New to Home Building:Builder/Contract Question

[Red]

We are getting ready to build a new house. We have tried to really do our homework on this. We found and bought our land, ordered our own house plans, and obtained our own construction loan. After a long and careful search for a builder, we thought we had found "the one." We have reviewed his contract, checked out his credentials, etc., and felt comfortable with him, his bid, and his subs.

Here's where we get confused: In his contract, he is asking for a 10% down payment from us, to be held in his escrow account, as "good faith money." This would be in addition to the regular draws from the bank construction loan. He said that he would give us back this money in equal portions, each time he takes a draw from the bank.

However, 10% seems like a lot. Is this a standard practice? Is this amount excessive? It appears to us that he has a lot to gain and we have a lot to lose. We are new to the homebuilding process, and don't want to end up losing on this one.

Can anyone shed any light on this, or make a recommendation of what we should do? I don't know if it can be done, but I would be more comfortable putting this 10% "good faith money" into a separate account, to be held by a neutral third party, like the bank, to keep as "good faith." Something that can stay there as collateral, and that can't be withdrawn from either party.

Aarrgh! Help! :cry:

[Rich]

The escrow account could be setup as a co-signer account.. where it would take both parties to sign to withdraw any money. Personally I would give him the 10% up front for mobilization costs and then withhold 10% from every draw until the end of the project and it's been given the blessing from the building department. Then when everything is taken care of on the punchlist I would release the 10%.
If, as you go along, the builder is doing a good job and you feel comfortable with them.. you can release 5% as a good faith gesture. Continue on by withholding 5%.