finishes each milestones. For example, foundation, framing, ....etc. If I do not pay, he can stop the work and put lean against my house just like when I hire anyone to do any job.

Why my house need to be salable. May be I will bull doze it right after building or halfway of building. As long as the builder gets his fee for the work he does as he does, why escrow account? I don't get it.

@texas_cajun
Loan and interest issue is taken care of. My question has to do with payment to builder.


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RE: Builder Payment Schedule - No financing

Im in a similar situation where I own the land and am paying cash for the build. I worked out a schedule of 12 payments with the builder with no money up front. Before each payment I have the option of bringing in my own inspector to verify the integrity of the work. If theres anything wrong..we work it out and then he gets paid.

The payment schedule also includes builder profit so he is making money as the building progresses. The payment totals are in line with the actual costs of the milestones (ie foundation, framing, plumbing etc).The final payment occurs after the certificate of occupancy is issued and a 90 day punch list is agreed upon.

In the contract there are specific conditions in which each of us can break the contract, however I am not allowed to walk away "without cause". If I do decide to walk away without a valid reason the builder is entitled to 10% (we negotiated this number) of the sum of the remaining payments and is not obligated to perform any additional work or warranty what has already been done. If I refuse to pay him and we cant work something out through mediation he can put a lien on the property.

At the end of the day you won't be able to account for every possible scenario in the contract and there will always be the possibility of someone getting screwed. There needs to be a certain level of trust between the builder and yourself in order to be successful in building a home.


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RE: Builder Payment Schedule - No financing

I am presently doing an owner build with no financing involved and none of the subcontrators have asked for any money upfront. I have firm bids from each and pay a percentage as the work is completed. With the exception of the concrete I am also paying for all materials.
This has worked out well so far and I don't expect any problems.


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RE: Builder Payment Schedule - No financing

I would not agree to an escrow account. It would be reasonable for you to produce a written statement from your bank confirming funds are in your account.

If you are forced into an escrow situation, I would insist that the contractor procure a surety bond for his performance.


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RE: Builder Payment Schedule - No financing

Many people do business on a handshake and a good deal of trust in the other. Absent that trust, and faced with downright hostility, it's doubtful that any builder would agree to this job without that escrow account and some form of objective third party administration of it.


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RE: Builder Payment Schedule - No financing

As long as you own the property the house doesn't need to be saleable, so disregard that. You didn't specify who owned the property and if it had been the builder in a planned community type situation it would have applied.

I'd say a solution would be 1: A statement from a banking facility that says you have the amount in full required for the build

2: If escrow is required then work out a deal where the total payment for the milestone the builder is currently working on is sitting in escrow and gets released after certain conditions are met (IE inspections, your sign off, etc)

Then the builder has assurances that if Mommy and Daddy (or whoever) decide to yank the funding he can stop construction before it begins on the phase which the funds are lacking in the escrow account.


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RE: Builder Payment Schedule - No financing

@niteshadepromises

Thanks for your response.

I still don't understand why escrow is necessary. When I hire someone to have a home improvement job they don't ask for an escrow account nor want to see if I can pay. They do the job then I pay. If I do not pay, then like anything else there are legal means to resolve it.

If you say, well, home improvement project is different then I will say, why it is different? What if I have a very large home improvement project?

What If I hire some one to put in a large swimming pool? $150,000 or more. They don't ask for escrow. They do not want to see my bank balance. yes, they might ask small amount of cash advance to start the work, that is OK with me.

These custom home builders have created an industry practice that is highly unfair against home owners. Home owners end up with all the risk. Most custom home builders are legalized mafia, mobster and gangster. They are spoiled. Making too much profit with very little or no risk on their part. Extremely lucrative business.

Then they talk about cost plus, 12% to 15% or even more. Then they try to justify saying well, any business wants to make 12% to 15% profit.

Ha,,ha..ha.... 12% to 15% profit on whose money? your or mine (home owner).

Just like mutual fund money managers take investors money and get 3% to 5% every year on clients money. Whether client lose or win in the stock market doesn't matter, fund manager still make money. Money managers' money is not at stake! Custom home builders have the same scheme.

If the builders were putting up all of their money, build the house and then try to sell it in the open market then I could understand that any percentage of profit is a fair game. 10%, 15%, 20%, or more.

But in case of Custom home builders. It is not their money they are playing with, it is mo money

What an unfair world and what a stupid world that people still buy this BS from custom home builders?

Builder should be paid for their expertise and the time they spend on my project regardless of the value of my house. It is not their money they are playing with.


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RE: Builder Payment Schedule - No financing

I know quite a few builders and all of them have a story to tell about being stiffed by a homeowner and never being able to collect the amount due. If I wasn't doing an owner/build I wouldn't have a problem with an escrow account and it is pretty normal in my area...protects both parties actually.


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RE: Builder Payment Schedule - No financing

While I can certainly see where you might be coming from, it really is what it is. My builder isn't requiring escrow of us. However, we're paying all the bills directly. This is another option you could explore. He is a fixed fee builder and his fee is based on a payment schedule. He is then going to send each and every invoice to us, to be paid. This particular arrangement threw my lawyers for a loop and it remains to be seen how its going to work out in practice. I have to have trust in my builder that he will be diligent about all bills due getting to us in a timely fashion, then I have to of course make sure they are paid in full. Its more work for me than simply having an escrow account setup and an agreed upon payment for the entire cost of the build. I'm beginning to realize however that finding a builder willing to work this way was a diamond in the rough type of situation.

Considering your budget and your objections to the way the mainstream building community works, would it not be easier just to buy a prebuilt and renovate to your hearts content?


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RE: Builder Payment Schedule - No financing

munzi..... I've seen you post on two different forums and it's obviouse you dispise GC's making decent money doing their jobs!! You come across like they shouldn't make any money to make a decent living and should be living in a trailer. Why don't you just be an O/B and hire your own inspectors to make sure it doesn't fall down!! You're a real arrogant....you know what!


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RE: Builder Payment Schedule - No financing

I'm having a hard time understanding why someone who can afford to build a multi-million dollar home would so resent paying a builder the going rate. The marble you want is worth what it's worth for a reason. The same holds true for the time and expertise of an experienced builder.

Why can you see the value in the thing, but not the person?


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RE: Builder Payment Schedule - No financing

@robin0919
unfortunately in my subdivision they do not allow Owner Builder or UBuilt build home.

@ zone4newby and @robin0919

I am not aware of that if Ihave posted my post in two differnt forum. If you have seen it then it must be by my mistake.

I never said builder shouldn't make any money. I said, they should get paid for their expertise, time and the risk if any they take, but no more. However, custom home builder always eyes on your pocket. They want a percentage of it.

Neither of you address the logic. Here it is again. Take it item by item. I challenge you to give your counter argument.

1. To put marble floor with marble costing $4/sq. ft and $8/sq. ft the labor cost remains the same. Why then cost plus builder ask me to pay twice as much for the labor cost? That's not fair. That's greedy.
2. These custom home builders have created an industry practice that is highly unfair against home owners. Home owners end up with all the risk despite putting up his money. If they builder were using his own money to build the house then I could understand they can make 10%, 15%, 20% or more profit when selling the house. But custom home owner wants to play with my money and still enjoy large profit.

