Transcript for:
Michigan Builder Course Overview

welcome to builder one this is namir george of the michigan institute of real estate you'll be doing 30 hours with us and builder one and then you will have to do 30 more hours in builder 2. i will show you the table of contents that's made of five chapters each one you will have to spend time on it it's six hours per chapter we give you instructions recorded instructions uh the all the important stuff here in the course and then you'll have to review go back and forth the timer on the screen has to register at the end of the five chapters you would have to have 1800 minutes all right let me show you once you're done with both both courses with the 60 hours how to go and apply with the state establish an excel account and get ready to take the exam all right let's move on the way to register for the license and take the exam once you're done with your courses you need to go to michigan.gov slash builders okay michigan.gov forward slash builders and you go to this link accela aca 3 you see that the excela and it says if you need instructions for creating your account you have to create the account if you're already a member of exella let's say you're already a licensed builder you use this link to renew the license but for now we're going to get started here it says click here before you click here make sure you agree otherwise it'll say error you follow me so i'm going to click i agree continue the registration and now one thing leads to the other you see that and you're going to fill this up this way they'll clear your application so you can sit for the state exam and take it okay that's after finishing all the 60 hours builder one builder two here in builder one we're going to have like as you'll see five chapters and it's a total of 30 hours each chapter you're supposed to spend six hours on it and you're going to read the material that we send you and do the after taking the quiz you do the review questions that we give you okay so you could learn more and more and there is a timer you have to meet the requirement of 30 hours it's uh 1800 minutes let's move on now how to study of course we send you the pdf book the material to read in addition to that of course i am here teaching you talking to you giving you examples pointing what's really important for you uh to uh sit for the state exam and pass it so you need to do a combination of these things and at the end there is a quiz at the end of the uh the five chapters there is a quiz you have to pass it with a 70 percent and in addition to that we have a review group of questions all right these uh review questions are designed not only to test your knowledge but also to add information to your knowledge things i want to talk about but it's a lot easier for me to give it to you as a question sometimes it will be hard or confusing to teach you a very small piece of information and i'll give an example what i'm talking about it's much easier to give you the question you'll get the right answer because we'll give you the answer to go with it okay we're not grading it for you we're you're grading it yourself after you review it but you just learned something new here's an example on a review question if we go to this link you'll find the seven page document from the state of michigan as to how is the drinking water uh like clean what do you consider to have a clean drinking water if it's if the well is close to a cemetery how far should you be from the cemetery how far should you be from an oil well how far should you be from a septic system in residential that's the concern if you have a well on septic how far away should you be now if i gave you the seven page document i gave you the link to it just so you can see and you go through it you see you're gonna say this is boring i cannot memorize all this do i have to learn all this so instead of that i have a question in the review section that says the minimum distance between that's required between a well and a septic system is and then when you look at the answer you tell me i didn't see this you didn't teach me no no i'm teaching you as i go the review question is meant to teach you it's not meant to fail you i'm not going to grade it and fail you don't worry okay so when you go check the answer you say oh it's 50 feet but if you go to the link you go to page 4 on a page the second line at the bottom go to the bottom the line before last you see far away from what and it shows you it's from the septic to the well oh that one is important okay it says 50 feet so i reduced the whole seven page that you wouldn't need to know as far as i know on the state exam they ask about because you're talking a house you're not talking commercial facility you are a residential builder see that so the distance is 50 feet this is the table of contents and we have chapters one to five as you can see we start you with rules regulations then we go into business management and estimating get your calculator ready then contracts liabilities risk management project management scheduling timing and then marketing your services and sales this is what we have in this section then in builder two you go into the construction into the codes into the miosha the health and safety act and so on let's move on chapter one statutory requirements as a residential builder you're obligated to follow the michigan occupational code article 24 and were licensed by the department of licensing and regulatory affairs and on the state exam this will be called the department residential builders have to carry a license not the commercial builders unless you do a combination of residential and commercial so if downstairs you have storefronts and upstairs you have apartments you would have to be licensed as well anything you do with the residential property even if you only paint it you would have to be a builder erection construction replacement repair alteration anything okay if you are a factory who builds homes modular homes you are still required to have a residential builder's license state of michigan has a few manufacturers that makes homes and they all are licensed to build modular and prefabricated homes there is another license which is the residential maintenance and alteration contractor the m a we don't find too many contractors applying for this license at the present time because it enables you to do one thing only at a time for example you only do demolition you only do concrete you do siding or roofing or gutters there's a license for each one of these so you will attend your 60 hours of class and pass the exam although it's an easier exam if you go back to the candidate handbook that i mentioned to you earlier in my video and download it you'll see that they will give him like just to do gutters or just to do concrete might just be 50 55 questions not 150 questions might be easier yeah but you still have to do the entire course 60 hours pay the fee take the exam you might as well be a builder because a builder can do everything if i'm doing siding and i wanted to do roofing i have to go back and apply and get another exam done you see and then i would still need to do my continuing competency seven hours each year regardless so today out of a thousand applicants we might find uh three or four that will do the m a okay but that's another license that's available you may also apply and become a salesperson but then you would be working for a builder and you would only be selling that builders homes of course you can visit people at home to sell them windows sell them a swimming pool sell them some kind of an addition to the home doors you know insulation that kind of thing so sales people can work for builders to market their products a sales person can be employed by one builder at a time or of course he or she could work for the maintenance and alteration contractor one at a time if she doesn't like where she's working she'd like to sell the products of a different builder then she will have to leave and she will have to move to a different builder she could apply to the department this is the department of licensing and regulatory affairs in the state of michigan on the state exam they'll just call it the department so you will apply to the department to get transferred and the builder will send your wall license back to the state because they will be issuing a new license why because you just got transferred to a different builder or entities are exempt from licensing you can build without a license first of all if this is for your own use you pull a permit to build a house so you can live in it a few years ago michigan passed a law that protects the builders they said anybody that pulls a permit to build the house and live in it himself who's not a builder which is okay must live in the house at least one year after the year when you sell it you have to disclose to the purchaser that this home was built by someone who is not a licensed builder see that because a lot of people have been building houses to sell them and every time they build another house they say i'm going to live in it but he really does not live in it so now you have to live in it i don't think this is a question on the state exam but i'm just letting you know an authorized representative of the united states government let's say you're working for fema the federal emergency agency and there was a disaster heaven forbid in michigan and you're working with the federal government and you go out there and you're trying to do some demolition of homes that must be knocked down because it's you know it's got hit by a tornado well if you're working for the united states government you don't have to carry a residential builder's license to do this type of demolition see that i'm just thinking of possible examples an owner of a rental property who goes out there to remodel to install carpet to paint to install a