Having a home built and paying cash: What needs to be in the contract with the contractor?

Question

I found a house that I love, but it was too small. I'm making a deal with the contractor to build a larger home that is of the same exterior and interior quality.

I will be paying half down and the other half at the mid-way complete point. I'm nervous about handing him a large sum of money and need to know what should be in the contract and who should look it over, other than my attorney.

He and I seem to be on the same page, but I need to know I'm protected. What do I do?

What questions should I ask him? Help!

All great advice so far...thank you.

The contractor said that me paying before he buys allows us to save interest money; and that buying half of everything at once (large order) will also save money.

Answer 1

Making the final payment at the midway point is a big mistake. You need a better set-up than that. Most new homes have a one year builders warranty to get things fixed after you move in. Since you cannot move in until a certificate of occupancy is issued, make the final payment when everything has been inspected and approved and you are happy with the finished product. Make sure all subcontractors fees are covered by the main contractor. Otherwise, you could have builders liens placed on the home for unpaid work done.

Answer 2

First of all....I have worked with numerous legit contractors over the years and every one of them expected FINAL payment on COMPLETION. Red flag: paying in full for a job half done!

Here is a guideline contractors use in my area: Cost of materials up front. Labor costs: 1/4 way complete is first draw (1/4 of balance). 1/2 way complete is second draw (another 1/4). Then completion day paid off in full. Most go off of a L&M contract (cost of labor and cost of material) where you pay as you go. An estimate, after all, is only an estimate! In this type of contract you pay for materials up front and stages of work that is completed as they complete them.

What do you know about the contractor? Have you checked his background (talked to his customers, Better Business Bureau, Attorney General, His Suppliers? You may think you are on the same page.... that is after all, how people get "taken in a scam!"

Think twice about giving him all the money before the job is done... I hate doing the I told you so......

Answer 3

You had better get a real estate attorney involved in this transaction - like yesterday!! I have been in this business for 20 years and would never do any work without an attorney drawing up the contract. I don't care how reputable anyone is that's not the point because things can change.
Please get an attorney - you have too much to loose and I have seen people loose thousands of dollars by not getting an attorney!!

Answer 4

make sure you have your contract and materials breakdown list analyzed by a qualified third party construction control firm.
check out www.nwccinc.com this company does contract evaluations and work order completion inspections all around the USA. they will be able to tell you if the contract terms are reasonable based on the materials and construction estimates. be sure to also check out the builder, resume, copy of contract before you sign it, references, contractors license and see if there are any complaints. as about his subs and check them out as well. be sure to use a local escrow company or real estate attorney to handle the dispersement of funds.

if you were getting a construction loan from a lender, this stuff would basically be handled for you as the builder would have to submit for a draw and his progress would be checked, but since your not, make sure you are well protected. i would be hesitant on putting 50% up front, cause if there is a problem you could be out lots of money

Answer 5

After each segment of completion inspection needs to be done to go to the next step.