Just sent this letter back to the client’s loan officer, after she sent me a copy of her bank’s payment schedule for building a their house – bit over $200 K contract – we’ll see what happens!
XXXX –
XXXXX forwarded me a copy of your blank draw sheet. We call this “the contractor finances the client’s dream house”.
I’ll certainly give your document further review, as it relates point-by-point to my submitted contract with its payment schedule, and my cash-management goals, but it’s not likely I would commit to do business this way.
Forrest McCanless
Forrest – not gonna play that way
Replies
Her response -
Forrest,
I hope you understand the banks perspective on construction loan draws. We are unable to make draws to our customers unless work is complete. We send an inspector out whenever our homeowner calls for draws and make a draw based on the percentage complete. If we released % of the funds up front, we would not have anything as collateral on the ground. This procedure is the way most banks operate. The only way a customer could pay % up front is if they had the cash on hand. We can send an inspector out weekly if needed, but we would never hold up the contractor being paid in any way and are always willing to work with everybody to make everything flow smoothly. If you would like to discuss this with me in more detail, I would be happy to talk to you.
You can set up accounts with building supply companies, where you don’t have to pay for the materials until 15 to 30 days. This gives you time to have property inspected and get paid.
My telephone number is XXXXXXX
Thank you,
XXXXXXX
Forrest - interesting
FWIW what you have is what has been SOP for years here. Early 80's at least. When I first started you got the owner to pay according to your schedule, now you get paid according to the banks . Despite the contract being with the owner, it is the lending institution that holds the card. The only way around this I have found is to work for people who are not reliant on a lending institution for their money.
They can't get your Goat if you don't tell them where it is hidden.
Her reply sounds very reasonable. I would set it up so that you make a draw every two weeks, and use a detailed percent-complete worksheet so that some money is always due at a draw. You will find that you are fronting some payroll costs and not much more. If your subs are like mine, most will bill and then wait for their money, a few will bill immediately and want payment immediately. I am building a house now on a biweekly payment schedule and when a payment comes due I have generally fronted about $7K in payroll and maybe another few K in costs with vendors where I don't have or want an account. $10K in working capitol for the job just about covers it. Unless you can get paid up front for work not yet complete, what else ya gonna do? I know some here say they work that way, but I know they are a very small minority.
Banks love to be in charge. Kind of an odd position to be in when you are selling something (lending money) that has lots of competion.
Being in somewhat of a good position ( I have enough cash) I have told bankers that I don't like this or that, once even crossed out several lines of a loan contract and inserted my own language (watch carefully, and you can see a little steam come out of the smiling little bankers ears). I am always prepared to walk to another bank and they know it.
By no means do I have millions just laying around, I just typical middle class. Bankers hate to negioate (sp) but will if they have to. Tell your customer to deal with the bank in a non-threatening way but at the same time make appointments to meet with another bank or2.
Banks are just like every other business, they want and need you as a customer. But thats a dirty little secret.
But on the other hand you can't throw up so many obsticals (sp) as to make it unprofitable (or nearly unprofitable)for them. They are a buisness and have an oligation to their share holders to show a profit. Do you think a bank or most of your customers really care if you are profitable? Of course not . "Just don't affect my bottom line and we are all ok". This appears to be what your potential customer is doing to you via their bank. The weak guy (ie contractor) usually loses.
Here's their draw sheet - job activity on the left; % on the right:
Clearing/Grading
2
Septic/Sewer Tap
2
Footings
1
Foundation Walls
3
Slab
2
Framing:Floors/Subfloors
7
Framing:Walls/Sheathing
7
Framing:Roof Rafters/Sheathing
4
Plumbing Rough/Tub
2
HVAC Rough (Ducts)
1
Electrical Rough
2
Furnaces
2
Fireplace
1
Permanent Roof
2
Garage Doors
1
Exterior Doors/Windows
2
Cornice/Fascia
2
Exterior Veneer Started
4
Exterior Veneer Finished
4
Exterior Prime
1
Wall Insulation
1
Attic Insulation
1
Sheetrock Started
3
Sheetrock Finished
2
Hardwood Floors
2
Cabinets/Vanities
4
Cabinet/Vanity Tops
1
Interior Trim
3
Interior Doors
3
Exterior Concrete/Driveway/Patio
3
Wood Decks
1
Exterior Painting
2
Gutters/Downspouts
1
Interior Prime
2
Interior Paint/Wall Coverings
2
Hardware
1
Carpet
2
Ceramic Tile/Vinyl
1
Plumbing Fixtures
2
Electrical Fixtures
3
A/C Compressor/HVAC Trim Out
2
Appliances
2
Landscaping
2
Final Clean Up
2
% Complete this Inspection
100
Forrest
Will jump hoops for money.
If your tight on the carry, take a loan and tack it on.
Yea that's what to do , take a loan to build his house.