Then they try to justify saying well, any business wants to make 12% to 15% profit. Ha,,ha..ha.... 12% to 15% profit on whose money? your or mine (home owner).

Like fund money managers play with your money and gets 3% to 5% every year regardless of you lose or make money in the stock market.

Custom home builders are in the same league as the fund managers.

NOTE: I will not say the same thing of the track builders. Or the builders who build the house with their own money and then make money from it.

Zone4NewB wrote:

"I'm having a hard time understanding why someone who can afford to build a multi-million dollar home would so resent paying a builder the going rate. The marble you want is worth what it's worth for a reason. The same holds true for the time and expertise of an experienced builder.
Why can you see the value in the thing, but not the person?"

Total garbage.

Someone who can afford to pay for multi-million dollar home doesn't have to throw away hundreds of thousands of dollars. No matter how rich you are it is stupidity to through away large sum of money? Very soon you will have none that way.
Remember, people who gets rich by playing lottory, their money doesn't last long. Protect your wealth if you want to stay rich. Do not spend too much time with poor people either.

Corollary 1: Just because you are in good health doesn't mean you should abuse your body by eating junk food, high sugar, fatty food. Do you think your mouth is a trash can that you can shove in any garbage in it?

Corollary 2: If you are smart and intellectual then do not stick around dumb people. Keep a company of smart people.

you wrote:
"The marble you want is worth what it's worth for a reason."

I did not question the cost of the marble but the labor cost to install it.

You wrote: "....going rate"
This is the only thing that make sense in your post.
Yes, unfortunately, too many people giving custom builder whatever they ask for have spoiled the market.
Yes, market decides the rate (with some variation). I agree with you there.

That's why I have to go extra mile, spend my time to find a builder who can work on my terms. If I can't find one then obviously, i have no other choice.

Cost plus custom home builder's fee is like government taxes, be it income tax or property tax. The more money you have the more tax government rob from you.

In a fair world, everyone should pay the government tax only for the services they use from the government. Not a penny more. Imagine, if restaurants started to charge you for the same dish of entree according to your income.

I am sick and tired of paying for incompetent and inefficient people all around me. But, yes, that's the world we live in. OK, I know, still It is my responsibility to figure out how to stop people from robbing me.

Principle: Reward people proportional to their contribution to the society regardless of their race, religion, ethnicity, or sex, but nothing more. That's is also consistent with the natural selection, evolution.

But alas, we are working against survival for the fittest.

This post was edited by munzer1 on Wed, Apr 10, 13 at 0:39


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RE: Builder Payment Schedule - No financing

I have certainly come across many different individuals in business over the past 40 years. Many I have become friends with and still see almost 40 years later, some whom I couldn't wait until the deal was complete so I didn't need to ever deal with again. If your prospective builder could read some of the comments you have made I am sure that his monstrous profit of, what was it? Yes 10, 12, even a gouging 15 percent profit wouldn't be enough to deal with you.

I've said enough and am outraged at some of your ridiculous comments. I don't know what business you are in and frankly couldn't care less, but I'm sure that doing whatever you do to pay the 1.5 million back you are going to be sure not to make a 15% profit from it as you would become, what was it? " legalized, mafia gangsters and mobster" how nicely put.

And when you have to sell that house you wil be sure not to make more than 15% as well, oh my.

I think we have an internet troller amongst us folks.

Please continue, your posts are however entertaining to say the least and goes to show you one does not require good grammar or know how to spell to afford a 1.5 million dollar Mac Mansion. I had better stop, sorry all.

This post was edited by SouthernCanuck on Wed, Apr 10, 13 at 3:59


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RE: Builder Payment Schedule - No financing

@ SouthernCanuck

English is my second language. Sorry about that.

Now, back to the topic.
You must be a builder or contractor.

You wrote:
"And when you have to sell that house you wil be sure not to make more than 15% as well, oh my."

Your above remarks clearly shows, you did not get it.
Read my post again.
Of course, I will make as much as I get when I sell my house because I put my money, mo money at risk. Builders, like money managers, plays with other people money but still make big bugs.

I have said that I have no objection if a builder use his own money to build the house and then make 20% or even higher profit.

I have no problem with the track builder. they use their own money. Custom home builders ride on someone else's money.

Why don't you counter my argument point by point?
Do you have a counter argument about cost plus builder scheme that I argued it is unfair?

Read my post again and defend custom home builder, I challenge you.

Read my this post before you respond.
Posted by munzer1 (My Page) on Wed, Apr 10, 13 at 0:11

This post was edited by munzer1 on Wed, Apr 10, 13 at 4:26


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RE: Builder Payment Schedule - No financing

So really this isn't about builders making too much money. You are having a philosophical question of fairness.

While you're at it, why not rail against the fact that teachers get paid so little and football players so much?

They way we pay for things is what it is because we live in a capitalist society. People are willing to pay a certain price for a product and you can't blow in and say, "That's not fair, I want to pay less." You become a laughing stock.

So you figure out another way (you do have options - buy an existing house, build yourself in another subdivision) to do it your way and for cheaper. But so far, you don't want to find another way, you just want to cry about the unfairness of it all.

Put your big boy pants on and find a good honest builder and pay him what the industry demands.


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RE: Builder Payment Schedule - No financing

Munzer actually is making a fair point. In essence the commodity that the GC is selling to him is time and knowledge as opposed to a house. He has the right to question why a builder is applying the same profit model to two different products. There are many costs in building a home that need to be taken into account when determining the appropriate markup such as commission to sell, risk of capital, cost of goods and labor etc. When hiring a GC in a consultative role there is a much lower cost of sale which should be reflected in the profit margin. If you are buying time and knowledge from a GC then it's a fair to question why the GC should collect more money installing a $12 piece of marble then he does installing a $8 piece when they both require the same time and knowledge (in general) to incorporate into the build.

With this being said Munzer also has to accept the fact that building is a free market and if people are willing to pay a percentage of the build then that's what the cost is. He has every right to find someone who will work for $10 an hour when the going rate is $20 but he should be weary of the quality of the knowledge he will be buying. Just remember...you always get what you pay for.


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RE: Builder Payment Schedule - No financing

Ok, one more post, then I give.

First I don't come here to argue, I come here to learn and help if I can. I always say " If I want to argue I would still be in business and still be married to my ex wife"

Secondly I do get it, you don't think someone should have the opportunity to make the maximum profit from your hard earned money. Actually I did read your posts, many times and from what I read it's actually your families money.. Based on your logic they should be charging you more because it's actually there cash, not yours and when you sell they should reap the lions share of the profit, why should you, it's their money they risk not yours.

And lastly, I also am writing in my second language, sono nato in Italia non Canada, grazia. Chow.


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RE: Builder Payment Schedule - No financing

Oh....my. Good luck. You are SO going to need it.

BTW, if you feel that 10% is too much for a builder to charge to ensure that one of the largest expenditures of your life is built properly, then how much DO you think would be an appropriate fee?

And what exactly pays your grocery bill here? And what is your annual income from that? It's relevant to the discussion at hand if you are going to unilaterally decide how much someone can make. Then it's open season on what you do for a living and how much you make doing that.


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RE: Builder Payment Schedule - No financing

@SouthernCanuck

I borrowed the money from my family member at lower rate than the bank gives me. My family is willing to give me lower rate because of higher trust level between us (low risk) that bank don't have for the home owner. I am paying them interest.