sink on his own rental property does not need a license an officer of the court acting for the court i can imagine if somebody built a structure without a permit and there was a court order to knock it down the people that would show up to do the knocking down if they were not residential builders because normally demolition requires a license but if this guy was not a license but he received a court order to come out as an officer of the court then it's okay he does not need a residential builder's license okay a person other than a sales person of course a sales person has to be licensed but if it's not a sales person but this person who is engaged strictly in the business of performing work they're only doing labor they don't need a builder's license you might ask me what if somebody wanted me to build them a garage and they bought the material all the material and i just provided labor well then you would qualify and you don't need a license it's not a way to make a living every time somebody needs something you tell them buy the material and i'll do the labor but yeah to get by a job or two jobs like until you pass your exam if you're painting this lady's house for 4 000 bucks and you charge her 3 000 for labor and she bought the material herself the the paint hey i mean it works because it's labor only okay until you get your license again i don't think it's a good way to make a living because you go to build houses you want to pull a permit where is your builder's license okay but they're saying if you only perform work then you don't need a builder's license also if somebody is doing a job work and material under six hundred dollars once you hit six 600 you have to be licensed but if you did a job for 500 or even 5.99 then you don't need a license you might say what if the job is 900 and i break it down into two jobs each job is 450. the answer is you cannot do that because it's the same job so the job is one job for 900. you cannot break it down into 10 different jobs and each job is 550 and then it's a six thousand dollar or five thousand dollar job and i'm gonna say that i don't need a license no you do you do but if it's just one job under 600 you're fine that's for work and material if you're a certified electrician and we need you to do work on a property and you only do an electrical work you're licensed as a plumbing contractor and you're only doing plumbing work you're a mechanical contractor and you're strictly doing mechanical work that's fine you don't need a residential builder's license because you're not doing framing and roofing and concrete you're only doing what your license calls for and that's fine you're exempt [Music] again wages strictly wages paid hourly paid salary no problem you do not need a license the entity that gives you the license is the department of licensing and regulatory affairs and they issue a license to you okay we call them the department on the state exam and it consists of a director who is appointed by the governor of the state the director is the executive head of the department okay the governor appoints the director and they tell you that a license can be issued with a limitation and we will talk about limitations later on when we talk about penalties because a limited license usually involves a penalty okay but we'll talk about that might not be a penalty but it usually is okay the license can be under your individual name like larry adams or assume name larry adams doing business as xyz construction of course you could also be licensed as a qualifying officer with an entity like a corporation or llc as we will see and they require a check on your credit just to see because they don't like a builder who files bankruptcy and then not pay his bills michigan law allows your subcontractor your supplier and laborer to apply a lien attach a lien to the property that they had worked on or provided material for even though the contractor was paid in full say that so if you got paid on full and did not pay your bills there is a way for your people the subs and the suppliers and the laborers to attach a lane to the property which is really bad for a homeowner who paid you in full you follow so they want builders with good credit and the state will examine your credit they tell us that it's one on on one situation or one by one basis because a guy who had filed bankruptcy because you could not afford to pay a hospital bill is not the same as a guy who files bankruptcy to avoid paying the subcontractors and run away with the money right i'm not speaking for the department i'm only an instructor but i'm just trying to explain to you that a reasonable credit would would be helpful okay [Music] within the department there is a board it's called the board of residential builders and it's like an advisory committee there are nine of them four members must be residential builders two that are m a maintenance and alteration contractors and three represent the public because we are licensed to provide consumer protection so the consumer there are three three of them that are on the board that gives advice to the department as to the licensing requirement for builders they're all appointed by the governor they serve a term of four years they could be appointed two terms like eight years but not not more than two consecutive terms like they cannot be appointed three terms in a row say so four years and then four years after that they meet twice a year or as often as necessary the board is headed by a chairperson okay what they do interpretation of licensing requirements helping and aiding in investigating builders and promulgation of rules and minimal standards they set the minimal standards of practice and they assess penalties you'll see later when we talk about investigations that if a builder is found responsible by the department throw a hearing the builder will then go in front of the board and they will assess penalties against them entities corporation limited liability company and so on and so forth you could have a corporation or a limited liability company and you could become the qualifying officer with your individual builder's license but then the corporation becomes the builder so when a homeowner signs a contract to build the house they're signing with your corporation xyz incorporated or xyz llc and so on you are simply working there you're employed there why is that because if there was a lawsuit someday the lawsuit will go against the builder and the builder is simply a corporation see you're simply working there a lot like buying a car from say the car company from gm or from ford and it's defective and the brakes are not working and i run into a wall and i get injured when i turn around and want to blame them for a brand new car with no brakes i don't go and sue the employee one of those hundreds of thousands of people working at gm find him and sue him because he failed to connect my brakes instead i sue the corporation gm here they sue your corporation which is xyz incorporated see that and if they win a big settlement big lawsuit the insurance that you cover will pay so much but you know like a five million dollar award by a jury you're not going to have that much insurance probably you could but most of the time you don't so if your limit of insurance was only a million the 4 million will go against your corporation which means you'll simply dissolve the corporation you'll bankrupt it but your personal assets are protected because you're an employee see and i caution builders all the time i say don't be negligent or don't be the careless type like i'm not sure if i'm following the code but in case of an accident you know i'm incorporated or i have an llc so if you want to sue me get online sue the corporation because you cannot touch me you know what if you're that type of person either committing fraud or you're careless like that they're going to sue you personally corporations were not made for that but if you're doing good business and an accident happens and they trying to blame you and sue you personally the court will probably say no the lawsuit goes against the corporation not against him or her personally those people are good people they're doing good business and an accident happened or something there was an error that wasn't meant to be not that the qualifying officer there says i'm going to make wrong decisions and that i don't care what happens because i'm incorporated my personal assets are protected nobody could get to them that's not what a corporation or an entity all all in all entity like llc that's not what it's meant to do okay if you don't reside in the state it's okay to get a license all right but what happens is you have to sign a consent of service or to service the purpose of that is you know i live in ohio and i'd like to get a license in michigan you do your classes you pass the exam but in case of a lawsuit they will serve you the lawsuit papers through the department they don't have to hire a processor and find you in your home state in ohio or california or wherever you are to serve you they simply serve the state and the state will contact you and let you know that there is a lawsuit against you obviously if you not show up you could lose by default and then they could come to your state and try to collect from you so coming from another state into the state of michigan if you break the law if you harm people they can still sue you okay there is a mechanism why because it would be served upon the state and that's the whole idea behind the consent to service [Music] with regards of place of business a builder has to have an office in the state of michigan you could work out of your home but that's an actual office which is okay you have to have an actual office a website only a mailbox only is unacceptable you have to have a physical location where you display your license if you're a non-resident of the