Off topic-I do want to know about the furnace problemo.
Forrest... i'm with you..but i never talk to the bank
when i set up my initial meetings with the customer, i explain that the bank has their method of releasing funds and i have my payment schedule....
i expect to get paid according to my payment schedule, becuase that is how the cash is going to flow on the job
i also explain that if we want to go with the bank's payment schedule , then someone is going to have to come up with additional money ..
i could borrow money and add on the cost of borrowing to the cost of the construction
or the owner can come up with additional funds to cover the difference between the bank draws and my payment schedule
i also explain that i have no intention of dealing with the bank.. i have no relationship with the bank ..i have a relationship with the owner
their draw schedules are always on task completions.. mine are always on easily defined and agreed benchmarks
like : sign contract
start work
pour foundation
walls ready for trusses
windows & doors delivered
ready for sheetrock
kitchen cabinets delivered
flooring complete
& substantial completion ( which is not a CO ... nor is it when the PUNCHLIST is complete )... it's when the owner has the enjoyment and intended use of the work agreed on
me and banks don't agree on much of this... but that's not my problem
Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike, I completely agree. I'm pushing back here (actually on two different projects and two different banks, of the same magnitude), to see how much I can steer things my way this time.
The second project, a complicated multi-phase renovation, has actually (22) billed milestones in my submitted contract - that bank didn't like that either!
Forrest - managing my cash flow
The problem I see is that you are pushing back at the banks and not the owners. The banks have very limited flexibilty, and they, having the money, have been able to dictate terms to most builders so they will be very resistant to negotiating a 'special' deal just for you.
In their eyes, any other builder who follows their rules would be fine with them, they don't need you, they need the owner to pay them interest.
So, they need the owner, but almost any builder will do.
The owner needs the bank, and a builder.
The owner needs a builder. This is where you come in, you have to be the ONLY builder they want, and have the means to pay YOUR schedule, regardless of their arrangement with the bank.
Wishing you luck!
I agree - I'm not pushing back at the banks. The letter today was only a response to a lender. Both clients SAY I'm their only choice for a builder.
Forrest
>>Both clients SAY I'm their only choice for a builder
That's a good position to be in. Hopefully they want you enough to agree to your financial terms.
I have done things the lenders' way before, as long as you can float for a while. I don't mind adding the cost of financing a small portion of the project and making some interest myself.
Not meaning to hijack this thread, but can you explain the contractor financing?
I have heard of it, but don't understand the final impact it has on the client.
I'm just thinking out loud here, so bear with me.
If you finace part of the job it adds to the final cost to the client. Depending on the bank, it seems that this could push the value of the job beyond the amount the bank is willing to finance. How is that worked out?
Dave
Good question.
Contractor financing is simply a small short term loan used by the contractor to finance necessary start-up costs of a project.
This can be the contractor's own funds, funds from a credit line, or an unsecured loan from another lender. The key here being that these are the contractor's resources.
The money is applied to the project until the bank draws catch up with the costs involved. The customer pays the contractor for the use of these funds, usually a small fee over any cost the contractor must bear. The funds themselves are repaid to the contractor from the bank draws.The exposure time is usually small, and the fees have little impact on the value of the building.
The owner hopefully has some reserve recources, enough to pay a small fee for the use of temporary funds, even if he doesn't have $20k of his own to start a project.
Thanks.
Good information.
Dave
Tell them to check this lender out http://www.marflax.com/. One of our homeowner builders used them and was quite satisfied. I almost had to use them here in TX but we got our banker straightened out with a phone call. They don't normally give more than 10% up front for upfront expenses and we want a bit more than that. They said they would meet our needs. FKA Blue (eyeddevil)
A big old grin crosses my face as I sit here picturing the bankers face when Mcdesign tells them, "I'm sorry that you have such unrealistic draw schedules. I'll just have to help my client find other financing appropriate to the job"
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Good program Mike. I suspect that you and your clients are probably always happy with your arrangements. Ever have any problems doing it that way? FKA Blue (eyeddevil)
Take there sheet and re-arrange the numbers to meet your actual percentages, a few that I took issue with... Final clean up at 2%... You planning on spending 4k on the final clean up? BS Same with the gutters at 1%, doubt the gutters are going to run you 2k.
Make them meet your cost needs and get the bank to deal with it.
You shouldn't be out to much capital as it goes along and most of it should be able to be floated by your vendors.
I'm thinking along the same lines. This is some strange house where the sheetrock or the veneer costs more than the foundation. And how do they define some items.
They show "hardware"
So is that the doorknobs or does it include all the Simpson hangers and the nails and screws?I could work to a payment schedule but it has to be realistic to my costs, not the bankers averages
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Your hardware comment leads to an interesting problem. Whenever there is not complete up-front agreement on any item involving money, it means either a loss for the contractor or a waste of time negotiating.