Are you a builder?


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RE: Builder Payment Schedule - No financing

No I'm not a builder I'm a mafia gangster mobster, retired.


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RE: Builder Payment Schedule - No financing

IMO, there can be a significant labor difference between $4 builder grade tile installation and $$$ premium marble materials. The same goes with most materials…the nicer the material, the more time and attention to detail is spent to make the install worth it.

A very simple example: Laying out a 4'x8' bathroom floor with 12"x12" porcelain tiles is a quick job. There really isnt a lot to it. Laying out a 10'x14' custom marble bathroom is a much more time consuming job. Much more attention is given to making sure that cuts and grout lines are perfect, there are typically more structural elements to consider to keep the marble from cracking down the road, there is a lot more time spent making sure the tiles are all completely smooth..you can slide a quarter across the room smooth. In general, the expectations for a marble bathroom are a bit higher. Not to mention, there is a little bit extra built in because marble can crack much more easily when handling it, so there are greater losses. From the builder's point of view, he might have two subs that he uses…one is a sub that does his spec homes, the other is a sub that does his custom homes with higher quality materials. The subs seem to focus on either quality or volume…the spec home guy wants to do 10 bathrooms a week with $4 porcelain, the custom guy wants to do one bathroom a month with the $$$ materials.

This is pretty typical in any industry…clothes, cars, shoes, furniture, software, food. Nicer products have higher labor costs because the quality of the materials used is higher, and there is more time spent making sure that the item is higher quality.

It sounds like you have two issues, one is related to the escrow account and payment. The other is related to you not wanting to overpay. I do not have any solutions for the first one, but for the second, why not just ask the builder why there is a cost difference? Make him justify it. It wouldnt surprise me if he is profiting more (or less), just that his estimated costs are higher, resulting in a higher price.


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RE: Builder Payment Schedule - No financing

While the OP is a bit extreme, custom home building is one of those luxury businesses with a tendency to charge more than reasonably justified.

Example: Why one should pay a $300 fee (10% of $3000) for a basic granite counter top vs. $1200 for an exotic $12000 stone is difficult to justify.


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RE: Builder Payment Schedule - No financing

@SouthernCanuck
"Posted by SouthernCanuck (My Page) on Wed, Apr 10, 13 at 13:39
No I'm not a builder I'm a mafia gangster mobster, retired."

"Legalized", you might add.
Retired custom home builder?
in your 30+ years of custom home builder you must have encountered home owner (top notch heart surgeon) with so much money that they were writing you almost blank check, no question asked. That's is the ideal clients for custom home builder.
Screw the home owner, get their money, get them sign in the contract, then we (builder) will get him on change order price add on.....Remember, those days? :) Cost plus. Get them to buy more expensive flooring and everything to make more on your 15%. ha....ha... when you were rolling with stupid home owners' money.
Good old days......:) was fun right?


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@theballs

here comes another builder.
Your failed attempt to justify charging twice as much to lay marble flooring twice as expensive marble on the floor doesn't make sense.
Do you sell snake oil?
Would you like to buy house in the heaven: 6 bedrooms 10,000 sq. ft. for $10,000 but you will get it only after you die.

Man you builders are something. A lot of builders, architects, and subs comes to this website looking for job.
I defend home owner.


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RE: Builder Payment Schedule - No financing

I understand your point Munzer1 and to a certain extent, I can agree with you... but not totally.

Keep in mind that the GC does take on certain risks when he builds a house that are directly related to the cost of the materials being used. If, for example, someone accidentally scratches up the front door while carrying materials into a house, it matters to the builder whether the front door is an $8000 custom job or a $900 door from the local big box store. Typically in such situations, NO ONE admits to having caused the scratch so the cost of repair/replacement simply cannot be passed on to the subcontractor who caused the damage. Instead, the GC winds up eating the cost of replacing the front door and that comes out of his profit percentage. (Of course, a GC can get insurance to cover these kinds of things to a certain extent but, as I understand it, "per incident deductibles" typically apply - so the GC may still takes a hit when the damaged item is more expensive.)

And of course, if your state has specified certain minimum warranties that builders are required to give, then a warranty claim on a home with more expensive materials incorporated is probably going to cost the builder more than a warranty claim citing the exact same problem in a home where less expensive materials were used. Eg., a roof that starts leaking 6 months after you move in is probably going to cost more to repair if 35 year architectural shingles were originally used than if 15 year standard shingles were used. A foundation crack ... which can cause cracked tiles and separating floorboards will cost more to fix when the flooring is expensive high end stuff than when cheaper materials are used. (Note that many states specify a 10 year warranty on foundations.) A plumbing leak 6 months after you move in is likely to be covered by warranty... and the cost of repairing the plumbing leak is mostly going to relate to the cost of repairing other materials that are damaged by the leak. The plumbing subcontractor will probably repair the leak ... but may refuse to pay for sheetrock repairs, repainting, re wall papering, replacing warped floorboards, etc. If so, as homeowner, you will rightly expect the GC to pony up the cost of these repairs.

But given your general feelings, perhaps you should look into hiring a builder willing to build for you under a contract where you agree to pay him a fixed builder fee to manage the project while you buy the materials and pay subcontractors directly without any of that money flowing through the GC's hands. In other words, you manage the money while the GC manages the work and you pay him a fixed amount - agreed to in advance - for his efforts.

I suspect that you can probably find someone IF you are willing to agree that, in the event that previously installed materials are damaged during the build and the culprit cannot be identified, YOU will bear the cost of fixing the problem. And of course you would need to specify in advance what percentage of the builder's fee, you GC would receive at various points in the project. And you might want to build in some sort of incentive to encourage the GC to closely supervise workers so that damages DON'T occur. Maybe you could agree on an "incidental damage fund" out of which repairs necessitated by unidentifiable subcontractors would be made... with the GC getting anything left over in this fund as a bonus at the end of the build. And your builder might still want some additional amount (based on the cost of the materials you use) to compensate him for the added risk he takes in warrantying a more expensive build.

So maybe a flat fee for supervising the labor plus a small percentage of the cost of the materials (say 1%) for his warranty risks, plus a potential bonus based on closely supervising subcontractors to keep the mid-build repair costs to a minimum?

Obviously, you would not be able to use a standard form contract for such an agreement though so both you and the builder might want to run such an agreement by your respective lawyers before signing.


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RE: Builder Payment Schedule - No financing

All I will say and I have no dog in this hunt but good lock building your house, and you and whomever you may find to work at your terms will probably deserve each other!!


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RE: Builder Payment Schedule - No financing

munzer, I thought the explanation theballs gave for higher labor charge to install higher quality materials made sense (and I'm not a builder). I'm just a regular gal who doesn't mind paying more for talented, conscientious tradesmen.

You get what you pay for. If you want the cheapest flooring guy you can find to install your expensive marble tile, you can expect a poor job. Quality workmanship takes time and experience, and it is reasonable to pay more for that experience. So if you are putting in high quality materials, you can expect to pay for a high quality subcontractor. And since high quality subcontractors are not as plentiful as mediocre subs, scheduling becomes more difficult. Part of the GC's job is to keep everything running on schedule - somehow you don't strike me as a person who would be happy with long delays during the process.


