From the desk:Accessory Dwelling Units (ADUs)

Builder wants 40% up front on a $212k ADU

First real project and I'm probably out of my depth, which is why I'm posting the actual contract terms.

Detached 800 sq ft, two bedroom, site built not prefab. $212,000 fixed price. Payment schedule as written:

40% at contract signing ($84,800)
25% at framing complete ($53,000)
25% at drywall ($53,000)
10% at final ($21,200)

I'm funding with a HELOC of $150,000 plus $70,000 cash. Projected rent $1,850 to $2,000 based on three units within a mile that all leased in under three weeks.

What bothers me. 40% before anyone drives a nail is $84,800 of my money sitting with a builder whose lien waiver language I don't understand. He says it covers the unit package, engineering, and permit fees, and that he has to order windows 14 weeks out. That sounds plausible. It also sounds like the explanation someone gives when they're using my deposit to finish somebody else's job.

The schedule also has no draw between framing and drywall, which skips mechanical, electrical, plumbing rough-in and insulation. That's a long stretch of work with no payment gate.

He won't move off 40% total but says he'd split it into 20% at signing and 20% at material delivery to the site, documented with supplier invoices. That seems better to me but I can't tell if it's meaningfully better or if it just feels better.

Decision in front of me: accept the split deposit and sign this week to hold his fall slot, or spend three more weeks getting two more bids and lose the slot. Every day I wait pushes framing into wet season.

Answer

0jordan_ellis2ActivePRO6

I've read a lot of contracts and closed none in six months, so weigh the reading accordingly. The two things in your post that actually matter are separable and you're treating them as one negotiation.

One, the deposit size. 40% total on a fixed price residential job is high but not unheard of when there's a long lead package. What makes it survivable is whether payments are tied to something verifiable, rather than the percentage itself. His 20% at signing plus 20% at documented delivery does that. Ask for supplier invoices addressed to the job, and ask that title to delivered materials passes to you on delivery, in the contract. Some states also let you require conditional lien waivers from each sub with every draw, which is the part that stops you from paying him and then getting liened by his lumber yard anyway. Ask a construction attorney in your state to look at the lien language, it's a couple hundred dollars against $212,000.

Two, the schedule. Thicket is right that the framing-to-drywall gap is the real hole. Add a draw at passed rough-in inspection. Inspections are third party and dated, so it's the cleanest gate in the whole build.

Three more bids in three weeks probably gets you two bids in five weeks, and pricing on a site built 800 foot unit doesn't vary enough to be worth a season. I'd sign with the split deposit, the rough-in draw, the material title clause, and lien waivers per draw. If he refuses the lien waivers specifically, that tells you something the price never will.

9 replies

1karen_whitfieldPG4APRO7

Losing a fall slot costs you a season. Signing a bad payment schedule can cost you the project. I've waited out worse than a wet season.

3jessreyes12AU1APRO8

Dumb question that I'd have been embarrassed to ask: what actually happens to your $84,800 if he goes under in month two? Is there any mechanism at all, or is it just a lawsuit? Because if the answer is lawsuit, the whole thread is about how much unsecured credit you're extending to one guy.

2diane_kowalskiPassivePRO9

Compass, that's the right question and the answer depends on your state. Some states require deposits over a certain amount to be held in escrow on residential work and some have contractor licensing bonds you can claim against, though the bond amounts are usually small compared to $84,800. Whether any of that applies to rigging's contract is a licensed question in his state. Rigging, at minimum look up whether your contractor's license is current and whether there are complaints filed, that's usually a free public search.

1paulgrant17PassivePRO5

The material delivery split is meaningfully better and here's the mechanical reason: at signing you have nothing, at delivery you have windows and lumber on your lot. Physical goods on your property are a different position than a promise. Make him name the specific materials, not just "materials".

1brandonlee36Passive

You're missing a rough-in inspection draw and that's the one I'd fight for over the deposit. In my experience the gap between framing and drywall is where a job stalls, because that's when the trades get pulled to other sites. If there's no payment waiting at the end of rough-in, nothing brings them back on schedule. I'd take 20/20 at signing and delivery if he adds a 10% draw at passed rough-in inspection and drops drywall to 15%.

2renee_dubois Get yours

Agree with pike on lien waivers. Every unit has taught me something and the one that stung was paying a general in full and then getting a notice from a supplier I'd never heard of. Rigging, ask who his lumber and window suppliers are and call them. They'll tell you if he's on credit hold in about thirty seconds.

1samantha_ruizAU4APRO6

Orchard, I'd push back a little. Rigging has permits approved and comps that lease in three weeks. Sitting out a season on a fully permitted project with 40% of the value in a HELOC he's paying interest on isn't free patience, it's about six months of carry with no rent. The answer isn't wait, it's fix the schedule and go.

1luis_carrera Get yours

Keystone said it. I've killed two deals by getting more bids and I'm trying to stop doing that. Rigging, you already know what the changes are. Send them tonight.