In my previous professional life, I spent several years working on the engineering side of government contracts, both stateside and overseas. One of the ways to avoid certain problems of incremental payments was to use a percentage of completion basis, which was characterized by a very defined set of specs. The key was to use standards for 10%, 35%, etc which were time-tested, consistent, and court-proven when necessary.
I imagine a general contractor here at BT would not have the resources for this kind of approach; however, the principle is a good one.
I enjoyed contracting construction projects in Korea the most. There we had our government specs and formalities, which the Koreans complied with, but what really set the deal was a handshake and a bow, which guaranteed much more than reams of paperwork.
The majority of my work is done that way.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
<< a handshake and a bow >>
< majority of my work is done that way >
Who bows - you or them?
Forrest
Who bows - you or them?
IIRC, it's only called bowing when you're facing the customer - otherwise, it's called something else. Either way, you're getting the business...
Forrest,
I am probably missing something here----
but wouldn't a "signing bonus" be going to the employee---not the employer.
seriously-- i salute your effort not to finance your customers project.
my experience with dealing in banks with this is limmited. Last year right at the end of my season a 5 figure job landed in my lap. I figured that bad weather would set in and a projected 14-16 day slate job could stretch on for months( I think days-or hours in my projects-not months LOL.)
Prior to my involvement-- the customer had already escrowed the money for the project as part of buying the house. I required a deposit and then 25% of the balance due when the west side of the roof was completed,25% when the south side complete 25% for the East and 25% for the north.
the bank was not happy--but as the customer said---" what can they do-it's MY money not the banks"
Irritatingly- the bank sent 3 different appraisers over the course of the 4 sides---and I had to explain the same things 3 different times--plus fill out paperwork I am not accustomed to dealing with---but all in all it went relatively smoothly.
very best wishes to you,
stephen
;)Mutual most of the time
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I ran into the same thing on a project two years ago with Washington Mutual. No upfront money and here is your draw schedule. We went back and forth quite a bit. Owner put 10% up front, and the final draw schedule was close to my cash flow.
As part of the draw negotiations, they wanted 10% as final draw. No problem. We got to the closing table and they include 10% retainage on each draw in addtion to the 10% on final. Needless to say we did not close that day. The broker called me up just livid and said "you have been very difficult to deal with, no other builder ever reads these contracts and they just accept our terms."
We got it done and the owner's happy-all is good. I will not work with WAMU again. They retained the last draw for 30 days. Each time one additional bit of paperwork was missing even though I was reassured on four seperate occasions that our paperwork was complete.
Stick to your guns.
There are banks that will put money upfront. Colonial National out of Dallas is a very good bank to work with on construction loans-24 hour turn on inspection and funding of draws, 5% percent upfront and will not scoff at a somewhat front weighted draw-just want 10% at the end. It is worth the effort to find a good construction lender who you know you can work with in your area.
Bruce
Edited 11/13/2007 7:41 pm by Hiker
Thanks for that tip Bruce. I've got them in my notes for the office now. FKA Blue (eyeddevil)
Jim,
The mortgage broker I deal with is great. She makes things happen and understands the contractor side of the equation. She is also the godmother of our youngest daughter. I'll shoot you her contact info via email.
jim... last time i acquiesed to the Owner / Bank arrangement was 1990..... it was always at the convenience of the bank....
that was my final lesson.... after that i started making it clear to my clients that they should show my payment schedule to the bank...
the arrangements they made were not my concern... the terms of the contract we negotiated were my concern.. and that included my payment schedule
sometimes i know up front that the owner may want to time things to CD's maturing... or selling some asset...
but things like retainage ...hah.. that's for some other world.. like municipal /state contracts
i'm building a house.. putting on an addition.. remodeling a home.... i have enough things to worry about on my end.. the finance and payment is the Owner's responsibility.... the building inspector and the Owner are my quality control.. and i don't want to know nothing about the bank
i have a good relationship with my bank.. but i don't want their mortgage loan officer and their inspectors standing between my customer and myself
somehow ... my customers have been able to meet my payment schedule just fine ... as long as i told them going in that the bank was not going to be the dog wagging this tail
Mike Smith Rhode Island : Design / Build / Repair / Restore
"no other builder ever reads these contracts and they just accept our terms." That is part of the problem. Too many guys willing to roll over and play dead
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
It really was frustrating experience for me. I do hope Forrest is able to find a different bank to work with.
forrest,
personally-- I would be pretty steamed at the" Banker"--and her little lecture on how YOU could set up credit accounts at various suppliers.
Credit with a supplier is for YOUR benefit-not the customers--not the banks( I know that you know this--but apparently the bank wishes you didn't)
she absolutely wants YOU to finance the customers house.
stephen
I don't mind financing the client's dream house. I do mind having to take second position on the lien though! FKA Blue (eyeddevil)
funny point.
which got me thinking------
imagine interviewing for a temp. job( engineer, computer tech., nurse--whatever)
and during the interview------ the prospective employer mentions that in order to get the job----you are gonna be expected to float the employer a $30,000 loan,--LOL.