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RE: Builder Payment Schedule - No financing

We are running the gamut here from ripoff paranoia to sheep who really believe that high end materials justify a straight percentage of material cost surcharge.

Hilarious thread!


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RE: Builder Payment Schedule - No financing

On a cost plus contract, couldn't you just negotiate a lower percentage for the builder if you are planning to use more expensive fixtures/finishes? A builder who wants 15% on a $500K build might be willing to take 10% on a $1000K build (same framing but upgraded systems, insulation, windows, roof, fixtures and finishes).


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RE: Builder Payment Schedule - No financing

We have had builders describe the escrow situation for payment method and honestly, I think it's the best way to go. You can set it up where you have to sign off each time the builder wants to draw money out of it. So, you can check and approve the work that has been done before allowing the builder to get money. That's not much different than writing a check and it also ensures you have enough money set aside to finish the project.


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RE: Builder Payment Schedule - No financing

I doubt anyone is going to change the OP's opinions.

millworkman's words should serve to close this thread:

"All I will say and I have no dog in this hunt but good luck building your house, and you and whomever you may find to work at your terms will probably deserve each other!!"


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RE: Builder Payment Schedule - No financing

@brooksms

In escrow account don't you lose some control over your money?
Can a just regular bank account on my name do the same job?


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RE: Builder Payment Schedule - No financing

Now you ask that question????????


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RE: Builder Payment Schedule - No financing

@ millworkman

So what is the answer?


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RE: Builder Payment Schedule - No financing

We have not let the builder know we have cash up front, but we're going through the bank anyway. The bank is going to make sure the work is complete before they pay out. It is worth the application fee and the cost of the inspector coming out to make sure the inspections are done and lien waivers are signed. It is worth our peace of mind. There is no penalty for paying the loan off first.

We have insisted on line-item detailing and that has helped us control the costs. We know up front what we're paying for. Our GC is charging us a percentage, but I don't begrudge him. He's been working with us for about a year.

As far as putting the money in escrow, I can't blame the builder. He needs to sleep at night too. Unfortunately, we don't settle things with a handshake any more. You know your own integrity, but an outsider does not. It might be just as easy to have the bank handle it as a construction loan. It may give you peace of mind too.


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RE: Builder Payment Schedule - No financing

@still_waters

Don't you have to pay the closing cost, loan origination fee etc.? That adds up. for a 500,000 dollar home, $10,000 down to drain. Is it not?


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RE: Builder Payment Schedule - No financing

Im not a builder, I manage a medical practice. There is an old saying, "you get what you pay for". It seems to be true more often than not.


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RE: Builder Payment Schedule - No financing

@TheBalls,
You wrote: "you get what you pay for"
False.
I agree that higher quality stuff will cost you more but that doesn't necessarily mean you get higher quality of stuff just because you paid higher price.

Think about it.


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RE: Builder Payment Schedule - No financing

munz........You also posted on greenbuildingtalk.com in the last week. You came across the same way there. You come across as a spoiled brat that has always gotten what you wanted and if you didn’t you threw a tantrum until you did. This is real life here! You’re in Dallas so my first thought is your family is in oil? Have you EVER built a house before??? If not, HOW do you know what things cost to build a house especially a muti million house??? If you came across any GC with your attitude they will tell you where to go and not walk away but run! Your ONLY option is to do a spreadsheet with ‘everything’ you want in your house. I mean EVERYTHING IN DETAIL!!!!!!!!!!!!!!!!! Then submit to several GC’s and get competitive bids. This is your only choice. Do NOT compare Wall St. with GC’s! Wall St is a world to itself.


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RE: Builder Payment Schedule - No financing

Still no response as to what you do for a living and how much you make. There are plenty of people who would love to armchair quarterback your compensation package because you aren't "worth" what you get paid either.


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RE: Builder Payment Schedule - No financing

@live_wire_oak

Why are you asking what do I do?
That has nothing to do with my questions, objections or the arguments I brought against custom home builders legal but unfair but business practice.

Do you want to start a personal attack campaign or what?


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RE: Builder Payment Schedule - No financing

@robin0919
Why it is so hard for you to understand? All I am saying is that custom home builder play with our money and then want to make 15% of my money. I say that is unfair. A builder should get paid for his expertise and time he put in to built the house. Nothing more.

How about paying US president salary as 1% (forget about 15%) of US GDP? Does that make sense to you?
How about


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RE: Builder Payment Schedule - No financing

I've got to tell you... .I haven't had this much fun reading a thread on building forum in a while.
Munzer... all the answers to your question(s) are in bevangel's post. Find a builder who'll do the job for a fixed fee and be prepared to live with the consequences.
Discussions like these remind me why I LOVE building spec homes :-).


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RE: Builder Payment Schedule - No financing

@stasek
I have no problem with spec builders, regardless of how much profit they make in their pre-built house that they hope to sell.
Reason: they put their money on the line. Spec builder or even a custom home builder if uses their own money to build a house. They take the risk. Then 15%, 20% 50% profit is justified. But not when they use my money and then ask 15% of it. What a stupid world we live in!

Now, I am just responding to some of the stupid, and outrageous attempt to justify their 15% cost plus deals.


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RE: Builder Payment Schedule - No financing

As I and many others have said... Try and find a builder that will do the job for a predetermined amount, whether it's 10 - 15 - 20 % of the preliminary numbers, doesn't matter. Negotiate the fee, sign the contract, and have at it. Hopefully within 12 months or so you'll be enjoying your new house AND you'll be on good terms with your builder. Heck, you might even stop by forum(s) like this one and give advice on what to do in a situation like yours! For what it's worth, about 10 years ago I was an owner builder seeking advice on this very forum :-).


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RE: Builder Payment Schedule - No financing

As I and many others have said... Try and find a builder that will do the job for a predetermined amount, whether it's 10 - 15 - 20 % of the preliminary numbers, doesn't matter. Negotiate the fee, sign the contract, and have at it.

Exactly! I am not understanding what is so difficult with just doing a cost contract with a Fixed Fee.

Of course I am also not understanding why you didn't respond to bevangel's comments.

I also think it boils down to simple supply and demand. If builders are finding plenty of people who will paying using the method you find objectionable, why should they change methods?


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RE: Builder Payment Schedule - No financing

We have a 1/2% loan origination fee, appraisal, attorney fee, deed recording, $375 for application fee. The most expensive thing is the inspection fee. It allows for 12 inspections. Having a GC takes a lot off our shoulders. Having cash would allow us to GC ourselves, but we don't have the expertise to do our own build.

We don't want to be penny wise and pound foolish.


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RE: Builder Payment Schedule - No financing

So, what do you think is an appropriate fee for constructing a 1.5M home?


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RE: Builder Payment Schedule - No financing

$10,000/month to $12,000/month salary for the 12 months it will take him to finish the job.


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RE: Builder Payment Schedule - No financing

I think $10,000/month to $12,000/month salary for the 12 months it will take him to finish the job is appropriate.


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RE: Builder Payment Schedule - No financing

1% per month and a luxury build.....doesn't equal a 12 month build. Maybe 24-36 months.

How much "should" a cardiologist make?

What about your pizza delivery guy?

A member of Congress?

A Wall Street trader?

An architect?

