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New Custom Built Home Deposits

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  • Jun 17th, 2015 7:18 pm
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Member
Apr 3, 2006
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New Custom Built Home Deposits

I tried finding some answers with the search tool but couldn't come up with any useful answers.

Anyways wife and I are close to signing a contract for a custom built home. This will involve some big deposits:

50k deposit at signing
50k deposit at permit stage
70k deposit at foundation back fill
100k deposit at finished roof phase.

The balance at closing.

Builder will own the land and is responsible for construction of the house.This is not a construction draw mortgage scenario.

We hear the stories of builders going bankrupt and people losing out on their deposits. This has us worried even though we trust the builder.We voiced our concern to a lawyer and they say that only 40k deposit is insured (Tarion warranty).

I'm just trying to get some opinions from people that did similar large deposit structures. Did you have any clause that can get all the deposits back? Or did you just risk the large deposits and hoped the builder wouldn't go belly up?

Maybe some builders can chip in with some comments as well.

Thanks in advance.
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Jul 30, 2007
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Just rough guidance and reading ...

http://buildingadvisor.com/project-mana ... schedules/


$170K by the time foundation is backfilled ... that's way too much, IMO. I am thinking more like $125K absolute max cumulative draw by this stage.


Demolition - rough estimate $10K in most cases
Forming/foundation/steel beam structure/backfilled - rough estimate cost would be around $60 - $70K
Contractor time/management fee on the project - rough estimate would be around $25-30K ... being generous here.
Permits/drawings/miscellaneous fees - $15K
Deal Addict
Jul 6, 2005
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... good thread. waiting for responses.
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May 12, 2004
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If he can't bankroll a 4 month build (I'm assuming we're not talking 5000sq/ft mansion) without putting most of that money in trust I'd be worried. The whole point of a deposit structure is to cover his ass if you default which is why a deposit is required but your job is not to keep him afloat.

Remember you might own the land but you don't own the house until it's done.

That being said; use extreme caution with this guy.
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Apr 3, 2006
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Sorry everyone if there was some confusion, I've updated the initial post.

The builder will own the land and is responsible for construction. We put down the deposits and pay the balance at closing.

Thanks for the replies so far and I'm about to have a look at that link in one of the replies.
Deal Guru
Feb 4, 2015
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Not sure on all the deposits however cousins recently bought new house [still to be constructed] and they put 55k deposit upon signing... presume had to put that much and not out of goodness but will ask next time see.

Their delivery was supposed to be this August but now builder delayed to Jan/Feb next year.
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Apr 3, 2006
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booblehead wrote: Just rough guidance and reading ...

http://buildingadvisor.com/project-mana ... schedules/


$170K by the time foundation is backfilled ... that's way too much, IMO. I am thinking more like $125K absolute max cumulative draw by this stage.


Demolition - rough estimate $10K in most cases
Forming/foundation/steel beam structure/backfilled - rough estimate cost would be around $60 - $70K
Contractor time/management fee on the project - rough estimate would be around $25-30K ... being generous here.
Permits/drawings/miscellaneous fees - $15K
Sorry for the confusion, but that is all the money we would be giving the builder, the balance would be at closing. So there is some risk on our part as well as the builders part. Also the builder owns the land during the construction phase.
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georvu wrote: Not sure on all the deposits however cousins recently bought new house [still to be constructed] and they put 55k deposit upon signing... presume had to put that much and not out of goodness but will ask next time see.

Their delivery was supposed to be this August but now builder delayed to Jan/Feb next year.
aren't deposits for new builds from regular builders held in trust accounts?
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Hmm, why don't you just buy the house from this home builder when the house is completed and built. I know by doing this way, you don't have a lot of convenience of making ongoing changes and picking your 'must have' upgrades, like fixtures, revised layout, etc.

Typically, this is the best approach as you are providing deposit of $X.
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LandKing wrote: aren't deposits for new builds from regular builders held in trust accounts?
Only if the purchaser specifies it and the builder agrees to do the same.
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Cas77 wrote: If he can't bankroll a 4 month build (I'm assuming we're not talking 5000sq/ft mansion) without putting most of that money in trust I'd be worried. The whole point of a deposit structure is to cover his ass if you default which is why a deposit is required but your job is not to keep him afloat.

Remember you might own the land but you don't own the house until it's done.

That being said; use extreme caution with this guy.
We have been planning and meeting with builders for a while now and this financial arrangement seems to be the best one for what we are trying to create. At first we were going to buy the land and then hire a builder, this would require more borrowing costs for the construction draw mortgages.

