Delays in paying vendors and general contractors are unfortunately all too common in the construction industry, often leading to project delays, strained relationships, and costly legal headaches for all parties involved. As a response to these recurring issues, the industry is increasingly adopting standardized escrow and draw services to keep projects running smoothly and securely.
These financial management solutions ensure that funds are safeguarded and disbursed on time, providing transparency and peace of mind to both property owners and contractors. By eliminating payment uncertainties, they reduce the need for civil lawsuits, prevent the need to place liens on properties, and create a more efficient, trust-based construction environment.
What are Escrow and Draw Services for Renovation and New Construction Projects?
During a typical construction project, the property owner and contractor agree to a payment schedule. Some contractors may request a percentage upfront, followed by future payments. However, this can lead to uncertainty, as property owners may be reluctant to pay for work that has not yet been completed, or property owners can have financial problems that arise during the project, leaving contractors vulnerable to not getting paid for the work they do and being on the hook to suppliers and subcontractors.
Escrow and draw services serve to protect both parties. The property or project owner pre-funds part or all of the new construction or renovation project. These funds are held securely in escrow and only released when certain project milestones are reached. This process reduces project delays and the risk of non-payment for contractors. Contractors can have peace of mind knowing that project funds are guaranteed, so they can focus on the job and the quality of work rather than on whether they’ll get paid. Property owners are protected knowing that funds are only released once contractors have met their contractual obligations. Ultimately, escrow and draw services help maintain smooth project operations.
Example of Using Escrow and Draw Services During a Renovation Project
Here is how construction Escrow and Draw services work in real life:
Imagine that you have a 1950s home that you are renovating for a client. You agree to remodel the entire interior of the home, update the plumbing and electrical, and install a new roof. The project cost is $175,000.
There has to be an Escrow Agreement in place with terms agreeable to both the contractor and the property owner. Let’s say that according to this Agreement, the contractor is paid 25% as per a draw schedule with four specific project milestones (an agreement can be draft to have as little or as many draws as the parties agree to, and can include draws to vendors, architects, designers etc. that are part of the construction project).
The escrow and draw service company confirms when the project funds are secured and ready to be paid to the contractor. The funds are held in escrow and pay out the draws to the contractor as each milestone is reached. The contractor is paid on time and in full for every completed milestone.
This arrangement protects the contractors, subcontractors, and the property owner. The contractor knows ahead of time when to expect payment and that the funds are guaranteed. The property owner has peace of mind knowing that their funds are held securely in escrow and only released when project milestones are reached.
Learn More About Build Safe Escrow
Are you currently working on a renovation, investment, or new construction project? Are you worried about how to ensure payment is rendered or work is completed during the project?
At Build Safe Escrow, we aim to provide financial transparency throughout the course of a construction project. We offer escrow and draw services to protect all parties involved in these projects. Our team has successfully handled hundreds of escrow transactions over the last ten years. Our goal is to help contractors, builders, property owners, lenders and any other party involved in a construction project, have a more secure experience during construction and remodel projects.
Our escrow professionals enhance transparency and efficiency in construction projects, transforming a typically impersonal process into one that fosters clarity and streamlined collaboration. Learn more about how our construction escrow and draw services can help with your next remodel or new construction project by contacting us via our Secure Contract Form or by calling us at (855) 611-3532.