At least the pizza delivery guy is doing something tangible. And a cardiologist, well you have to respect their training received to tell you to lose weight and lower your cholesterol. Even though "everyone" knows that already. It doesn't stop people from paying the going rate for his office visits. The rest, they don't really "do" anything do they? Or, at least anything that "everyone" else can't do themselves. So, they "shouldn't" make a living at all, right?

When you choose to publically disparage the wage structure of an entire group, then it becomes relevant as to how you make your living. Plenty of people may feel that you engage in a "money for nothing" type of career. It wouldn't be at all relevant if you didn't proclaim that you know best how others should run their business and structure their compensation. If a builder is of such little use to you, dispense with his services all together and do it yourself. Plenty of people have acted as owner/builders. And you say that it will be a cash transaction, so you don't need to worry about a bank turning you down. If the only impediment is the subdivision that you are building in requires a builder, then perhaps you don't fit into such a subdivision anyway. Most of them have a lot of rules and regulations that probably also won't work well for you.


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@live_wire_oak

Another builder pushing his agenda?. :)
Cardiologist doesn't charge me according to percentage of my some asset.
"...disparage wage structure..." Absolutely,
It is not only the cost plus custom home builder but also mutual fund money managers wage structure are unfair.


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RE: Builder Payment Schedule - No financing

What's the downside of putting the money into an escrow account?

It might increase the legal fees by a little bit, but the amount is probably negligible compared to other things.

This post was edited by ILoveCookie on Fri, Apr 12, 13 at 16:26


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RE: Builder Payment Schedule - No financing

methinks munzer needs to install some of this cheap ceramic tile flooring and then install some of this expensive marble flooring for himself.

Let's see then if he would charge the same amount next time.

The weight difference alone would justify the price, not counting the fact it has to be sealed as well, and more sq footage will have to be installed due to no grout lines.....

I also remember this is the same person who posted a thread about trying to get a builder to "drop" everything and do nothing but build their home.....

They want the all the best of everything, but are not willing to pay for it......what get's me, is they have plenty of funds to do so AND no worries of appraisals and all the other headaches in a typical build and still want beat the builders over the head......AND they have been a member here since 2006. They should know better....

I personally would not even consider building your house after reading these two threads.

Good luck, you're going to need it.


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RE: Builder Payment Schedule - No financing

1. Control of money
Compromising my control of my money.
I have no problem putting money in a separate bank account for this home. But the account need to be in my name not an escrow account.

2. Builder compensation
I want a builder to access the amount of work at the beginning and then work for a fix compensation or monthly wage regardless of how expensive marble, crown molding etc. i later decide to put in.
Custom home builder has a tendency to think, oh...this guy is going to built a mansion and put higher quality of things, that means he got a lot of money, therefore, he can afford to pay higher price. let me charge more.
That's is the part I am trying to avoid.


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RE: Builder Payment Schedule - No financing

Bevangel said: you agree to pay him a fixed builder fee to manage the project while you buy the materials and pay subcontractors directly without any of that money flowing through the GC's hands. In other words, you manage the money while the GC manages the work and you pay him a fixed amount - agreed to in advance - for his efforts.

I've described that as a management contract and have indeed built homes under that agreement for what effectively works out to about $10K a month. However, this would not work for the OP, as the manager would be expected to be on his (entirely theoretical) site all day and do no other work. No experienced luxury home builder would submit to such a nonsensical arrangement.

Ironically, though, I have walked away from "spec" properties $35,000-$300,000 in the hole. Yep, homebuilding is sure an easy money business of neverending riches!

This post was edited by worthy on Fri, Apr 12, 13 at 16:55


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RE: Builder Payment Schedule - No financing

@cleanfreak0419

Another greedy builder pushing his agenda.

You wrote:
" methinks munzer needs to install some of this cheap ceramic tile flooring and then install some of this expensive marble flooring for himself."

I did not compare labor cost of cheap tile with expensive marble.

I compared labor cost for $5.00/sq. ft. marble to $10.00/sq. ft. marble.

Your dishonesty distorted my argument. You will do the same in building my house. Builder like you would prefer to get a percentage of my entire net worth to build a custom home if you could get away with that. You greedy custom home builders. You are a dishonest person. I would not hire you.

You wrote:
"I also remember this is the same person who posted a thread about trying to get a builder to "drop" everything and do nothing but build their home....."

Why not?
Why can't I hire a builder butt?
Do not some builders work full time for companies?
They simply work for that company.
Same way, why can't I hire a builder for the entire year on my pay roll.

We the public are now getting smarter. We are learning in this website and other places. Your days ripping us off is about to be over.

In the future you will get paid only for your expertise, time and small risk you take. Nothing more. We the consumer will educate each other in this website and other places.

We will expose you and other builder, architect and subs who are pushing their agenda at this website.

We are also learning about the unfair contracts written by National and Local Home Builder Association to protect builders' interest more than the home owner.

Internet will eat up your free lunch. Through the power of internet all home owner units. We will expose your dirty little secrets.

Your unfair business practice time is about to be over.

This post was edited by munzer1 on Sat, Apr 13, 13 at 0:41


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RE: Builder Payment Schedule - No financing

Doth protest too much. I suspect you work the system for your own income - personal injury attorney, some type of healthcare that depends on Medicare reimbursement or other third party profiteering.

I'll leave it at that.


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RE: Builder Payment Schedule - No financing

What's the point of arguing here about whether or not builders are overpaid?

Munzer is free to go solicit builders to work on his terms, and then he can see how that works out. I'm not sure what the logic is of trying to sell someone on taking lower wage than they would likely be able to receive elsewhere, but he's apparently put a lot of thought into this...


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RE: Builder Payment Schedule - No financing

My brother is a dishonest person. He tells small lies to get discounts (such as lying about his son's age so he pays lower ticket prices). He bends rules (and laws) when it suits him.

He assumes that everyone else acts the same way that he does. He is suspicious, and always feels like he's getting ripped off. He doesn't trust people, and thinks he is always right (no matter how well others may present a very valid argument).

I think he and Munzer would get along great.


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RE: Builder Payment Schedule - No financing

@ all custom home builders

You folks are doing price fixing. What we, the home owner need to do is to empower NHOA (National Home Owner Association) to counter National Association of Home Builder organization (NAHB), educate each other and lobby.

Builder price fixing need to stop. Support the consumer.


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RE: Builder Payment Schedule - No financing

Ok heres the deal, You clearly have no faith in the building industry. Thats fine, somewhat foolhardy to enter into said industry with such a large budget, but be that as it may. If you want a semi successfull/happy experience in the process you need to sit down and do some serious research. You not even seeming to know how escrow works when you come here soliciting advise bothers me greatly. Google is your friend and a seemingly more reliable source than all these evil 'demon builders'. I've provided a very helpful link for you on this, modify its method as needed.

Now my next and most sincere advice to you is this, if you want to step out of the norm on the build financing then do your homework first and realize what your risks are by doing so. Some folks have pointed a few of them out here but I guarantee you there is more and it may require a whole heck of a lot more interaction/oversight than you think you might have to or want to take on. Then we'll hear you back here crying 'why didn't anyone tell me this!!!'.

Here is a link that might be useful: How escrow works


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RE: Builder Payment Schedule - No financing

I'm thinking that you might be happier selling your current lot and buying one that doesn't have builder restrictions on it.