Stephen
Most employees do this, in effect.I've worked jobs that were paid biweekly. If you start on the first day of the 14 day pay period, and checks come a week after the period ends, then you're going without for almost three full work weeks.It's not $30k, but three weeks pay is three weeks pay. Maybe some employers will give their new workers a loan until payday, but I bet the hospital that my wife works at would never do that.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
<you are gonna be expected to float the employer a $30,000 loan>
Called a signing bonus - I've had two of them, back in the career days.
Forrest
Thats a good point, but it's not quite an equal analogy. Your jobseeker is doing individual contract work and essentially fronts one or two weeks, or one month of labor as their upfront contribution to the effort. The general contractor is running a business and has profits at stake. The GC can refuse to loan any money or can loan the money and make a profit on it. The choice is his. Each of us has their own business model and if someone wants to distance themselves from the pack, they can choose to front the money because most contractors won't.I'm not opposed to fronting the money, if I have it. If I don't, I don't have much choice other than to get the loan company to do it, or get the owner to do it. Were under contract with one now that had enough equity in the land to front us everything we needed so this isn't any issue. FKA Blue (eyeddevil)
I loan my employer two and half weeks of salary by the last day before I get paid.Do you pay your employees every day? Every hour? Every minute?Just about everyone except landlords and contractors get paid AFTER the work is done. The car mechanic gets paid after they fix the car. The baker pays for his supplies, oven, utilities, etc. and bakes bread before he ever sees a cent of money from the customer.We do multi-million dollar contracts. We don't get money in advance (usually).Why do you think your so special?
bryan-- you are never shy about commenting on things you don't know much about are ya ?
considerable difference---in getting paid your salary every two weeks
Vs. my analogy of loaning your temp. employer $30,000
unless of course you regularly earn $15,000 per week.
but for the record-- when I handled payroll myself--employees got paid on friday---for every hour worked up untill thursday---the day before.
in 2008--we will almost certainley be using a payroll service--so employees will be getting paid friday--for the preceeding 7 days work-a lag of 7 days.
subcontractors get paid on the spot,in full-------- finish at 3:00-get a check in full at 3:01
Now--as to why i think i am special?
nope-not special at all--quite ordinary. My company collects a 50% deposit in advance--with the balance paid upon completion. been working this way 20 years--and it is the traditional method in THIS industry at THIS time and place.
your reference to car mechanics and bakers-is silly.
the baker is baking on spec.-except in the case of wedding cakes-in which case they get a deposit.-same thing with florists--there is an upfront charge for custom work(weddings) there also.
and the car mechanic? try collecting your repaired car from a mechanic without paying him. He works happily in the knowledge that he has your car hostage-and ya ain't leaving untill he is paid.
BTW bryan--in the case of an emplyee and his wages---- he hasn't loaned the employer any $$$ at all. when he was hired-he agreed to a rate of pay and a pay schedule--but he is NEVER handing over $$$ to the employer--worst case scenario he is out time and effort
' Forrest-on the other hand----- is currently negotiating the pay schedule. wost case scenario for him--he could be out ACTUAL cash-PLUS time PLUS effort.
what is it that bothers you so much?---that a contractor--realizing all of this-takes steps to arrange things to his satisfaction/----- or that You didn't arrange a better pay schedule with YOUR employer?
If this bothers you so much---don't read items here in the business folder-they are only gonna upset ya.
Best wishes,
stephen
"We do multi-million dollar contracts. We don't get money in advance "That means one of two thingsEither you figure in the carrying costs and add that to the bid so it costs the customer more in the long run.orYou don't figure that and you take the carrying costs out of your pocket, which would make you a fool.I find that there are times you and I disagree on various things, but I have never taken you for a fool.So that means that you charge your customer more to cover the carrying costs. Must be something about your jobs and customers that make that beneficial.either way - the carrying cost is a cost. Forrest's customer has a bank that wants to force the cost of the job higher. That is all there is to it. But the Bank is the only one that would benefit from this. not Forrest, and not the customer. Only the bank in this case.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
My operating capital covers about a week’s worth of labor, definitely not a few acres worth of harvested and prepared trees. With a job that has about 5 or 6 different subs on it I have to make sure that everyone get paid when their jobs are done (like car mechanics get paid).Most of us are small proprietorships with modest budgets and little room for error. Most of us don’t realize any money (aside from the wages made the week before) till the job is done and the last one to leave is paid. Brian Sayer this the way the construction business is run. Most of the money that is handed to me by a homeowner is not mine but for the people who work for me directly, subs and materials (like the acres of trees). A down payment a homeowner makes can be look as the operating capital paid, like a shareholder, to my company for a result. In this case a wonderful home instead of a cut of the profits.
