Good morning,

We are reviewing the build contract our builder sent us. I had a couple of questions maybe someone can help me out with.

He notes that we are waiving our right to retainage of funds. I was under the impression that in Texas I can withhold 10% till the work is all complete. Should I not agree to these terms?

Additionally, he gives 30 days to secure a loan before builder or owner can terminate the contract. If this happens I lose the earnest money I pay him after signing the contract. Is it reasonable for me to request 45 days? The lender told me it would likely be 30-40 days before the loan closes. Thanks for any advice!

We had to forfeit retainage. I think as long as you keep the bank and the builder in sync and are responsive to the bank's request for documents, etc., the builder will be ok if it goes past 30 days. You might ask them that.

billyjack2009 said:

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We had to forfeit retainage. I think as long as you keep the bank and the builder in sync and are responsive to the bank's request for documents, etc., the builder will be ok if it goes past 30 days. You might ask them that.

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Thanks for the reply! Why did you have to forfeit retainage or funds?

Builder contract requirement. Just like yours.

billyjack2009 said:

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Builder contract requirement. Just like yours.

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Gotcha, so is it not the case that Texas law reserves the owner the right to retainage of funds?

I dunno. When it came time to do the paperwork the bank said our builder doesn't allow retainage and we were so knee deep in the process we just went with it. The warranty policy helps to hedge against risk.

If retainage is part of your contract you won't be able to move in until 45 days after the house is complete. I work for a bank with 600+ of these projects going and I would be very surprised if there are any with retainage.

jja79 said:

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If retainage is part of your contract you won't be able to move in until 45 days after the house is complete. I work for a bank with 600+ of these projects going and I would be very surprised if there are any with retainage.

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Why is that, that we would have to wait to move in?

So you're saying with custom builders this is standard to waive the retainage of funds? Thanks for your help.

With retainage all contractors haven't been paid. They still have the opportunity to file a lien. I don't know of anyone that uses retainage.

Got it, that makes sense. I appreciate the insight!

Make sure the budget and draw schedule match up. Make sure you understand the lender's inspection and payment process. If they allow a commencement draw make sure you understand the budget line items being reduced. Commencement draws aren't uncommon but make sure it's not funding builder profit.

Retainage is really a thing of the past and if the contract is from the builder, it is likely a TAB contract. They are heavily weighted in favor of the builder.