That way you can be your own GC and avoid dealing with custom home builders altogether.

We chose the gc way because we are putting in too much money to make costly mistakes, what I fear we'd do.

Good luck.


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RE: Builder Payment Schedule - No financing

@still_waters - I can already see the next thread.... "Evil/Greedy Subcontractors...."


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RE: Builder Payment Schedule - No financing

@stasek,

Not subcontractors but mainly the Custom Home Builders (CHB). CHB do price fixing. - not fair.


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RE: Builder Payment Schedule - No financing

munz.....so ya saying that ALL GC's in your area get together and collude whenever someone gives them a plan to bid on and they ALL bid exactly the same price?????????????????????????????? Where do you come up with this @HIIT....just in your head!!!!!!!!!!!!!!!!!!!! You need to see a shrink if you are EVER going to build a house. I was going to agree with 'still waters' but with your attitude, you're gonna come up with this same thinking that the sub contractors(once you start) are making TOO much money and run them off. They will tell the other subs and you will NEVER get a house built!!!!!!!!!!!


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RE: Builder Payment Schedule - No financing

Curious as to everyone's thoughts about the following:

Do you believe a home builder should make the same percentage profit on a custom home as he does on a spec home?


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RE: Builder Payment Schedule - No financing

@ john_wc,

No.
Custom Home Builder should make smaller percentage because his money is not at risk. He plays with home owner money.
Whereas, spec builder uses his money, pays the interest in the borrowed money and has no guarantee when his house will be sold.

However, you will not get a straight answer here at this web site from any custom home builder. This website has become a hub for promoting builders, subs, architect to the gullible home owner.


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RE: Builder Payment Schedule - No financing

@ robin0919,

No. All GC do not have to get together. It is the way the market has evolved to price fixing because they are able to get away with it so far. Things will gradually change now as home owner educate themselves using internet.

I am the shrink. Make an appointment with me. I can check you out. But no, you do need a shrink if you are a custom home builder. If you are a custom home builder then you know exactly what you folks do to the home owner. You folks are very smart and cunning.

There are too many subs are out there. I am talking criticizing Custom Home Builder price fixing practice.

As I have said, this unfair practice is similar to that of mutual fund money managers. They also make percentage of investor investment regardless of if the market goes up or down. They also play with their clients money. That is not fair.


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RE: Builder Payment Schedule - No financing

Munzer, I think we are all well aware of how you feel about how builders are paid for spec vs. custom homes, and your general paranoia about the industry in general. Can't say I understand why you even want to embark on building a home, and I tend to doubt you can even find anybody decent who will make a deal with you on terms with which you will agree.

john_wc - As long as the builder gives me what I spec at a price I find acceptable and does a good job in the process, I really don't care what he's making. My father is fond of a saying - "you can have it well done, cheap, and on time, but you can only have two of those three things." If I'm taking the time, money and energy to build a custom home, I'm choosing well done and on time.


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RE: Builder Payment Schedule - No financing

Don't feed him!

Here is a link that might be useful: Living under a bridge because he can't get a home built


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RE: Builder Payment Schedule - No financing

Munzer,

I find it ironic that your big complaint is that you don't want to place money in an escrow account -- instead, you want the builder to trust you to pay once the work is done. Yet that very lack of trust seems to be your motivating factor -- you're asking the builder to do exactly what you yourself are unwilling to do.

You say you don't understand why an escrow account is necessary. I thnk the reality is that you don't understand what an escrow account is. An escrow account is a "holding place" for money that's been agreed-upon by two parties. In this case, you're going to agree that you want a house that'll cost approximately X. The escrow account protects the builder from you coming up at the end of the project and saying, "Sorry, but I only have 1/2 the money." A reputable builder will not bring his crews out to work for weeks without some guarantee that you can/will pay. The escrow account is a surety to the builder that you won't screw him over after he's done the work. It assures him that he won't have to go through the court system, fronting more of his money while his crew sits unpaid and end up getting a pittance of what he should've been paid.

The escrow account is administered by a neutral 3rd party; thus, the builders whom you distrust so strongly cannot abscond with your hard-earned (no, wait -- borrowed) money if they haven't completed the work. You do have to put the money into an acount, but you are not losing control of it. The escrow administer will not pay the bill if the work isn't completed or if the work isn't completed to a reasonable person's satisfaction.

To some extent, when you put your money into an escrow account, it is "spent". However, using that same logic, you could say that when you sign your name to the contract agreeing to build the house, your money is "spent". Again, I don't think you really grasp what an escrow account is.

Would you be willing to work several weeks (and have your staff work several weeks) if you didn't KNOW that you'd be paid in the end?

You're wrong when you say that a custom builder should earn less than a spec builder. A custom builder brings greater expertise to the job. Workers who build spec homes repeat the same things over and over: The same simple floorplans, the same builder-grade tile, etc. In contrast, it takes a higher level of skill to incorporate more expensive, less-often-used materials and to follow a different floorplan every time. It takes mroe time to search out and buy these specific products rather than simply sticking to huge quantities of builder grade items. People who command those greater skills also demand a higher salary.

Do you not earn more or less than you did when you were a just-out-of-school worker? I've been teaching for 20+ years, and I do earn more than the first-year teacher. It's common sense.

To a great extent, you DO get what you pay for. Hardwood floors are nicer than carpet. Granite countertops are nicer than laminate. Deep soaker tubs are nicer than the cheapest acryllic tubs. The list could go on. Your expectation of getting a custom house for the cost of a spec house is juvenile.

What I really don't understand is your venom for people who are trying to help you grasp concepts that clearly elude you at this point. You seem to believe that anyone who doesn't jump on your bandwagon is clearly a builder, a person out to gyp the general public. The reality is that few people here work in the building profession, and those who do are very helpful in answering qustions.


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RE: Builder Payment Schedule - No financing

Very well stated MrsPete.


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RE: Builder Payment Schedule - No financing

Why don't you put your 1.5 million dollars in the bank and build a home you can afford with YOUR income and retire early?


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RE: Builder Payment Schedule - No financing

@MrsPete,

Although I disagree with you in many points but I want to thank you for taking the time to write a long response.

Escrow account:
I know exactly how the escrow account work.
When i hire a subcontractor to get a $50,000 home improvement job done then they do not ask for escrow account. Why should a custom home builder? At no time builder's $1.5 million will be at risk. They will do the job in installment. And yes, tens of millions of people routine work for a new employer for at least two weeks before getting paid.

Track Builder versus Custom Home Builder:
I am willing to pay slightly higher to Custom Hoe builder for their better expertise but not as a percentage of the total value of the house. The biggest factor for forming my opinion is Track home builder play with their own money but custom home builder play with home owner money. Money risk is a big factor in business.

Higher price for higher quality items:
Devil is in the detail. of course, I am willing to pay higher price (material only) for the higher quality of marble for the floor. But I do not believe a Custom Home Builder should charge me twice as much for the labor cost to install a $10/sq. ft. marble than $5.00/sq. ft. marble.

Again thanks for your response.


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RE: Builder Payment Schedule - No financing

I believe you think you understand the concept of escrow, but your replies show otherwise. Escrow accounts aren't unique to the world of building, and they aren't new.