I think it would be best if contributors to this thread state clearly whether their own perspective is that of a GC building ground-up new custom homes, or otherwise.
In general, contractors doing remodeling and renovation operate on different payout terms with their clients, when compared to those building new custom homes.
The usually accepted first draw for new work is foundation complete and capped, which for anyone with their sh*t together, occurs within 30 days of sitework kickoff. Remember, I am talking about the majority of new builds, certainly not all.
The time between inspect work and get draw check should be just a couple days, and once again, a GC with his or her act together has that first draw loaded appropriately to then pay the excavator, foundation builder, anyone else involved in the dirt, underground, or cap-off work, plus his contingency, plus his OH&P, plus whatever cash will be needed before the next draw.
The big-ticket guys I have dealt with doing dirt, crete, electrical, plumbing, heating, painting, and more, bill and can accept a wait until a draw event. Materials are all purchased on net 30 terms from monthly invoicing. A big framing package can be delivered on day 5 of month one, and not paid for until day 30 of the next month, nearly 60 days later.
Sure, some subs are so cashstrapped they need a check each Friday, but the bucks required for payout to them, in the grand scheme of things, don't amount to that much.
I agree with the poster that said the owner, on a bank financed new house build, needs to be prepared to go in early with as much as 10 or 15 percent of the contract amount, outside of the bank, in order to keep the GC from dipping into his own capital, but I disagree with some of you who want to press big pay-up-front terms, or payouts every Friday, or both. That just is not the way it is done in most new construction.
We build mostly new homes and we handle the financing as you have outlined. This is also the way every bank (that we have dealt with) does it too.
I won't make the judgement about the fairness of this but it does fall in line with the advice that many have given here about paying subs before the work is complete and checked out. If the work is not satisfactory and a contractor has been paid, what can you do? This is the principle that the banks are using.
Obviously a deposit and an initial payment are not the same as a final payment but there is some similarity.
This system is a handicap for an undercapitalized newcomer but many of us have saved up our resources and made it through that tough intitial period. I would recommend that a person looking to build a home consider the financial resources of any contractor that they were considering. This is standard procedure for commercial and governmental projects. Insurance companies who issue performance bonds often require an audit of the contractors books before they will bond a project.
Is this necessary for a residential project? Obviously not. But a lender should be conservative in their practices and assuring that they are lending money to pay for tangible results is prudent.
Mike Smith gets around this by requiring that the owners pony us a little extra cash and, frankly, often the bank does as well since they will only lend up to a percentage of the appraised value of the project regardless of what it costs.
If we are going to have a successful business, we have to find a way to recover the cost of this extra expense. The customer will pay, either directly or hidden in the cost of the house. We just consider it as part of our overhead (a pretty small part) and don't give it another thought. It is certainly not worth losing an otherwise profitable job for.
gene... i've done 'em all....
if the client wants the builder, then they negotiate the terms
the better the builder , the better the terms he /she can negotiate
you're projecting from your limited perspective..
in big ticket homes there are usually 3 parties... and the bank isn't one of them....
it's usually the owner... the builder.... and the architect
and they usually have an incestuous relationship... same school .. same country club.. same yacht club
so .. gimme a break about how well versed you are in how it's "normally" done by big custom home builders
Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike
Are there "Normal" custom home builders? I think you have to be a bit abnormal to even enter the game. I have never built a spec. That said, I started in this business in 72 writing out my own draw chart. Broke the contract down into 6 payments, 10%, 4-20% and the final at 10% again (Due 10 days after approved for Occupancy/Final inspection). Each was based on what had been either completed or delivered to the site. Easy target points,. Foundation, Roof framed and sheeted, Windows and ext doors installed, Subs rough (Elect., Plumbing, Hvac ) Drywalled, Final Back then banks didn't deal with the builders, they lent to the owner.
Now things have changed and every custom home builder I know of that deals with a bank gets hit with what you got hit with. That is unless they have clients who have more cash on hand then any I have built for. Gene was pretty much right on in my assessment. Start the job at the beginning of the month (actually the last week of a month is better as this buys one more weeks time), most subs and suppliers do not bill until the end of the month , hand in the draw sheet , money comes round in 5 days, pay the subs and suppliers. I am not arguing with whether you have the right to have it your way , nor do I disagree with what you do . I applaud the fact you are willing to fight to get it that way. It is simply a matter being willing to buck the system. I certainly didn't go to school with my clients, I don't play golf with any of them and while friends with a few archies I don't socialize with either party. That is simply a matter of fact , I found my clients (or rather they found me ) as a result of my work. You getting your clients from your Elks Club, Kiwanis Club, Country Club or Yacht Club is simply a result of your marketing decisions and doesn't apply to everybody else. Your perspective however is just as limited as anyone else's is.
