Dream Homes Ltd.
Atlantic Northeast Construction LLC
Nearly Famous Rebuilding Blog –
Hello Sandsters –
Hope all is well.
Today we’ll review a subject which rears its ugly head on a constant basis, and that is how to pay your builder and avoid being ripped off.
This may be a painful subject for some Sandsters, especially if you are having trouble with your contractor and are wondering what to do to move forward (or God forbid, have been ripped off already and are not in a happy place), but nonetheless it is a topic that needs to be discussed regularly.
Today’s post is not necessarily about the delays in RREM payment and the problems that may cause with your contractor if they cannot move forward until receiving payment, although that is a constantly recurring valid concern. Rather, this post is about how exactly you should tender funds, whether you’ve received them from RREM, insurance or ICC, or you are working with your own funds. It’s about the protocol and the discipline of monitoring a project, as opposed to the details regarding where the money is coming from.
As a general rule, smart Sandsters pay for work in place and do not give (large) deposits on work to be done in the future, with certain limited exceptions. Like many rules, there is a vast amount of flexibility here. Common sense is essential in order to effectively protect your interests, and still keep your project moving forward.
Paying for work in place, that has been inspected by either/both you and the township inspector, is a generally accepted best practice in building and contracting since the beginning of recorded time.
As an additional note, in all commercial and professional residential construction (as opposed to mom & pop non-professional operations, which constitute about 85% of all residential construction work), and for the safest strictest payment behavior, lien waivers should be procured from your builder at each invoice or draw request so you can verify that all subcontractors and material suppliers have been paid on an ongoing basis. This item is required for RREM at the end of your project and is not generally something you should have to deal with through the project.
In any case, if your builder is asking for deposits ahead of work in place, you should meet the following conditions or take the actions I list here.
- You must specifically determine what these advance funds will be used for, before making any significant payment ahead of completed work.
2. You must absolutely know and trust your builder, their work and their reputation.
3. You should think carefully before you expend any amount greater than 10% of your project cost at any single time, for work already in place.
4. Thou Shalt Not Rush and Maketh Decisions in Haste When It is Not Necessary.
5. You should get at least one other qualified individual in your life to tell you (in writing, whether email, text or letter) that you should proceed. That person can be your spouse if they are capable of dispassionate analysis (and you are comfortable with the possibility of separation or divorce), your attorney, another builder you know, or an architect or engineer. If you cannot find someone qualified who will put their advice in writing, you are probably making a mistake.
6. You should definitely not tender advance payment to out of state contractors. Your recourse is limited to actions you can take against their NJ subsidiaries. Specifically, and most strenuously, avoid dealing with any company from Louisiana.
7. If all else fails, and you are still perplexed, you should do a little legwork and check with the township, Better Business Bureau, and the Departments of Community Affairs and consumer fraud. Contractors who are consistently illegitimate do not last long in NJ. We’re a vocal bunch of Sandsters and spread bad news far and wide.
Chances are, if you follow these simple rules, you won’t make too grievous of an error. If you are in doubt and have no one else, use me as your Phone – A – Friend and I will talk you away from the Paying Ahead Ledge.
However, as with any simple set of rules or protocols, there are many exceptions.
- When you sign your contract, you should expect to pay between 5% – 10% of the total project cost. We sign contracts with clients for $1000 if they are waiting for money, but generally it’s $5000 – $15,000.
That is not unreasonable, because you have probably been working with your builder for a number of months and developed some type of relationship. There is a legitimate cost to starting design work, ordering and securing contractors and material, and gearing up and staging a project. If you are (accidentally) dealing with someone who is unscrupulous and is going to steal $5,000 – $10,000, the chances are that with a little due diligence you will have determined that before signing a contract.
- If your contractor or builder comes to you with a legitimate cash flow concern (“I’m sorry Karen but I really have to wait for that first payment for the elevation before I spend another $40,000 on helical piles…I just don’t have the money to lay out…”) and you don’t want to delay your project, and you have a warm, fuzzy, comfortable feeling about the universe, you can go ahead and spend some money and keep moving along.
- If you do advance funds ahead of work, because you have satisfied some or all of the above conditions, you should try and tender payment to suppliers when material is delivered to the site. This is actually a very safe, acceptable method of monitoring your project, but very cumbersome and time consuming. There is nothing wrong with being on site when material is delivered and paying a supplier directly for it, with the amount being deducted from the total contract.
I can write volumes about proper payment protocols, but this is enough for today Sandsters. More to follow.
Remember – if you have a specific question, send me an email or a text. Don’t wait for a seminar or a site visit to clarify a point. Whether or not you are Dream Homes/Atlantic Northeast Construction client or not, I’ll always try and help you or guide you in the right direction. If you’ve sent an email or left a voice mail and haven’t received a response, try and contact me again. Messages are lost occasionally.
Note to Sandsters: Though I write this blog to help as many Sandsters as possible, Dream Homes Ltd. and Atlantic Northeast Construction LLC are new home builders and general contractors who are actively renovating and reconstructing projects up and down the shore. We actually do all of the work that I talk about in the blog. We work with private clients and Path B clients in the RREM program. Call, text or email to set up an appointment for an estimate on your rebuilding project.
I hope this helps you move forward. As always, call or write with any questions.
Dream Homes Ltd.
Atlantic Northeast Construction LLC
Licensed NJ New Home Builder License# 045894
Licensed NJ Home Improvement Contractor Registration# 13VH07489000
PO Box 627 Forked River, NJ 08731
Office: 609 693 8881 F: 609 693 3802
Cell: 732 300 5619