Money withheld from the contractor until after final inspection

[Yi Zhao]

Hi all,

I'm a flipper and the houses I flip usually takes $50k-60k to fix. In my contracts, I always withhold 10% until the house is sold and final home inspection has passed. It usually cost 1k-5k to fix issues that arise during the inspection.

My contractors complain that its tough to have to wait indefinitely until the house is sold. I can definitely see where they are coming from.

On the other hand, I would like to protect myself and make sure that there is a way to cover the expenses that arise from from the final home inspection (that they are responsible for).

Are there better options than what I'm doing currently? I would like to address the contractors concern and at the same time still protect myself.

Thanks in advance for any advice!

[Steven J.]

Hey, if you're able to find contractors willing to agree to those terms then that's on them! Personally, if I were a contractor I would not agree to that type of a job unless it was either a large job where that 10% makes the difference or a small job where 10% doesn't matter to me (less than $1000 for a job).

In my area the trades are in high demand so I highly doubt I could demand that type of financing in my contract. Perhaps 10% until they pass inspection but not until sold. Maybe that's me being a softy and my conscious at play. If they do the work, meet expectations, and pass inspections then, IMO, they deserve their pay. Unless they are working more in a partnership role where their profit is based off of my profit then I would do what you've managed.

Other ways to work this: when I get a contractor I have my scope of work with their bid numbers, a schedule of pay dates upon certain completion of projects, and a date set for completion that they pick. This holds them to their own standard of quality work in a timely manner. I've not tried many other permutations of this so I can't comment on how other strategies might work.