state you still have to have a place of business so you may have to rent a place or share an office but it's got to be an office the other day i had a gentleman from indiana and when he found out that he needs a place of business he remembered he said what about my brother who lives in kalamazoo can i use his house can i like take one of the rooms in his house and use it as my office and i thought there should be no problem i told them if you file that address with the state as your office you have to have your files your records there you have to display your license there at that office and that's fine it sounds sounds okay all right and the builder may open a branch office if he or she need to as many branches as you want but you must you know license that branch by the department as far as books on records you have to maintain a complete and accurate set of books and records if you got audited by the department you have to show the money that you receive from the public on which job you receive the money and where did the money go because if you collected five thousand dollars and only did five thousand in work and you abandoned the job there is thirty thousand dollars that you took off with right so the state may decide to investigate you the department may also notify you that they need a financial statement and you would have to submit that in writing within 30 days a sworn financial statement advertising goes of course you may not misrepresent facts you have to have the name the name as licensed if your name is larry adams you advertise larry adams if your name is larry adams and you're doing business as xyz corporation then it's going to be xyz corporation that's your official name the license number has to be advertised the actual address has to be advertised as well as shown on the license okay telephone number alone post office box alone is prohibited but once you put the name the license number and the actual business address then you can put the website email telephone do what you want if you list your new homes that you're building with a real estate broker you could let the broker advertise only under the broker's name or you could have both the broker's name and the construction company's name they give you a choice okay now you may not offer a bonus to a third party for displaying his dwelling to a third person what this does is you might say i don't have a showroom but i do good work as far as kitchen remodeling i'm going to ask ask the homeowner to display her home to my customers and every order i write i pay her five percent so she welcomes people to her home to show the beautiful job you did and then if they order a kitchen remodeling job for twenty thirty thousand this lady gets five percent for example this is against the law why because she's not a licensed salesperson if she is that good and she's willing to show them her home and the beautiful work you've done for her and the swimming pool you installed go ahead and license her as one of your sales people and then she could display you know the house as a model or the work because now she's licensed but if she's not licensed and you're telling everybody you do a job for like for example you say can i use you as a reference okay that's fine for free for free see that but to pay them money to display their homes to a third party it's unacceptable why again because you're paying people that are not licensed all purchase and sales agreements must be in writing whether they're doing a purchase agreement to buy a brand new home that you built or you gave her an estimate to build the deck for 18 000 and she signed and accepted your estimate and let's go all that is called a purchase or a sales agreement everything in writing and you give copies to people when they sign it immediately the minute they sign they get a copy okay of course that's common sense because if they don't have a copy you can go later on and change it and their signature is on it so everybody gets a copy later if they want to change the cedar to composite wood for example you need an amendment or we call it a change order change orders are amendments the technical word in a contract language amendment means an additional piece of paper that reflects a change in the original contract and as builders we also call it change orders okay if you're building a brand new structure for people and it's exactly the same as the model then you don't have to provide them with a full set of plans and specs that does not have to be furnished so they come and look at the model and she says i'd like to buy this model or she says build me a model like a house just like the model then you might give her the floor plan but do you have to give her an entire set of plans like you know the excavation and the foundation and the elevations and you don't have to you don't have to because it's exactly like the model that she looked at [Music] congratulations let's go through them the first violation is abandoning the job you start six jobs and you only finish two okay without a legal excuse builder says what if my contract calls for submitting invoices and people will pay me within five business days okay and they give me a check that bounces wonderful i understand that's not wonderful okay i understand and it says in my contract that if they bounce a check with me or if they don't pay me in five business days i have the right to stop okay that's a legal excuse see the difference but if you don't have that written in there that's not a legal excuse so make sure you have good contracts and we talk about contracts later on make sure that everything is stipulated not just uh you give them an estimate they sign it they accept it and then you go to work we don't know are you supposed to do the whole job and then get paid are they supposed to pay you money in advance and then when you run out of money they give you some more are you supposed to go to the bank and borrow money and get a construction loan and they will pay the interest on it the buyers what are they supposed to do what is the arrangement see that what about material who's buying the material i tell all the builders in my classroom you know what the best thing to do is have the homeowner a lot of homeowners would like to buy the material up front you're going to do a roofing job for them you have limited funds but you're a good guy but she doesn't know you're a good guy she's afraid to give you the money and you end up having to go and borrow money on your credit card and you know what have her call the lumber company or the department store who selling them the material have her call and put her credit card in there open up an account for her let her buy the material okay and you just do the labor and even when you do the labor if you have a condition there in the contract that once i submit my invoice i expect a payment within say five business days and in the event you don't pay me i have the right to stop work this way it's not abandonment you follow me try another one the version of funds john paid me half the money up front to start the driveway sharon says i will not pay you for this shingle or for the roofing job that's a different job i'm doing unless you get started first okay one guy gave me half the money up front the lady there says if you don't get started i'm not paying you so is it okay to take a portion of his money he gave me five thousand to get started i can i take two thousand buy shingles drop him there then she'll come out and say okay so you got started here's some money i take her money i go finish john's job when john pays me i go finish sharon's job okay this is unacceptable that's the version of funds money received on behalf of a job must only be spent on that job okay and in case of an audit your bookkeeping has to reflect that failing to account for money that's easy they gave you the money you did not deliver the work so where's the money okay common sense a willful departure or disregard of plans and specs so it calls for granite and you give them for mica i know that's an extreme example but hey they do that or it calls for a certain brand of windows you give them a different one why because it's cheaper whatever the specs say whatever the plans say you have to follow if not you have a violation a willful violation of building law you're not following code right failing to notify the department in 10 days of a change in the control of your business like if you sell the company you're not the qualifying officer you move on to a different type of work this state has to know that because they don't know you saw the company they don't know that the qualifying officer or the person who's calling the shots in this company is not dave right now it's sharon she's a different builder we have to notify the state in no more than 10 days [Music] getting a purchaser to sign an agreement and failing to deliver the entire agreement and we talked about that if a salesperson also failing to pay money over immediately to the employing builder so she goes out to sell a bunch of windows and a swimming pool and she takes a ten thousand dollar deposit but she does not give it to the builder and that is of course common sense that's a major violation because where's the money you have to give it to the builder immediately helping an unlicensed person to evade the article your friend doesn't have a license homeowner says if you're not licensed i will not let you build this garage you tell them my corporation is called xyz incorporated why don't you fax her this one she doesn't know who's xyz inc she sees it's a builder they don't know so go ahead and use this license of course that is unacceptable and that's a violation taken a commission by a salesperson from someone that he is not working for so i go to sell windows and the homeowner says oh does your company sell swimming pools of course the answer is no we're