They can't get your Goat if you don't tell them where it is hidden.
dovetail,
Normal?-- now that's an interesting angle to approach it from.
did a repair project weds. for a customer with a 10 year old house.( I roofed his previous house 12 years ago, did work several times for his father--2 years after I roofed the old house-he had the current house built)
Listening to this customer on Weds.----- Normal practice for custom home builders---seems to lead to Bankruptcy. according to my customer-----FOUR out of the six builders originally approved to work in that allotment--are bankrupt and out of business 10 years later
so--just because a practice is "normal"--doesn't make it smart business practice.
I don't operate in the new construction market---but I have to salute mike and forrest for examining "normal" practices and refusing to follow them if they make poor financial sense for their operations
I notice often that "conventional wisdom"-is simply wrong--or at best yields conventional results( mediocre)
I DON'T think mike or forrest are Mediocre Contractors--so why should they yield to "normal practices' which benefit others to THEIR detriment?
gotta thank you for using the word "normal'-that puts my mind to work from a whole 'nother angle-which is always usefull
Best wishes,
Stephen
Here is another: Normal is a setting on a washing machine.:-) I agree most Custom Home Builders do not last in the Market place . Why? I think there are many reasons. Not all just bad money management. Burn out with dealing with clients and their demands is a big one.
They can't get your Goat if you don't tell them where it is hidden.
Stpehen, that's one way to look at it. On the other hand, when the market is moving, I've known custom builders to finance two dozen lots and start five specs on credit and get 12 sales before the first basement is dug. Financing is part of business. The key to financing is collateral. If they have it, it might not be in cash form, but I'm not going to run away....I'll find a way as long as there is enough of a security. I've known A LOT of experiened builders who refused to work with all cash clients. They knew from experience that their best friend was the construction loan officer. That's the other extreme in this business. FKA Blue (eyeddevil)
Jim,
Just a comment here. "I've known custom builders to finance two dozen lots and start five specs on credit and get 12 sales before the first basement is dug."" IMO true Custom Home Builders do not do specs and call them custom work.One of the sad things to me in todays market is that the term Custom Home Builder is so badly abused.
They can't get your Goat if you don't tell them where it is hidden.
"I've known custom builders to finance two dozen lots and start five specs on credit and get 12 sales before the first basement is dug."Sounds like your definition of a custom builder is quite a bit different from mine. In my understanding of the word, the builder has a customer first, designs to their wants, needs and budget, and THEN starts the building process.I'm thinking your definition of "custom" is like the 1979 Ford F-100 Custom PU where the only thing you could customize on it was the body colour ( from a choice of 6-7 ) and maybe a decal or choice between clothe and vinyl seats.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
now there you go again.....
picking on the Fords,
it's never about Chevy's, is it ?Mike Smith Rhode Island : Design / Build / Repair / Restore
That's what I was driving back then...Want I should pick on *________* instead?;)
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Mike,
He was just being historically accurate to Ford . "... they can have any color they want as long as it Black". Henry Ford.
They can't get your Goat if you don't tell them where it is hidden.
dovetail-having just accepted delivery on a new ford F250
I can tell ya, currently, the thinking seems to be that ya can have any color ya want--as long as it isn't forrest green.
Getting green meant waiting 3 effen months
"want white,black,or red?---we have that right here---but if you want green--be prepared to wait-----oh-wadda ya mean you want a REGULAR cab instead of the extended cab?---and why would you want a full length bed instead of a 6 ft. bed?-Oh- you are actually gonna work with this truck?---we don't know anything about that-------we prefer to sell tricked out toys to yuppies--instead of working trucks to working men"
and--believe it-Ford was the ONLY one to get me what I wanted-and that took 3 months.
chevy and dodge---not even interested--in facxt dodge said that hadn't made green in 2-3 years
Toyota?-the new tundra?--I was very interested in one of those--untill 2 seperate dealers told me ,in effect, to pound sand. apparently with toyota--ya buy what the dealer tells ya to buy---if the dealer wants ya to buy red---that's what ya get----or head over to Ford.
Stephen
stephen... i took me three trips to the dealer before i finally figured out that Ford's new REGULAR cab is already extended.... i sure didn't want a SuperCab
it's got the trick doors behind the seats and the 17" of space behind the seats
i finally got exactly what i wanted... the trailer package, the trick doors & space behind the seats, the 8' bed... and red ..... of course
mine was only the F150 so that was a little easier to find..... i think they found it in NJ.... had it in 5 days
Roy's '03 is quicker in the gearing ( which is funny cause he's skeared to drive over 50 ) but my '06 has better towing capabilities...
have fun with your new GREEN truckMike Smith Rhode Island : Design / Build / Repair / Restore
You guys were lucky only waiting 5 days and 3 months... I waited closer to 5 months for mine when I bought it...