This arrangement has us only paying the deposits (approximately 25% of the total amount) and the rest of the project will be financed by the builder until the closing date. During the construction phase builder owns the land and we will get the built house and land at closing.
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RedRyder wrote: Sorry for the confusion, but that is all the money we would be giving the builder, the balance would be at closing. So there is some risk on our part as well as the builders part. Also the builder owns the land during the construction phase.
$270K given to builder for assets under builder's name.

Sorry, I would not do this if I were in your shoes. Of course, I am not a risk taker. Perhaps, you can negotiate with builder to see if the required deposit can be lowered substantially.
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booblehead wrote: Hmm, why don't you just buy the house from this home builder when the house is completed and built. I know by doing this way, you don't have a lot of convenience of making ongoing changes and picking your 'must have' upgrades, like fixtures, revised layout, etc.

Typically, this is the best approach as you are providing deposit of $X.
Well thats the point of the custom built home, trying to get it as perfect as you can for yourself/ family within budget. This builder has about 11 lots for sale all of them custom homes that the client purchases and works with a design team to draw up your perfect plans. So I can't see the builder just taking our money and running since it would screw the rest of the business.

We are only putting down 25% of the total cost, so I see this as being fare on both client and builder. We both are taking financial risks. I'm just trying to make sure we aren't missing anything.
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Have you look into the builder's past projects and check out their references ? i know it may not mean much going forward (in terms of they can simply vanish next week) but certainly, you will have to do lots of homework to justify your proposed project.
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booblehead wrote: $270K given to builder for assets under builder's name.

Sorry, I would not do this if I were in your shoes. Of course, I am not a risk taker. Perhaps, you can negotiate with builder to see if the required deposit can be lowered substantially.
From the builders perspective: would you build a 1 million dollar home with a clients 50 k deposit? I understand what you are saying but like I mentioned before we have talked to a few builders and this seems like the best financial structure.
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I used to work for a custom home builder in the past, the way we do this is, the land was always owned by the clients and we do progress/construction draw at each stage of the construction with the Qualitative Surveyor or certified construction cost consultant for certification purpose. This consultants are hired by the clients and we will coordinate and discuss the certification stage to confirm what amount should be paid out. In this way, the clients will not overpay the construction cost and we, the builder will not be short changed or funding into the construction.

Mind you, the typical construction budget of the clients were in the range of $5 -$10M in hard construction budget, not including land.
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booblehead wrote: Have you look into the builder's past projects and check out their references ? i know it may not mean much going forward (in terms of they can simply vanish next week) but certainly, you will have to do lots of homework to justify your proposed project.
Of course we did that, we wouldn't be doing something like this with some builder we met off Kijiji or something. We visited a house they built (10k sqft mansion) that is close to the area we plan on building.....and they seemed to have a great relationship with the owner who let us use their home as a model home to get an idea of their detailed work.

Personal note: they showed us the media "closet" ......my god the amount of network cables that came into that room was insane. Everything automation....and I mean everything.
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RedRyder wrote: From the builders perspective: would you build a 1 million dollar home with a clients 50 k deposit? I understand what you are saying but like I mentioned before we have talked to a few builders and this seems like the best financial structure.
I work for a builder, not custom. We currently selling houses in the $1M - $1.4M range. Our required deposit from homeowners is between $75K to $100K. Of course, we own the land.

Sounds like you have done all the required research. If you feel this is okay to proceed, then I wish you the best.

I am just giving you my 2 cents of thought. I am not criticizing/questioning your decision.
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Nov 26, 2014
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booblehead wrote: I work for a builder, not custom. We currently selling houses in the $1M - $1.4M range. Our required deposit from homeowners is between $75K to $100K. Of course, we own the land.
Since it's a custom home, I'm guessing instead of of the 7.5%, it's 25% for the deposit.
Typically homes a somewhat cookie cutterish, if 1 buyer falls through, they can still find someone else.

With a custom home, it might be that much tougher to find someone else to buy a home designed by Customer A with their distinctive tastes.
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booblehead wrote: I used to work for a custom home builder in the past, the way we do this is, the land was always owned by the clients and we do progress/construction draw at each stage of the construction with the Qualitative Surveyor or certified construction cost consultant for certification purpose. This consultants are hired by the clients and we will coordinate and discuss the certification stage to confirm what amount should be paid out. In this way, the clients will not overpay the construction cost and we, the builder will not be short changed or funding into the construction.

Mind you, the typical construction budget of the clients were in the range of $5 -$10M in hard construction budget, not including land.
I understood what you were getting at with the construction draw mortgage. We were thinking of doing it that way until we started talking to lawyers, they like it simple and have the builder own the land during construction and everything transfered over at closing. We went to a few lawyers as well, they are very frustrating people to deal with since they don't like anything complicated. And apparently a construction draw mortgage was complicated for them.

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