strictly a window company but instead the salesperson says yes we do swimming pools turns out he's got another builder who does pools and he secretly sells his services as well okay who's your license with oh i'm with the window company well then how can you work for the window company and for the swimming pool company at the same time secretly see he's got the the company van and he's got the expenses he goes out and he sells them roofing he sells them kitchens turns out he's working with six different companies officially the state thinks he works at the window company but he works for five other builders that is unacceptable becoming insolvent filing bankruptcy that's considered to be a violation and poor workmanship keep in mind that people have up to 18 months to file a complaint with the state so even if you gave her a concrete driveway and you told her one year warranty the state does not mandate the length of the warranty okay but they say they have 18 months to file a complaint so if there is a very bad crack in the driveway people you know they call you after 13 months you tell her the warranty has expired she can contact the state and file a complaint because she has six months to go it's 18 months and she could accuse you of poor workmanship and then we'll talk about the procedure later on and they might still be able to come after you so be careful other violations would be you know practicing fraud and obtaining a license practicing fraud in the practice of the occupation and of course violating the rules of conduct demonstrating lack of good moral character oftentimes my students say what do you mean lack of good moral character well if they caught you shoplifting right or if you attack somebody you had a fight and you ended up going to jail and you had a felony right uh we see this uh you know i teach real estate people mortgage people appraisers this question always comes up what do you mean good moral character you know i give examples on people who were convicted of sexual assaults if the guy is a rapist are they gonna let him continue to go to people's homes and say i'm gonna let me paint your house how could you trust him right you might say what if i serve my time in prison and i'm out and you know what you serve your time you're out of probation the state has a procedure for licensing those who have uh offenses you know there's licensing for former offenders in the occupational code possible okay uh you commit an act of negligence that kind of thing or uh practice false advertising obviously okay so all these are violations [Music] you commit an act that demonstrates incompetence of course like no books no records they want to investigate you and you tell them honestly i don't even know where the money is and i don't keep track of anything i spend but i'm i'm an honest person yeah well that you're being incompetent here where's your books they could be investigating you and they send you a subpoena and you don't answer the subpoena that's a violation failing to respond to a citation if it's issued that's a part of investigation and failing to comply with a final order that's issued against you and they investigate you and they order you for example to pay restitution and you don't pay the money back to the homeowner then that's another violation you're committing see filing a complaint the public has 18 months to file a complaint they file it with the department and the department of attorney general could help the department in issuing a subpoena where if you refuse to cooperate with the state investigators they can get a subpoena which is a court order if i don't answer a subpoena they could bring me in handcuffs say that complain it means the one who filed the complaint the respondent would be the builder that's the respondent we don't say plaintiff and defendant we say complainant and respondent [Music] okay now the state says once we receive a building inspection report we will determine if there is a real violation or not so the building inspector is asked by the department to go look at the job this lady says that the crack is so bad it's an inch and a half difference in the level of that cement it's nasty he goes out to look and he says oh in my opinion that this crack is very fine uh you know it's a small crack i don't think it's really a terrible crack and if you ask me i don't call that poor workmanship i've seen worse okay it's your lucky day or he goes out to look at the job and he says so where did the builder stop and she says just like that he opened up the roof and he took off he hasn't been back in a month and the inspector tries to call him and tell him i'm the local building inspector you came and pulled the permit why haven't you finished and the guy's voicemail is full what do you think the building inspector is going to tell the state the state requested they said somebody filed a complaint mr inspector go take a look so he takes a look he goes back and he says definitely this is an abandonment of job this is unacceptable that's terrible okay now the department has something to go on you see so who do they trust they trust the local inspector the building inspector what does that tell you about your relationship with the local inspector make sure it's a good one clause for alternative dispute resolution which is arbitration if you put a clause for arbitration the department says once the complaint is filed and if within 90 days after filing the complaint the builder resolves the matter through arbitration then the department shall not initiate a proceeding against the licensee licensee means the builder okay unless it's determined that the licensee has not complied with the decision of the arbitrator alternative dispute resolution one thing about arbitration if you put a clause in your contract for arbitration the homeowner cannot take you to court because they have to arbitrate that's the law in michigan so if you don't want to get sued you cannot afford the legal fees put a clause for arbitration and then try to arbitrate the dispute even if i get notified by the department that this lady had filed against me keep in mind you have 90 days to comply okay she filed with the state but did not file arbitration yet i the builder can ask for arbitration it's in my contract so i can go and invite her to arbitration of course if she refuses to show up she loses then i win then there's nothing to be done that crack in the driveway doesn't have to get fixed because she lost it's nothing if she does respond the arbitrator shows up looks at the crack and it's very inexpensive relatively inexpensive to arbitrate than to go to court looks at it and says why aren't you sewing like three feet on each side and replacing this piece you tell him i tried she's right here talk to her she says no you have to replace 120 foot driveway because if you replace this piece the color of the cement or the concrete rather may not match and i cannot do that i cannot afford it so the arbitrator says you know what i'm going to give you my decision in a week he goes back to his office you get the decision that says sew off both sides and replace it he may not give the decision right there on the spot because the homeowner may start yelling at him like oh come on we mean i want a brand new driveway right so he's going to notify you this is what i need done you go do it you go do it the arbitrator says okay he complied this report goes to the state the state says okay we will not investigate you see that so there's a lot of advantages you might think couldn't she go to court after that if she does not like the arbitration the answer is no according to the michigan arbitration act arbitration is final you say what if the arbitrator became unreasonable and said replace the entire driveway which i don't think he will but if he did i'm sorry you have to replace it arbitration is final you see that but you save a lot of legal fees that kind of thing you could still have an attorney which might be a good idea of course but you don't have to have an attorney a good entity that i have run into i see a lot of real estate people and other you know even medical issues get arbitrated i've seen the american arbitration association they publish reasonable rates and they have rules for arbitration okay so you may want to put a clause if you go on their website there may be some clauses you can just take copy and paste into the contract where if there is a dispute we will use this entity to do our arbitration and i recommend that you do arbitration okay so number eight it says as the investigation goes on they could request from the attorney general department of attorney general to issue a subpoena they usually do not need a subpoena unless you refuse to cooperate in the investigation okay if the local inspector ruled against you there was no arbitration in the contract or there was but you refuse to comply they're going to investigate and if they do see evidence of a violation they could have a formal complaint against you they could order you to cease and desist if you're say you're building but you're not meeting the code requirements cease and desist okay stop violating the law they could be a summary suspension which doesn't happen all the time but they could suspend your license before a hearing you could have the hearing afterwards that's if there is an imminent threat to the public what you're doing is so bad they cannot afford to wait so they suspend your license on the spot or a citation a citation is like you know traffic ticket they issue a citation they just write you up for 500 bucks or a thousand bucks okay so that's what's going to happen usually it's a formal complaint along with a cease and desist order so the complaint reads people of the state of michigan versus xyz incorporated or versus larry adams builder and you may be in violation of rule number 24 511 b and c because your books