But I was pretty damn picky, so they couldn't find it anywhere, I had to wait to have it built.
Caught no flack from the dealer though, as he's a close personal friend.
Mike, mine doesn't have the extra little doors behind the seat.
Like CAGV I also had to wait to have it built.
currently it is sitting in my garage( I have had it a week and a half) with 17 miles on it.
It's gonna sit theire untill the cap I ordered arrives--without the cap the truck is of zero use to me.
Stephen
learn something new every day... they told me that was the standard cab... which was fine with me...
boy ... this thread is wanderin
Happy Thanksgiving .. i think we're up to 18.... gotta screw the banquet tables together this afternoon ( after golf )Mike Smith Rhode Island : Design / Build / Repair / Restore
I use the term custom builder to mean a builder who will build a client anything that they want as opposed to a tract builder like Pulte who will not make changes beyond what's offered in their sales models.I would consider myself a custom builder at the present time along with a few other titles, self designated of course. There are a lot of custom builders who know that if they stand up a quality spec, it will be sold before the drywall is painted. That makes them speculators too, but their primary occupation is builder....and they aren't building tract homes. I think many artisans, who think of their craft as something to be cherished, tend to want to create a deeper meaning to the term "custom builder", but in reality, any builder that will substitute cheaper cabinets for cheap cabinets or put larger windows in the living room is a "custom" builder. Every "Design/Build" guy is a custom builder even if they muck around in the 150k market. FKA Blue (eyeddevil)
no... that's not my point.. there is no one , or two , means of ginancing large custom homes
every constrcution contract is different... and so are the financing arrangements
some want a bond
most of town/city/state contracts are percentage of completion and retainage
lot's of extremely large custom homes are built by Construction Management.... what do you think the method of payment is on those ? and where were the terms negotiated ?
and when some of the big project are built around here you can bet the Owner and the Construction company made the deal on the race to Bermuda.. and hired the architect when they got back
it really depends on whose tail is wagging the dog
most "custom" homes today are bank financed... so then you have Gene's model
but the real custom homes are usually dictated by an AIA contract , and the Architect is approving payment and maintaining retainage
in ALL models... the cost of money is part of the cost of construction..
if you are doing competitve bids , and one company is not including the cost of money... then he is not covering all of his costs.... the cost of money is no different than the cost of anything else that goes into the house.. might as well leave out the cost of lumber
as a Contractor.. you have the right to negotiate the terms.. if one of the parties ( the bank ) wants to pretend that this is how we always do it... and this is our procedure.. someone should call them on it... banks are just like people... different strokes for different folks
the guy with $ 2 million on deposit ( the one building the custom home )... doesn't get treated the same as the guy with no money down and 100% financing... and the payment terms on his house will be negotiable
if you fold and throw in before the cards are on the table... then you better supply your own vasolineMike Smith Rhode Island : Design / Build / Repair / Restore
Mike,
Again , I have no problem with what you are able to do in the financing of the projects you do. As I said I applaud it. No question that when you have a client with 2 mil. on deposit the game changes. Equating "Custom Home" with clients who have $2 mil. in an account is not a reasonable assumption. I built a lot of "Custom Homes" ie: Unique, designed specifically for the owner, one of a kind. I can only think of one client who may have had that kind of money. Our contract of choice was the AIA form. He paid me weekly , personal check, I handed him a bill Fridays at 4 pm and I was depositing his check at 5 pm the same day. Most were for artists, retired couples or working class people who were building their dream house and depended on the bank to finance the project. They themselves were at the mercy of the lending institutions rules. Just as you say you set the rules when people want you to build their house , the banks say "you want our money , play by our rules". When every lending institution has the same rules in play then you play by those rules, like it or not, or you will become one of those failed "custom builders" Hazlett referred to . The different markets determine what can be done. You are right , there is no one , or two , or even ten means of financing a custom home. You are also right that accounting for the dollars needed to buy financing must be added into the contract costs. Just my experience.
They can't get your Goat if you don't tell them where it is hidden.
okey dokey, we agree.. more or less
the bottom line for me:
if you don't ask, you don't get...
kinda like A-Rod asking for $350 mill and having to settle for a measly $250 millMike Smith Rhode Island : Design / Build / Repair / Restore
Mike, Yes we agree . I am the guy who was taking loads of shid in here for saying I do all my contract work on a cost plus a fixed fee basis. 95% of the posters here were telling me I couldn't do that . I have been doing it for 10 years or more. I think hazlett does the same as I do , may be wrong though . Nothing at all wrong with what you are doing, if you can make it work for you.
They can't get your Goat if you don't tell them where it is hidden.
When I read the AIA contracts, I found them to be weighted with the builder coming in last....well, maybe one baby step ahead of the subs. Do you change the AIA contracts or use them verbatim? FKA Blue (eyeddevil)
Jim,
Yes, they are definitely weighted towards the archy.
