Replies

1. 
   Piffin | Nov 21, 2004 02:42pm | #1

   Your relationship is with your client. You are working for them and not for the bank.

   The customer has a relationship with their lender. If they choose to use a lender who is not free with money up front to satisfy reasonable needs of the contract, then that client needs to come up with that deposit money elsewhere. It is not your responsibility to carry them.

   If you do choose to work with them, the price you charge needs to be adjusted to cover the carrying costs. If you carry 20K for them through the process of building a house, it will cost you betwen one and two thousand dollars. that adds about one pwercent to the cost to the client. You should explain this to the client because they may be choosing that particular bank to save a half a percent in fees and interest. If they see they are saving one thousand and adding two thousand to the cost, they may become enlightened.

   Or - to look at it another way, go ahead and accept their terms and tell your family they will have to give up their christmass presents this year.

    

    

   Welcome to the
   Taunton University of Knowledge FHB Campus at Breaktime.
    where ...
   Excellence is its own reward!

1. 
   xMikeSmith | Nov 22, 2004 02:54am | #7

   this used to bite me in the Azs when i was first starting out...

   so now i make it a habit to inquire how they are going to finance the project.. and

    i tell them i want  a lot of payments and give them a Payment Schedule to show the bank..

    that is how i expect to be paid.. as piffen said.. it is up to the customer to come up with the gelt.. not me

    

    i provide the product .. they provide the  money..that is the quid pro quo..

    no quid... no quoMike Smith   Rhode Island : Design / Build / Repair / Restore

2. 
   SHG | Nov 21, 2004 02:46pm | #2

   Banks have become very defensive on construction loans because there are so many disputes/problems, where the money is paid and subsequently lost, and the HOs can't repay.  It's not that banks are protecting the HOs, though it may work out that way, but that they are safeguarding their position.

   For the contractor, there is security knowing that the money is there, though not in their hands.  The banks don't see it as their problem to finance the initial purchase of materials or services.  Their view is that they release money for completed work, and the contractor needs to finance his own operation. 

   If your need for the 10% is to pay for the cost of materials, then this financing scheme will be a problem.  If it just makes you feel more comfortable, then it really shouldn't be a problem since the money is there.  You should change your payment schedule to accomodate the bank's payouts, but at the end of the job you get the same amount and you are assured that the HO (bank) has the money to pay. 

   If you have a problem with financing the job up front, you can get a revolving line of credit and include the cost as part of the overhead charged to the job. 

   SHG

1. 
   blue_eyed_devil | Nov 21, 2004 05:51pm | #4

   I agree Shg, that it's actually safer to do jobs with customers that are using bank financing. The bank won't cut the checks without knowing that the contractor gets paid.

   Blackbear, you  have  a right to structure the deal any way you want and do whats necessary to satify both of you. If this bank's terms are too stringent, you might have to walk...or do the takeaway in the negotiating process.

   There's other ways to get ahead of the game though. Instead of charging only $500 for plans, you might insist on a $7500 design/architectural fee, which is due and payble at the signing...for services already rendered. That may, or may not work, depending on the bank...

   You might ask for security in some other form. A security agreement on their paid for cottage, or vacant property is relatively safe.

   Don't ask for their teenage kids as security though....you just might end up getting them!

   blueWarning! Be cautious when taking any framing advice from me. Although I have a lifetime of framing experience, all of it is considered bottom of the barrel by Gabe. I am not to be counted amongst the worst of the worst. If you want real framing information...don't listen to me..just ask Gabe!

3. 
   gdavis62 | Nov 21, 2004 05:49pm | #3

   Is this the first time you have ever built for clients that are getting bank financing?

   Many lenders will permit the client to make payments against the contract out if his "equity" portion.  Let's say the client has made a deal with you for a package price of $700,000, and will finance 80 percent of that.  The lender will be furnishing $560,000, and the balance, or $140,000, will come from the client's own funds.

   A few really uptight lenders will want the client to escrow that $140K with them, so they are certain that when the money is needed, it is really there.  Some of those uptight banks will allow "deposit" payouts from that portion, but not from the loan money.

   Some won't budge at all.  Maybe like what you are seeing.

   It is all about protection of assets.  That is why they will only pay against work that is certified as done per the contract and drawings, and as certified by an independent inspector.

   As a contractor, you need to know and understand about all this, and when needed, build the cost of financing into your contract pricing.  You also need to be telling your subs, "you'll get paid when I get paid." 

   Your likely draw schedule is for four payments.  First: foundation complete and capped with floor system.  Second: framing complete, roof on, all exterior doors and windows installed.  Third: drywall complete and mudded and taped.  Fourth: end of job.

   Are you prepared for this?

1. 
   EricPaulson | Nov 22, 2004 02:47am | #6

   >>You also need to be telling your subs, "you'll get paid when I get paid." 

   Fine to tell them up front.

   But as a practice, I was under the impression that it was illegal.

   EricI Love A Hand That Meets My Own,

   With A Hold That Causes Some Sensation.

4. 
   FastEddie1 | Nov 22, 2004 02:17am | #5

   Can you get the HO/bank to cut checks directly to your window & door suppliers?

    

   Whenever you are asked if you can do a job, tell'em "Certainly, I can!"  Then get busy and find out how to do it.  T. Roosevelt

5. 
   Mooney | Nov 22, 2004 03:18am | #8

   My post is in tune with Shglaw and Gene Davis.

   You dont have any security for your deposit. Think about it .

   Our banks pay for whats done , bottom line. I dont really see a problem unless you are on a very big job. They will break into more inspections . They will pay for a footing if you need it. End of week they all get paid dont they? Most pay a foundation inspection anyway. Most foundations and footings are put  in a couple to three days. Dig and pour the first day and lay blocks the second and third if needed. Slabs go in a week easy if the weather holds up.  

   Most framers will frame a job before they are paid .

   Get a bigger amount on the first draws  and less on the finals. You should have a nest egg by the time the framing payday is drawn.

   If you have enough draws its not a big problem.

   Tim Mooney