were audited and you cannot account for people's money keep in mind they say you may be in violation because you can still go in front of the judge the administrative judge at the department level and take your cpa with you and go in front of them and have your cpa shows the job show the judge that your books are adequate for example so you can still fight so you may be in violation although it looks like they got they got something against you you could request an informal hearing once you got the complaint issued against you you could have an informal hearing informal conference where you meet with the department staff and offer to settle you're right my books are not adequate and i have just hired an accountant we're going to have good books okay so i admit my mistake okay they tell you pay a fine you settle informally you just meet with them and offer a settlement if they agree to settle with you you're probably going to end up paying a fine or being on probation but that's a way to settle the issue unless you want to have a formal hearing in front of the judge you can also try the informal conference and if that doesn't work out what if they told you okay we'll settle with you pay the maximum fine and take a five year suspension in that case you may say no i will go in front of the judge because you're being too harsh on me okay so you can try the informal hearing if that doesn't work go to the formal or you can go to the formal from the beginning once you get to the formal if you're found responsible you'll go in front of the board and you cannot go back and say you know what at the informal hearing they offered me a certain fine i'm gonna go back and take it it's too late okay if you refuse the informal hearing then that's it you go to the formal hearing and see what the board the nine members of the board will decide so the informal conference is one way let's go to the next slide it says in the event that the informal hearing is not agreed upon it did not work out you can choose a formal hearing okay and the formal hearing will be in front of a hearing examiner a judge administrative judge who will make the decision okay and if he does find you responsible then you would have to go in front of the board and the board would the nine members remember six had a license three represented the public they will come up with a determination as far as what your penalty will be so the board will meet and come up with the proper penalties after the board notifies you of your penalties if you'd like to have this decision appealed you could take it to circuit court for review of the order because a circuit judge not a district judge but a circuit judge can in fact overwrite the decision of the department if that's what you want to do the penalties can include first of all limiting the license a limitation as i told you earlier is a form of a penalty usually the limitation would be for example you know how a driver's license can be restricted like the judge says will let you go to work only for the next six months you cannot drive for pleasure why because you got suspended for uh drunk driving so here they could say because your books are bad we'll let you operate no problem you can continue to be a builder but we want a cpa certified public accountant to check your books and report to the department periodically see that there may be a requirement that assures the department that the licensee is competent i mean hypothetically speaking if the builder was doing such a poor job measuring quantities or he's pouring concrete and he tells the state investigator oh it needs cement i don't know that you need cement in the concrete something ridiculous like this they could go to an extent that say you know what go back to school we've seen them they come back to school for example go back and do your courses again because what kind of builder are you you don't know what's going on like that you know i'm i'm saying i'm giving you an extreme example but if the builder really demonstrated lack of knowledge let's say he has no idea what the code is saying some basic requirements under osha and under the residential code or you know they might send them back to school and we've seen them come back to school as a penalty say requirements that all the contracts that he's putting together must be reviewed by an attorney you might tell me this is a headache i know who said it's fun who said a limitation is good okay it's a form of a penalty or a restriction they may want the licensee to get bonded up to a five thousand dollar bond for five years a bond is issued by an insurance company if the builder took money and did not account for it the insurance policy will be cashed and the public will be paid they may require the licensee to deposit money that he receives in a separate account that can be monitored by the department if they don't trust him certain activities may be restricted technically technically they could say we will only allow you to paint houses for the next year nothing else even though you have a builder's license it's not a maintenance and alteration license if you had an m a strictly for painting i could understand this guy has a builder's license but he's limited to only painting they can do that they could put a time limit impose a time limit on the license okay they could limit his work to a certain geographical area we will only let you do work in the city of pontiac no place else for the next six months maybe because they want the inspector there to keep an eye on him they can do that how often do they apply these penalties i haven't seen them apply it too much as far as geographic location or restricting the activity but they could it's in the law license can be suspended denied revoked a fine can be up to ten thousand dollars per violation censure censure means an expression of disapproval like shame on you you should not have done that that's censure probation they put somebody on probation or restitution if you don't pay the restitution if you don't pay the fine they could suspend you they have the right to suspend you until the fine is paid or even until the restitution is paid i've seen him do that with restitution as well there are penalties for unlicensed activities meaning if you don't carry a license and you're building any way or remodeling or painting or doing anything first time you get caught it's a misdemeanor the fine is anywhere from five thousand to twenty five thousand at least five to twenty five prison up to one year or both second time you get caught misdemeanor between 5 and 25 and 2 years in prison if you're doing the work and somebody got hurt or died okay then it's a felony between five and 25 up to four years in prison so it's not fun working without a license any money received by the contractor must be set aside and applied only to the job as i said earlier otherwise it's a felony you cannot take sharon's money and build john house with it see everybody who pays you that money goes to that job so it shall be considered to be placed separately in a trust fund should have a separate checking account for people's money you know one account that can take care of all the monies that you get from the public and [Music] this will be for the benefit of paying contractors laborers subcontractors suppliers and so on and so forth funds paid to the contractor shall first be applied to pay the laborers the subs and the material men which is the suppliers why is that because if they don't get paid they could have a lien against the property if the builder fails to apply the funds then he is guilty of a felony okay especially if it's over a thousand bucks you're guilty of a felony and you could see that the consequences are bad okay six months not less than six months up to three years prison between a hundred to five thousand dollar fine and some of these files are old today a judge is not going to find somebody 100 they're probably going to hit you with 5 000 you know to make it hurt and the prison is anywhere from six months to three years so it's not fun no diversion of funds you have to be able to account for people's money you tell me what do i do when they give me back checks and i have to finish the job you know what you don't finish the job they give you a bad check they don't make it good your contract will say you can stop work put it in the contract okay have good contracts so nobody accuses you of abandoning the job you're not responsible you want to finish your job go borrow money yourself from your own bank from on your credit card and finish your job don't take other people's money and spend it on her job because you're doing that then she comes out to pay you she gives you a bad check now you cannot finish the first job and that first guy he paid you up front but she took his money and spent it elsewhere and now you cannot finish the first job because they gave you a bad check don't do that get the money and spend it only on the job for the people who paid and if you're willing to take a loan finish the job and then get paid at the end then go get a loan and finish the job if that's the deal you made with the homeowner you know like i finished the roof and then you pay me six thousand okay then go finish the roof and then get paid at the end all right so you don't have any problems and this paragraph emphasizes what i just said if you do take the money and not pay it to your subs to your suppliers and other people laborers subs and suppliers here that shows evidence of intent to defraud okay let's talk about the construction lien construction lien is a claim that is recorded at the register of deed's office it's recorded usually with the help of your title company who knows how to record liens and how to discharge them you discharge them when you get paid and it means that you can start foreclosure on people because of that lien you know when the bank puts a mortgage