EVERYTHING seems to be the contractors responsibility in them!. We changed them just a bit, and ensured our good relations with both parties.
They can't get your Goat if you don't tell them where it is hidden.
I signed on once.
First and last time. I would never completely allow another party to dictate the terms of a contract between myself and a client.
That contract has got to be the biggest waste of paper imaginable.[email protected]
I just read most of this thread and have some thoughts from the perspective of an electrical subcontractor in California:
Few people in this world get paid before they do the work or deliver a product. The length or the time delay or the amount involved is irrelevant, most of us still have to produce before we get compensated for it.
Time is money. Whether it is the time spent doing a job or the time during which someone has the use of some money, there is still a value attached to that time and someone has to pay for it. It's just a matter of who foots the bill and when, and that varies a lot depending on the situation and the motivation.
As a contractor, I'm not going to do work for a client I have a reasonable certainty that I will get paid; but as a client, I am not willing to pay someone up front unless I am very certain that I will get the work done how and when I was told it would be done. There are a lot of trust issues here as well as financial.
Most of my work has been on engineered projects - industrial, processing, public works types of jobs. Sometimes the payment schedules are stretched out a long way because of the bureaucracy involved and being three or four layers down in the system. I live with the delays there because everyone else is doing it too. But one of my main clients has, on occasion, used me as a bank to help solve their cash-flow problems; in those cases I've told them I'm not a bank, but am going to charge them interest anyway, and they've paid it.
Some of the replies seem to view banks as the "Man", the "establishment". They are nowdays mostly big, impersonal, inflexible, and sometimes incompetent businesses. But I have my savings deposited in them, and I don't want them putting my money out on unsecured loans; so I appreciated their concern with having work done before they pay for it. I had a second home built some years back and knew that the bank payment schedule wouldn't work for me. So we took out a line of credit loan on our residence to finance the initial construction, then got a regular loan once the place was far enough along that the bank was comfortable with it.
In California, contractors doing "home improvement" work are limited to a 10% down payment up to a $1,000 maximum. That means that it is illegal to get more than $1,000 up front on a $200,000 addition!
>Why do you think your so special?
because he get's it.
All of the examples that you gave are flawed.
All of the examples that you gave either do not deliver the finished product until paid for, hold the customer's collateral, or are protected by the police as theft.
Last time I - as a landlord and contractor - tried to report a theft of someone who stole my forwarded worth, they told me it wasn't their problem.
You are wrong.Remodeling Contractor just on the other side of the Glass City
That's pretty typical around here (Eastern Canada), the banks only give the clients money based on how complete the house is, but the banks here typically arrange 'bridge financing' on the client's line of credit until the house is far enough along to convert it to a mortgage. I've never seen/heard of a bank suggesting that the contractor carry the client; my response in your situation would be to ask the bank why, if the client is such a good credit risk, aren't they doing it themselves?
Passez le buck, mon ami.
Speaking as a client, our bank had a similar sort of draw process on a similar sized project and our contractor had similar concerns. We offered 10% up front and 5% additional if necessary during the project to manage cash flow. As it turned out, cash flow was never an issue. About half of the last draw paid back our upfront $. The first draw was a headache because none of us knew what we were doing, but once we got the hang of the paperwork, it was much better.Our contractor must have very congenial relationships with his subs and suppliers, because the couple of times I asked if he wouldn't like an extra check, he said he hadn't gotten a bill for what ever it was I was worrying about. The inspector could be scheduled in about a week and funds were disbursed 2-4 days later. The whole process does require that the contractor think about how his cash flow will mesh with the bank's and that should have some cost. Heck, the inspector made $1500 on the whole deal and he didn't have any risk.I can't imagine depending on a bank without having 10% or so set aside to smooth out any bumps. Either the client or the contractor needs to have a slush fund.
Forrest,
What Mike said or................if you get 20g up front you can probably swing it or they just need to have that much at least liquid to meet your payment schedule.
Throw the bank schedule in the shredder.
[email protected]
Forrest,
Couldn't you get a line of credit or a short term loan to smooth out the peaks? If the banks pays promptly according to their schedule, I don't see that you would be too far behind at any given point.
Now, if the bank inspects the work done at the end of two weeks and then takes 30 days to cut a check, that's a different story. But if they are prompt with payment, you would only be two weeks out at any point. A medium amount of working capital should take care of any needed funds.
I like to front load my payment schedules just like anyone else here, but sometimes you have to play the game. Even better to get your client to deal with the banker and let them sort it out.
Jon Blakemore
RappahannockINC.com Fredericksburg, VA
Sure, I could float whatever they need - but, that's not my job. I'd undertake the financial risk if it were my spec house, but it's not.
Just going to try not to depend on someone else's schedule here!
Forrest