You're set on reinventing the wheel, and -- certain that people are out to get you -- you refuse to hear about industry standards. This isn't a spot where you can make demands wild-west style. You're uber-concerned about keeping your contractors honest; competition does that -- you need only be vigilant enough to make comparisons. But you need real information, not just strong opinions.

You keep saying that builders don't demand money-down. This is blantantly false. A contractor did a number of jobs around my house a few months ago. he came over, gave me a price, and he asked for a 50% downpayment. I paid the second 50% when he completed the work. Similarly, when I had a new heat pump installed, they took my credit card number before ordering the equipment -- they didn't "run it through" 'til the next week when they installed it, but they had assurance that I'd pay. This is the industry standard.

I'm not sure why you're so stuck on tile, but your facts are dead wrong. A simple porcelain tile is easy to lay because it comes on a mesh backing, and a relatively inexperienced installer can lay it a foot at a time. If you pay that same guy to install expensive marble, you're going to be disappointed: Marble has a "right and wrong" to the pattern, and more expertise is required to lay it. Also, marble tiles tend to have bevels and "fit togethers". These things take more expertise, and that expertise costs money. I do not believe you're going to find, however, that $5 marble tile will cost more to lay than $10 tile with the same attributes.

You're disagreeing with facts, not opinions.


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RE: Builder Payment Schedule - No financing

@john_wc - spec vs custom -> commodity vs service industry. Here's how I look at it - when I build and sell a spec home, I provide a commodity. Depending on market, I'm either going to make good money on it or lose my a$$ (needless to say, we've been on both ends of the spectrum). When I build a custom home, I provide a service. The more complex project or customer, the more I would like to make to cover for the extra time and headache.

Regarding the stigma of spec homes - not all of them (at least not the ones we build) are cheap, no frill, run of the mill. Maybe that's part of the reason we've survived the recent events whereas a LOT of smaller guys went under losing everything in the process.

Now onto signing a contract to build a custom home. But wait... It's on OUR lot being financed with OUR money.... Is it really custom? Damn, how can I make as much money as possible in this scenario? Decisions, decisions, decision....


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RE: Builder Payment Schedule - No financing

@stasek,

you wrote:
"Now onto signing a contract to build a custom home. But wait... It's on OUR lot being financed with OUR money.... Is it really custom? Damn, how can I make as much money as possible in this scenario? Decisions, decisions, decision...."

".....OUR lot, OUR money...."
Did you mean
1) Builder Lot/Builder Money?
or
2)Home Owner Lot/Home Owner money?

If it is 2 then what you meant by "Damn, how can I make as much money as possible in this scenario?"
If you meant 1 then you are wrong my my case/situation.
It is my lot my money and not even of bank money. It is all cash sitting there.

Munzer


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RE: Builder Payment Schedule - No financing

Me thinks, the op just likes to hear himself argue and is trying to convince himself that he is correct. i have been following along as I find it quite humorous. And as the saying goes "you can't fix..............."


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RE: Builder Payment Schedule - No financing

@millworkman,

Are you in the 1% or the other 99%?


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RE: Builder Payment Schedule - No financing

The housing market is picking up munz, I suggest you spend less time arguing with people on gardenweb over your notions versus theirs and more time out trying to find a builder to agree to this nonsense. You might actually find one (tho you would have had better luck in 2007) but the longer you delay the less likely you will. There are plenty of other folks with money to throw around looking to build at the bottom of the hump. That time is now and those folks have no problems with the rationality behind an escrow account.


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RE: Builder Payment Schedule - No financing

Hmmm the numbers don't add up to me. You don't mind paying 12k a month for a build that is likely to take longer than a year, but you don't want to pay 10% which is 150k. Seems to me the 10% is the bargain as 150k divided by 12k is 12.5 months. Even if it took just a year to build it is still a very small difference. However since a build can often take longer than estimated it would actually be cheaper once you go past the 12.5 months.

Guess OP just likes to argue.


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RE: Builder Payment Schedule - No financing

lyfia,

I would love to pay 10% if I could find a custom home builder who is wiling to work for that much only. But so far all builders are asking for 20%.

The moment they see a house is over a million dollar their eyes pops out, ear get alert, saliva started to drop from their tongue. They started to think, here comes my fortune, a guy with money, we can ask big fee and he will give it to us because we have price fixing in this business. All custom home builders know about it.


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RE: Builder Payment Schedule - No financing

The extra 10% is the PITA tax. And I'm surprised it's that low.


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RE: Builder Payment Schedule - No financing

@hollysprings,

No it is not tax. 20% is the builder commission.
Sales tax is the part of cost of the house.
What is PITA? In texas we have only 8.25% sales tax


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RE: Builder Payment Schedule - No financing

Munz,

No question you're in a bracket requiring you to pay that PITA tax in Texas. Ohio also has it.


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RE: Builder Payment Schedule - No financing

*wipes coffee off screen*
I'm pretty sure every state has PITA tax. Varies by individual.


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RE: Builder Payment Schedule - No financing

Munzer look up what PITA means. Something difficult to work with people tends to get charged because the person knows they'll have to spend much more time on their project.

Is the GCs telling you how long they expect the build to take?


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RE: Builder Payment Schedule - No financing

This thread has been quite entertaining to say the least. I'm interested in the details of the build to know if it would even be feasible for a 12 month build. 1.5mil doesn't go very far in some parts of Dallas, whereas other areas of Dallas it can buy quite a bit. Offering up details of the build will help those more experienced in various finish levels explain what differences may exist for the builder to justify the price. This may provide for more valuable feedback because if extreme high end finishes aren't being considered, perhaps there isn't sufficient justification for a higher fee, which might satisfy munzer in revealing some level of his "price fixing" conspiracist theory.

I suspect hollysprings hit the nail on the head. If munzer comes across in real life even a fraction of the way he's presented himself here, no builder in his/her right mind would even consider taking on such a nightmare of a project without a little extra compensation.

Above all else, the most ironic thing about his entire argument is that it isn't even munzer's money. He's borrowing from a relative! Despite arrangements to pay back the loan (with a low interest rate), munzer is still in essence gambling with someone else's money too! Did munzer see the opportunity to swindle a relative with a pitiful 2% return with the promise it's a risk free investment. His eyes dilated and began to salivate at the opportunity that presented itself. If that relative only knew how much "risk" is actually in play since munzer is so set on his point of view and absolutely unwilling to even consider reasonable explanations, that relative could've invested elsewhere for a better return.

Munzer, it frightens me to think it's possible you actually practice psychiatry with such unwillingness to listen once you have made a decision regarding your opinion on a specific matter. Do you stop listening to your patient once your mind is made up regarding that patient's diagnosis? Oh, wait, I bet since you know everything, you couldn't possibly benefit from wasting additional precious minutes actually listening. Even if you have things figured out in 10 minutes, I bet you charge for the entire session regardless. ;)

Before I'm accused of being gangster, I'm not a builder. I built my own since I would be hit with the PITA fee too with the level of detail I require. ;)


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RE: Builder Payment Schedule - No financing

@lyfia,

I tried to look PITA up. None of the meaning made sense. none of the builder told me anything about PITA either. Obviously, whatever you have in mind about PITA can't take the builder fee from 10% to 20% of $1.5 million. PITA is irrelevant in this regard.