lien on your house when you borrow money they place a mortgage which is a mortgage lien and they can foreclose if you don't pay them as a builder you can do the same exact thing and the first document you would need to know about is the notice of commencement and the notice of commencement shows that work is scheduled to begin on a job it shows the name and address of the owner of the property okay name and address of the owner has to be on it you need to have the legal description of the property this is found on the tax bill [Music] legal description identifies the property surveyors can use it to survey the property and find the boundary and this will come up again and again because when we talk about starting construction or digging a basement you definitely need to know the exact boundary of the lot so the name and address why is that necessary you're going to post this notice of commencement on the property if it's vacant because your subcontractors and suppliers when they come to deliver work they do not know who they're dealing with place is vacant so with that notice they know that if they did not get paid they could record the lien themselves if it's occupied it's not necessary to post it but if it's not occupied you have to post it if the home is occupied and the subcontractor is asking for the copy he wants a copy of this notice then you would have to make it available to them the homeowner completes this for you some of the details about the notice of commencement what i said what does it indicate where's the work and where subcontractors suppliers and laborers are to send their bills for payment because now they know the owner and who is responsible for the contract which is the name of the owner sometimes it's not a homeowner sometimes it's an investor who owns a bunch of houses the houses are vacant so we need to know who they are what a homeowner does with the notice of commencement provides a copy of this form within 10 days to any subcontractor supplier or laborer notice we don't say engineer surveyor architect those guys cannot have a lien they could ask for their money they go to court but the sub and the supplier and the laborer can have a lien so who can have a lien contractor subcontractor supplier and laborer see that it says if you do not live on the side this has to be posted see keep a copy for the records all that so what do the subs and the suppliers and the laborers do with that notice of commencement it tells them who owns the property who's responsible to pay the money right if they're going to put a lien they serve the claim of lien once they record evidence of that will be served upon the property owner okay sounds good another document that's necessary for you to know is called the notice of furnishing if you're in the contractor the homeowner has a relationship with you they have a contract with you but they have not signed a contract with the sub with the supplier and with the laborer they don't know each other technically they don't know each other i go to work i come home and i see granite in my kitchen i have no idea was the contractor who installed it himself personally was it one of the subcontractors who did it so later on if he doesn't pay the sub and the sub records a claim of lien against my home you know i haven't met the subcontractor if i knew there was money owed to the subcontractor maybe i would have deducted money from the contractor at the end and paid them off directly myself you see that so if you're a sub or a supplier or a laborer who's thinking hey if i don't get paid i'm going to record a claim of lien well then introduce yourself to the homeowner with this notice of furnishing i use the word introduce because now the homeowner knows you you see that it will include name and address obviously it gives you some detailed description here but mainly the work and the material that was provided you follow me what work what material was provided and how much money is owed to you and this must be given to the homeowner okay when do you send it you would have 20 days after delivering work and or material okay that's if you're a subcontractor or a supplier they give you 20 days if you are a laborer then it's 30 days after the date that your wages became contractually due so if the laborer is supposed to pay to get paid this friday he would have 30 days after this friday coming up friday is the due date for the wages he doesn't get paid he's got 30 days but if you're a sub or a supplier they give you 20 days after the first time or the first date that you have delivered the work and or the material and this website here with the state gives you a sample of all the necessary documents we're talking about as far as deadlines the notice of furnishing needs to be provided within 20 days that's if you're a subcontractor or a supplier within 20 days of first delivering work and or delivery of material if you happen to be a laborer then you'll have 30 days from the day that the wages were legally due contractually due so if he's supposed to get paid the wages were due on a friday and he did not get paid then within 30 days the laborer can provide the notice of furnishing keep in mind the notice of furnishing is really really important because it's needed eventually if you are a sub a supplier a laborer and you want to have a lien a construction lien against the property then you have to prove that you did in fact provide that notice of furnishing okay that would be important and this is the site where you can find all these documents published by the state of course any sub or supplier or laborer who says i did serve the notice of furnishing okay there has to be proof of service and there is a form that it comes with all those forms you know where you find them you go to michigan.gov slash builders and you go to those the forms and publications and you can find them if you want to find it in a hurry go on google and just type michigan notice of furnishing and it will come up right away you see michigan.gov and you click on it and you see all the forms there plus the title companies will give you a copy okay the title company could also help you record it as well you should always have good relationship with the title company and i will try to emphasize that a little bit later on and tell you why besides having forms given to you and recording does for you because when people pay you off you have to remove the lien the way to remove the lane is to discharge it and the title company will be like your right hand to do that [Music] the third document is the swarm statement which is an itemized list of everybody who worked with you provided you any type of material labor anything okay and it has to be prepared by the contractor or the subcontractor when you're asking to get a draw when you want money if you're the contractor you see that homeowner could go to his bank to get a construction loan and they want to see a sworn statement you're going to list who's involved with you which supplier which worker how much money because you're asking for a draw of fifty thousand dollars and you provide a sworn statement that shows that you only spend three thousand dollars why would you want fifty thousand then justify it show us why you could also list your name on it because you're getting paid you know maybe as well for the work you're doing but all in all they have the right to see it and if you're a contractor and your subcontractor wants a draw same way you could say i want to see a swarm statement it takes them three minutes to fill it or five minutes to fill it write down so far who's been involved with you and what kind of work and material has been provided so i know what am i paying you for see that here it talks about it some more it says it provides the homeowner and contractor with periodic reports on the progress of the job so they know what they're paying for you know the cost is shown as you go sounds good again it says that the sworn statement is a legal record that shows all the items that are being built for and it's provided by a subcontractor to a contractor and by a contractor it's provided to the homeowner and the homeowner may want to show it to his lender and so on on this page we're reminding you that if you want to do a claim of lien put a lien against the property then besides the proof that you serve the notice of furnishing a sworn statement would be required as well to provide additional proof that there was work and material that you owe money to those people again this emphasizes everything we said and the law requires that a sworn statement which give a description of all the work and the material which the homeowner is being billed for must be prepared prepared whenever payment is requested now what is a waiver a waiver means that you have been paid and you are given up your right to have a lien against the property if you sign a waiver without getting paid you're still giving up the right to put a lien against the property so don't sign a waiver unless you got paid does that make sense of course waivers can be either full waivers or partial waivers as you see on the next screen it can be unconditional of course the best one is a waiver you sign for the whole entire job unconditional because you have already been paid in full okay so there is a full conditional waiver sometimes you have not been paid or somebody gave you a personal check and you say this is a full waiver for the whole job provided that check number 102 clears my bank account no later than october 10. in the event check 102 does not clear my bank account like it bounces then this waiver is not on void i don't like to give a full unconditional waiver and then somebody who gave me a final payment as a personal check it bounces i still gave the waiver i cannot have a lien and i have to go sue for my check so i always like to make my waivers conditioned upon a full