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Close to Final Draw Question

Posted by Mel0569 (My Page) on
Mon, Nov 28, 11 at 14:52

Hi,

Quick question for those of you who have completed or are close to completing your build. How much, if any did you hold back from the final draw?

Right now my builder is saying that he will be finished by March. He stated that he likes to have all ajustments and payments completed before close, so no need to write a check at closing (not sure I totaly agree - if work has not been completed). We have paid for any overages out of pocket as completed thus far.

He mostly has finish work (painting, flooring/cabinets, trim molding etc.) to complete. We know that the landscaping will not be complete due to the weather until after we close.

So if you held back funds, did you pay them at closing or when they completed the work?

We will mostly likely owe the builder a couple of thousand in overruns from our final allowances.

Thanks,

Mel


Follow-Up Postings:

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RE: Close to Final Draw Question

Pay him for what is finished. The closing is for the bankers and their rules. If your contractor is finished..and your satisfied, then He earned his fee for his services and the $$$ money is his...not yours to hold till closing. So many customer get confused at this point in dealing with them..Oh..but he is finish..well do pay for whats not finished..but pay for what is Finished..is that simple. Dont follow Angie List of wieners.


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pay for only what is done

Basic rule is simple: Pay for what is finished. Don't pay for what still needs to be done.

Keep this in mind: if you pay the contractor 100% of the contract when the work is not complete, and the contractor stops work, then you MAY have to pay someone else to finish it, or fight with the contractor (which may or may not work but with a lot of stress even if you're successful) to get the work finished. You want to avoid that happening.

People post here *all the time* about how they've made full payment but the contractor won't finish the work. Don't be one of those posters.

Hold back for any unfinished work of any kind--finishing, landscaping, painting--anything that isn't done.

Adjustments work the same way. If they're complete or they're for materials that have been delivered, you should pay those before/at closing. If the adjustments are for tasks that aren't done yet (such as custom cabinet work for cabinets that are not done), then hold that back.

You want this to be fair to *both* of you. He deserves to get paid for the work and materials that have been completed. But, if he goes AWOL or gets injured or something keeps him from completing the work, then you need to have withheld enough funds to get that work completed by someone else.

I'd approach this as if you expect him to be cooperative: "I know you like to finish out the financial matters before closing, and I totally would like to, as well, if the work were all done. Since there are some things left, let's figure out what it would cost for just those tasks, and we'll adjust the final payment accordingly."

Good luck. I know it's easier to go along with what the contractor wants to do, since doing otherwise feels confrontational, but in this case, paying 100% when the job is only 90-95% done puts *you* at risk--and he assumes no risk himself. If you want to avoid that risk, then you need to stand up for yourself.


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RE: Close to Final Draw Question

I have a similar concern - we are close to our final payment. We have spoken with our GC, and if he provides lien releases covering all subcontractors and suppliers for the last 90 days then we will pay him for all work. Any work done in the last 90 days by subcontractors, or materials supplied, could be subject to lien (though not likely based on the track record of our builder). He is open to a payment hold-back to make sure everything is completed if we want that.

We are not financing our build so it is just us writing him a check when presented with his progress invoices.

The steps we are anticipating are as follows:
Use the California state form "CONDITIONAL WAIVER AND RELEASE UPON FINAL PAYMENT". Even though this won't completely protect us - a hold-back will protect us in case of some small missed payment or if a subcontractor or supplier that we don't have lien releases from attempts to put a lien on the property.

We plan to file a "Notice of Completion" with the County Registrars office which will limit the time to 30 days that a supplier or subcontractor will be able to file a lien. When that 30 days passes (or we recieve any outstanding lien releases) we will pay the hold-back amount to the contractor - getting his final lien release form at that time.

That should cover us based on what I know - don't know if there is other advice people have...


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RE: Close to Final Draw Question

Be aware that the rules (and time limits) for filing liens are different in different jurisdictions. What might protect a homeowner in California, might not be at all helpful in some other state.

In many jurisdictions, the builder signs an "all bills paid affidavit" which is filed in the deed records. If someone the builder should have paid then files a lien against the property, the builder is liable to pay it off rather than the homeowner... although the homeowner might still have to go to court to make him do so.

Additionally, in Texas, a homeowner is supposed to hold back 10% of the build price ("statutory hold back") until the lien filing deadlines have passed. If the homeowner holds back that amount and then someone files a lien within the time period, the homeowner is only liable up to the 10% holdback amount. But, if the homeowner didn't hold back the 10%, the homeowners can be liable to pay the ENTIRE amount of the lien. Hardly anyone in Texas knows about the statutory hold-back law so homeowners get stuck all the time with paying off liens filed by subs after the homeowner has closed with the builder.
There may be and probably ARE other rules that apply in your jurisdiction.

And, even if you're pretty confident that all subs have been paid, be aware that once your builder has all his money, he has very little incentive to come back to your house to take care of "punch list" items. But, unless your contract allows you to hold back some portion of his payment for punch list things, there is probably nothing you can do.

Definitely, if there are items on the contract that have not been completed (eg., landscaping), you should find out from that sub how much the cost for that item will be and hold back that amount PLUS your builder's profit margin on that amount. Don't pay for work that has not yet been done.


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RE: Close to Final Draw Question

Thanks everyone for the great advice,

To this point we have always paid for what is completed and change orders-up front. We are going to me with the builder in mid to late Dec and figure any overages or shortage for allotments. And will determine any potential hold backs, so that worked out.

Now if i could just get him to make more progress on the house!

Mel


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