Builder said, it will take them 11 moth to 13 months to finish the house.


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RE: Builder Payment Schedule - No financing

@dannie_gal,
Her is the detail,
11,000 sq. ft. house, yes, better than average finish with some special items, in the City of Parker, that is north east of Dallas,. $1.5 million is excluding the cost of the 2 acre lot, swimming pool, landscape, tennis court and outdoor sculptures.

I wanted to spend $1.5 million but builder giving me bid for $1.75 million with 18% to 20% their fee.

You wrote: "price fixing" conspiracist theory.
No conspiracy but yes, price fixing.

My relative is keeping my $3 million retirement mutual fund as collateral. So, don’t you worry, they already have their risk taken care off.

Now, back to the 20% builder fee.
Yes, custom home builder salivate with greed the moment they hear over a million dollar home.

I do not know what PITA is but no builder told me anything about PITA fee. Whatever it is, it can’t take the fee from 10% that I am willing to pay to 20% that they want.


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RE: Builder Payment Schedule - No financing

Oh yes, the PITA tax can certainly be well over 10% in the right circumstances. You have the exact right set of circumstances for that to happen. You may end up with a 30-40% builder's fee because of it. Just because of the PITA tax. As far as the builder discussing it with you, no that won't happen. None will be really open with you about it. (Do you tell people the amount of taxes YOU pay?) The tax is assessed on his end and HAS to be passed along to you together with his usual percentage fee for the build. You might be a little more sympathetic to the builders who have to deal with this additional inconvenience. They aren't happy about it either, but they endure it.

This post was edited by GreenDesigns on Sat, Apr 20, 13 at 15:03


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RE: Builder Payment Schedule - No financing

@GreenDesigns,

What does PITA stands for?
Where can I find more info about it?


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RE: Builder Payment Schedule - No financing

Pain In The A$$ is what it stands for.

I can't say I agree with making fun of some of this. If somebody doesn't truly have English as a first language some of these expressions are not easy. Especially since they are not always easy to look up. Been there done that myself.


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RE: Builder Payment Schedule - No financing

Hollysprings beat me to it.

Here is a link that might be useful: PITA definition


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RE: Builder Payment Schedule - No financing

If someone has already been told the definition, as munzer was already upthread by you lyfia, and yet disbelievingly keeps up the questioning about it, then yes, a bit of ribbing is in order. BTW, the FIRST link on a Google search is to Urbandictionary. If someone cannot even do a simple Google, then the entire project is completely hopeless.

And every single trade who does a bid on this job will add that tax to the quote. that 1.5 just turned into a 2.5 before it's over because no one will want to deal with the OP. That's pretty much already happened, by his own admission, with builders. No one will lower their price, and if he keeps badgering them, the price WILL go up. It's what capitalism is all about. You pay the market price. And you don't get to decide what that market price is. If others pay the price, then why should anyone take less for the same work? More difficult jobs are ALWAYS more money. Hazard pay, if you prefer, rather than PITA tax.


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RE: Builder Payment Schedule - No financing

Even if the builder charged 25%, I think it should be worth it to munzer in order to have him be the buffer between the client and the trades. Any trade who talks with the OP rather than a builder will DOUBLE their bid. At least. Every single element on the build will cost munzer more than it will his neighbor. I'm not even sure I'd deal with him for double my usual fee. I prefer to enjoy my work rather than it be full of suspicious strife.


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RE: Builder Payment Schedule - No financing

you folks (builders) come at this site to jack up the builder fee.
I thought, PITA is some kind of luxary tax or something.
Now I understand, PITA is when incompetent greedy builders trying to rip off home owner tax. Pain In The Ass.


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RE: Builder Payment Schedule - No financing

@hollysprings,
so, you are a builder after all.


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RE: Builder Payment Schedule - No financing

Nope. Not a builder. A retired designer who has worked with builders. Many good builders. Some not so good. None of them as focusedly evil or greedy as you try to paint them. Most of the bad ones are just disorganized and not so smart, and wouldn't be up to trying to create a worldwide conspiracy against million dollar clients. They didn't make it through the downturn at all and are probably doing something else now.

Good or bad, all of them are able to choose the jobs that they want to work on. As can any independent business person. None would work on your build. They'd rather go fishing than deal with a PIA. Life's too short. Most wouldn't even give you a quote after their first meeting with you. Why would they? They have zero incentive to want to take on a job like this.

The ONLY way someone would take a difficult job where they get slapped in the face every single day would be if extra money were involved, not less than their usual pay. And, they'd have to need the money. A few years ago, you might have found someone to take your abuse. Not gonna happen now. The builders who have survived the downturn are busy again. And they don't need your business. There are plenty of people breaking ground where they can earn what they ask. Easily.


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RE: Builder Payment Schedule - No financing

@hollysprings,

".....A designer who worked with builder."
So, you are in the same gang of ripping us off.

Your logical dishonesty shows right here, You worte:
"...trying to create a worldwide conspiracy against million dollar clients...."
You exaggerated, changed my words.

I have repeatedly said, there is no conspiracy, it is just price fixing. You even added "world wide"

Do you know why you were forced to add that?
Because your argument was weak.
So you used "world wide conspiracy.." as your crutch.

You are part of the legalized gangster.

There is no conspiracy regarding the commission of mutual fund money managers either. But they also got the price fixing.

Shame on you for your exaggeration"...worldwide conspiracy..." ha,,,,,ha... you had no solid argument.

There are few builders who are not greedy. But they are probably in less than 10% of the industry. You are definitely not one of them.


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RE: Builder Payment Schedule - No financing

In your paranoia, in your certainty that everyone here is an evil builder out to take what they can from you, you're overlooking the obvious: This PITA tax that people are discussing is quite real. It means that builders will "up" their bid when dealing with a difficult client -- not because of greed, but because they know that client's going to be a major headache, and IF they're willing to take on the job, it's only going to be for extra compensation. A person who's going to question every detail, who's going to be extra-demanding, who's going to grate on his every nerve at every turn is more work and is more time for the builder.

Fair? Totally. You have the option to approach this project like a reasonable person -- that is, to let go of this idea that everyone's out to get you. Treat the people with whom you're going to work with respect, and you'll get a better price. If you're obtaining bids from other companies, you're going to have a system of checks and balances working for you, and you're not going to be ripped off.

Make the choice NOT to be a PITA, and everything'll go much more smoothly.

DannieGal, You're totally right about the irony of the situation.

Munzer, I'd be interested to hear just how this generous relative is able to "hold" your retirement account. Retirement accounts are pretty much sacred, and it's all but impossible for anyone to take a cent out of them without your permission. You like to accuse others of being greedy, trying to get something for nothing . . . I'm thinking you've offered your relative a wooden nickel (explaination of an American idiom: Offering someone a wooden nickel means paying in useless coin. In this case, an appropriate saying because -- if you renege on your payments, the relative will never get your retirement money -- at least not without a lengthy, expensive trip to court).


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RE: Builder Payment Schedule - No financing

And to be entirely truthful it really is not a PITA tax as much as it is a SURCHARGE for having to deal with the PITA! A tax would presume that it was to be forwarded to someone else (generally the government) while it really is payment for the builders pain and suffering for having to deal with a PITA!!!


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