David asks, “Can I ask for an advance on repair work when working with the insurance companies on larger losses?”
Hey David, while the industry norm requires a general contractor to complete all repairs on a typical insurance related rebuild there are several scenarios that can produce monies before the job is completed.
1) The contractor can simply require a down payment or draw schedule from the customer. This however may lead the customer to choose another contractor that can manage the costs prior to completing the job;
2) If the job is large some insurance companies provide a process whereby the policyholder or contractor can request a construction draw. For example, one major insurance carrier provides an application process whenever the loss exceeds $50,000. My company utilized this process on several rebuilds to get early monies to support the construction process.
3) Finally, and what is most common is that many insurance companies send a check to the customer for the ACV portion of the claim (typically about two-thirds of the full cost of repair – a few carriers will send the full amount of the approved claim) once the estimate has been approved. Your contract can require that customer turn over insurance proceeds to you as soon as they are available providing funds to pay for materials and labor prior to the job’s completion.
It is important that this is a provision of your work authorization or contract. The one issue here to be aware of is that if the property is under mortgage and if the claim exceeds $7,500 (which are both true in the majority of insurance rebuilds) the mortgage holder/company will be listed on the check as a payee. They have their own set of rules and will require that all parties endorse the check and send it to the mortgage holder for deposit into their internal escrow account.
At this time both you and the customer have lost control over the funds. The mortgage company will typically release to you an initial check for one-third of the monies they have received from the ACV check once you have met their requirements for documentation. This is typically no easy accomplishment since their documentation requirements are extraordinary. Most mortgage lenders are very difficult to work with.
They will release another one-third when the rebuild is 50% complete and the final one-third when the job is completely done and has passed their inspection. If you do all the math according to what I have described you will find that your best case scenario is that you must complete the project with only 50% of the full price of the claim. But, this is better than receiving no funds at all. You need to be fairly aggressive and persistent with the insurance carrier, the policyholder and the mortgage company to keep this process moving forward in order to get funds in a timely manner.
I hope this all makes sense and you find it helpful. As you can see, it is not easy to get monies prior to completing the job but it is possible.