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Question DetailsAsked on 9/8/2011

What is best procedure for hiring a contractor to build a small summer home in another state? Pay partial upfront in escrow or labor only?

We are willing to pay for all materials & will pay builder Wages as work continues and to help the burden of his costs. We do not want to pay upfront any "earnest" money.
What is proper procedure to work w/builder. Small summer home out of state.

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4 Answers


You should NEVER have to pay anything up-front to a contractor. If they are a reputable business they should have the resources to start the work and order supplies. If not, you probablly don't want to use them.
You can expect the contractor to ask for payment on a regular basis (every 2 weeks to a month). The amount requested should be equal to the work, and materials, in place. For example if he did $1000 of work, plus had $3,000 of materials delivered and stored at the building site, you should expect an invoice for $4,000. Typically, you should be able to withhold 15%, called retainage, from each request. This is the contractor's profit on the job. You will pay the retainage at the end of the job when everything is done, and you are satisfied with the work. The most important thing is to only pay for the work, and materials, in place. You may be able to judge this yourself. Or you could hire an architect, or a home appraiser. You should also consider escrowing the money at a bank or title company. This way the builder knows the money is available and on hand. Also, a title company will see that all the proper paperwork, including lien waivers, is received prior to disbursing the funds. Again, this is something an architect can help you with.

Answered 9 years ago by Belles Architecture


paying for materials as you go is a must. to many of us have got burned on that alone. you should set up a payment schedule that runs along with the work done. just like a bank sets up a constuction loan. no work no pay. but they have the money ready and waiting, if you can have the money set aside in an account to show your contracter you have it it will make him more at ease. hope this helps you. Kevin Libby 9788153276 (c) MA

Answered 9 years ago by kevin


The short answer is, you need to protect your money while being fair to the builder.

It isn't fair for the builder to pay for all materials out of pocket or to pay interest on store credit for your materials, while they wait for a payment from you. So putting money down to cover the cost of pre-ordered materials, permits, inspections and the contractor's work (the pre-planning and hiring of subs, filing permits, etc) is a fair method. But how will you know if the permits were actually filed or the materials actually ordered?

A common way to do this is to have a 3rd party overseeing your project. This would be someone local; able to see the job site. An Architect or Project Management firm can be used for this purposes. Working with the Builder, a project schedule will be made to include major portions of the work, materials lead time (to order far enough in advance they aren't waiting for them to arrive), and a project completion time. This would also include an intial amount of deposit as well as lien requests.

This would become part of your contract with the builder. As the builder orders supplies, a copy of the invoice would be delivered to the Architect/PM. When the supplies arrive (either at a shop or the job site) the Architect would confirm the order, and approve the contractor's pay request. You would then cut a check to the contractor. This would continue for all phases of the work; the Architect would not write checks; merely inform you when the work is complete/correct and how much to pay. For example, if a problem was found with something incorrectly installed, the architect would forward the request for payment (from the builder) to you, with a note to reduce the requested amount by X%. Once the work is corrected, another request would be sent to pay that missing X%. If all work is correct, the builder's request for payment would be approved and sent on to you for payment.

This ensures the project is on time, quality and the builder never gets too far ahead with payments vs work complete. The Architect gets an hourly fee or a contracted amount for this work. They will also be able to assist with any permit issues and design/construction issues that sometimes pop up that are no one's fault.

The other things this does is prevents change orders and 'extras' at the end of the project. The project cost (the actual builder's profit) is held to the end; so if the builder refuses to fix something, you still have an amount to withhold to pay someone else to fix. If the builder claims he needs extra amounts, the Architect will be able to verify at the time it is found if the amount is actually needed or not.

Also, the lien waviers are simple forms that the sub-contractors fill out against the builder; when they get paid for their work, they sign off on payment, and the lien is lifted. This prevents you from paying the builder, then having a sub-contractor show up asking you for money the builder should have paid. Many builders will not want this, but the good ones aren't worried because they pay their subs anyway. This protects you further.

So having someone to oversee the work, work with the builder and let you know if the project is on schedule and being done as you requested is the best way to contract any job, much less one that is too far for you to see. Using an Architect or Project Manager that is a 3rd party, to represent you is the safest way to protect your investment, and ensure the contractor is treated fairly as well.

Answered 9 years ago by Kenny Johnson


Successful builders build homes with their client's money, not their own. This depends upon a down payment and draw schedule that is favorable to the builder. That doesn't necessarily mean that it's totally unfavorable to the owner, because the builder generally expects his subcontractors to 'float' things for at least a short period of time. i.e. making the subcontractors wait 15 or 30 days for payment after their invoice.
Property owners take the biggest risk in construction, not the builder.
Here's my idea of a fair draw schedule in the construction of a new home:
Four payments of 25% each distributed as follows: #1 due upon commencement of construction. #2 due after 1/3 completion, #3 due upon 2/3 completion and #4 due upon completion, or substantial completion with a small 'retainage' for any incomplete items.

Answered 9 years ago by JGHamm

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