payment see even if it's a check i want to make sure that the check clears there is a partial waiver that's if you've done some of the work so you give them they paid you for phase one of the job you give them a partial unconditional because they actually paid you or partial uh conditional conditional means again subject to getting paid for example okay and the note here says with a partial waiver a balance must still be owing obviously so there's an amount of money that would be a wing and the lean right will still exist because you only waived your right to put you know a lien for a portion of the job not for the entire job yeah but some people when they pay you for phase one they say well i paid you in full at least give me a waiver for that portion you tell them fine and i'll give you the final waiver at the end of the job the claim of lien is the actual document that gets recorded at the county register of deeds it must be recorded no later than 90 days after finishing the job okay once you record the claim of lien you have one year to go to court okay and it shows that there is labor and material owing to this individual who complace it we said the contractor and the subcontractor as well as the supplier and the laborer they could record the claim of lien and i told you to have a title company do it for you because they use the right forms and they know how to do it trust me of course responsibility of the subcontractor the supplier and the laborer keep in mind those three did not have a direct contract with the homeowner still when they record the claim of lien they have to provide proof of service the homeowner is notified proof of service of notice of furnishing we said they had to provide must also be attached to the claim of lien see that here it says within 15 days after filing a lien the sub the supplier and the laborer must present the lien to the homeowner so within 15 days the homeowner has the right to know that there is a claim of lien against his property of course the homeowner or his attorney it could be the bank is notified as well depends you know him his legal representative his lender all those people are notified because the bank might still be giving draws against that they're going to give a final draw they may turn around and pay the sub the whole idea is if i'm a subcontractor and i notify the homeowner of the amount of money owed to me the homeowner has the right to deduct money from the final payment deduct it from the contractor and pay the subcontractor and if i'm a homeowner i will turn to my contractor and say when you give me the waiver of lien just to remind you three other people that work for you gave me notice of furnishing two subcontractors and one supplier i want those people to issue a waiver of lien the contractor says don't worry about them i'm going to pay them off i say please because when i pay you in full i want to see waivers from them if he comes back to me and says one of these subs she owes me money from another job so don't worry about her i'll take care of her later i tell him i'm sorry if she owes you money from another job and she did this wallpaper for me have her sign a waiver then have her sign a waiver because when she served me with a notice of furnishing she knows exactly what she's doing say and she knows she can put a lien therefore i'm sorry it's 2500 i will deduct it from your final payment and pay her directly i can do that okay [Music] a discharge is a document that you record at the register of deeds office it's done usually by the same people who recorded the lien like the title company can do it once you're paid off why would you have a lien on this property make sense so if you don't record this discharge not recording it would result in clouding the title for no reason because you're paid on full the homeowner can file a complaint against you can take you to court for slander of title you're damaging his title but without being justified because you have been paid in full once the dispute is settled right we need you to record the discharge discharge of lien let's move on 90 days to place a lien that's after finishing the job and within one year we have to go to court and file a foreclosure okay we will foreclose within one year i had a deck installed one time and six months after finishing the job i had paid in full i get a letter from the gentleman who did the deck saying he was not paid in full by my contractor i had a contractor and then he was the sub so he wants to put a lien against my house and i kind of smiled you know i laughed my wife says you're laughing they're putting a lien against our house i said no i don't think so first of all it's been six months not 90 days right they cannot have a lien second there was no notice of furnishing given to me he's a subcontractor so how is he going to put a lien third i trust my contractor let me call him i trust him he's a good guy i called him up he said what's up i said you know why aren't you paying this guy he said you believe it i ask him for a sworn statement when he asked for a draw i wanted a sworn statement and he doesn't want to give it to me i told him well probably because he doesn't know what it is he doesn't know how to complete one up help him out get him the form and tell him to fill it and sign it it only takes five minutes and you know take it easy on him because the guy probably doesn't know a lot of the builders in michigan keep in mind they did not have to go to school up until recently up until 2007 2008 you know they did not have to go to school the first continuing competency course we did which was only three hours we did was um like two thousand and uh 11 okay or 10 10 or 11. believe it or not they haven't been to school they forgot what a notice of furnishing is or a swarm statement is so i told them i said take it easy he said you know what your neighbor did the same situation happened and she deducted 5 000 from my final payment and gave it to him her attorney told her to do that i said well she has the right yeah but why did she panic as i told him i said people will panic people are afraid i know the law i teach it yeah but the girl didn't know when she called the attorney the attorney said hey if you still owe her money take some money away from him and pay directly to the deck builder he's trying to teach him a lesson see you're supposed to give me a sworn statement yeah i understand i know but a lot of builders don't know how to do it see that let's move on once you go to court you start foreclosure keep in mind that foreclosure means that the judge will order the property sold it'll be auctioned off investors will come in and buy it for cash and then you'll get your money if the homeowner paid you before the sale then you must record the discharge of lien and that will be done by your title company because you probably would not have the necessary paperwork or the know-how because register of these does not record any document you prepare even the margin on the paper the top the side margins you know half an inch three quarters of an inch it's complicated believe me let the title company do it for you establish a good relationship with a certain title company i tell builders even if they needed their office painted i'll go paint it for them and i tell them you owe me why because they will do the lien for you they will do the discharge for you here's another idea it's not going to be on the test but i'm going to take a couple of minutes and describe it to you you are foreclosing on the 30 000 lien that you just recorded in 2012. and he has a mortgage in 2008 on his house so his house is worth two hundred thousand his mortgage is one sixty one six zero okay and he owes you thirty thousand when you auction his house with a court order the auction will probably bring 150 to 160 because it's a foreclosure sale now the bank recorded their mortgage in 2008 they will get their money first if there's a foreclosure you'll get your money only if there is money left over because your lien is second you follow me your lane is second so how do i know if i'm second if i'm second there is no sense in putting a lien because i don't think i can get paid who's going to tell me if this house is free and clear oh if it's free and clear and there is only a thirty thousand dollar lien believe me the owner will not let you go into foreclosure it's money in the bank his attorney will tell him are you crazy you're gonna let your house get foreclosed over thirty thousand your house is worth two hundred thousand it's gonna get auctioned by the court for 150 maybe and the man gets his thirty thousand yeah the rest will go to the homeowner by why give it away see so i go to take a job and the lady says i don't have any money to give you get started and i'll pay you trust me if i don't pay you you can put a lane against me those are the people i'm i'm careful with because they know the law and they also know that you probably couldn't go after them i contact my title company and guess what sure her house is worth about 120 but she owes a hundred and ten now how am i supposed to put another twenty or thirty thousand dollar lien for the work i'm doing i will never get paid there's gonna be a balance more than what the house is worth anyway if there was a foreclosure or if she stopped paying even the bank and there was a foreclosure they're gonna take a house that's supposedly worth 120 on the market and probably get sold for 90 or 80. even the bank will not get their money and you're gonna have to stand in line behind the bank you follow but let me tell you if my title company they could do this in 10 minutes they could check it out they have a record of of title they don't have to go to the register of deeds and search it they could do it on their computer if i call her up and she's my title company and i work with her and you know i take care of them i only do business with them and uh she looks it up and she says free and clear oh wow house is worth 123 and clear and the lady says i'm gonna get a construction loan trust me just get started you know what no problem i'll get started because if i put a lien on that house she'll pay me she's got plenty of equity this is huge information for you and who gives you this information the title company you'll have a question on title insurance later on we'll come to it on the state exam you're supposed to know what title insurance is we'll mention it to you the land division act regulates how a large parcel of land will be will be divided into smaller lots they want the size of the lot to be just the right size nothing odd shaped they want uh the property to be described with a legal description and they want the size to be as such where you can still serve the land with roads and drainage okay the thing i want you to remember is the percolation test this is used to test the ground to see if it's suitable for a septic system septic system is made of a septic tank and a bunch of pipes that are perforated so when you flush the toilet when you use the sink the water goes into the septic tank the solids will settle down the water will overflow into those pipes the percolation test will tell us if the ground is either clay which will be a problem it will not absorb water okay fast enough and or if it's sand which will be good because it will absorb water that's how you get rid of the water in a house when you have no sewers okay the percolation test will tell you what type of ground you got and the health department will have to approve that so if i'm buying a vacant lot from an owner and i'm not sure if it's going to be good for a septic system i will make the purchase subject to an acceptable percolation test acceptable to the health department of course because if i cannot get a permit to build what good is it okay let's move on i'd like to talk also about some property interests especially the easement the easement which is also known as the right of way the right of way or the easement is the right to use a portion of a property or all of it for a purpose usually if uh land is not on the front road it's like behind your property you're on the road and they're behind you so they might give you the easement or the right to go in and go out like ingress and egress okay so entrance and exit okay something like that also the utility companies have the easement or they have the right-of-way to install their gas and electric lines inside people's property okay you own the property but there is a gas line in it why because the utility company has an easement make sense that's why we say don't dig without calling the utility company first which is mystic they come and they tell you we have a gas line be careful don't break it and that's why they you cannot tell them to leave because they do have a permanent right easements are permanent when you buy property sell property it doesn't matter how many owners have it they all have to honor that easement you cannot get rid of it all right what's a legal description as a builder you have to understand that and i very briefly mentioned it when i told you about three slides ago that the land division act requires that one property is bought and sold to be identified with a legal description the legal description on property or off property it gives you the exact location anywhere okay it can set the boundary you don't want to put a fence on somebody's lot if you're trespassing or encroaching over the neighbors how would you know that you know that with a survey and the survey cannot happen without the legal description see that how would you know where the lot is located before you dig the basement you need a survey and there is no survey without a you know legal description so one very important method of legally describing land is called the lot subdivision method that's when the developer has a parcel of land he locates some raw land okay gets a hold of an architect check the local zoning and what size lots can we create can it have a hundred foot frontage 120 80 so on and so forth okay and we will start to design how the subdivision looks with the help of the architect let's go to the next page once the architect designs the lots according to the local zoning without any violations of course let the architect handle it because they know what they're doing usually right the roads utilities drainage sewer everything is in place the easements are given to the utility companies for future maintenance but the developer is going to do all this i'll show you on the next slide maybe like a little visual idea what to do then the plant map once the roads are approved it will be recorded at the local county register of these office and it's given a unique name and the lots are numbered and that's how a legal description is created let's go to the next slide here's an idea this whole entire thing was um like a parcel of land maybe 10 acres situated on this road the architect suggested that we create 10 lots out of it as long as we put this road okay as a developer you would go in and pave the road you will install utilities so are water at your expense okay then the lots of course have been drawn up on a plant map those are the 10 lots and we've numbered them i take it to the register of deeds and i record it i'm going to call it for example maplewood estates subdivision of oakland county michigan of course there could be another maplewood estates in washtenaw county but that one is called maple with the states of washington county this one is maple with the states of oakland county so the name has to be unique this small subdivision has 10 lots once recorded the lots are numbered people start buying so somebody bought lot 3 of maplewood estates of oakland county michigan now that's a very unique description if you gave that lot 3 of maple of the states that legal description to a surveyor he or she will be able to come in and put some monuments in the ground at these corners will give you four maybe wood stakes or steel rods and you're able now to measure the maybe the setback you know where the building can be erected to the front of the line the back set back the side set back you see here we put another basement as well okay the dotted lines refer to easements so we've given the utility company the right to put their gas lines through those lots which is a permanent right you see how things work first thing you have a legal description you give it to a surveyor you will have the stakes and the ground and then from that point on you can go ahead and measure the setback and you can put your basement in to talk about planning and zoning laws and first of all there's something called the non-conforming use which means using the property for a purpose that does not match the local zoning you have a busy highway all commercial and you see a bank next to a bank there is a house and kids are playing in the driveway makes you wonder how could you put a house next to a commercial property well it's a non-conforming use which is allowed either under the grandfather clause or getting a zoning variance grandfather means that the house was already there many years ago before this road became commercial used to be all residential say used to be all houses everybody sold this house when they turned into commercial except this one guy who kept it as residential so his grandfather didn't they can usually sell it and keep it that way but you should check with the local government to see if they allow the sale of the property and you keep it maybe rented to a family for a while until you decide what you want to do with it don't take it for granted because different cities and townships may have different grandfather clauses the zoning variance is different for example i have an area that's zoned residential i'd like to come and build an office building or maybe i want to put a supermarket i go to the local government and i ask permission variance to vary means to be different and they give you that variance and you can go ahead and put the commercial property right in the middle of the subdivision maybe why because i got special permission a good example is in the previous slide when we had a setback i told you there is a distance you see that here and i showed it to you in the drawing the distance from the lot line to where you can erect the building what if it's supposed to be 50 feet and i wanted to build my house at 30 feet from the road not 50 feet i'm gonna have to go get a variance if they give me a variance i can do it doesn't mean that everybody in the subdivision can do it no only the one who applied for a variance and made a case and showed possibly hardship maybe i couldn't you know like i'll give you an example we had a friend who had a very narrow lot on the water 40 feet and his house is only 20 feet with 10 foot set back on the side he wanted to put a garage well you cannot have a garage unless you get a zero setback on one side and then you can have the garage so he went and uh talked to the city and they gave him that variance and he was able to build his garage it was a one car garage because only 10 feet what he did he made it long enough to park two cars one behind the other but that was a good example on the variance because he got a zero setback he can build all the way to the lot line only on one side not the other side good enough let's move on [Music] something extremely important in your practice as a builder is the fair housing laws we may not discriminate against people because of the following first of all we have a federal law that came in 1866 that prohibited discrimination because of persons race then in 1968 race was already there but they added color religion and national origin as well then in 1974 we had the law that said you may not discriminate because of a person's sex of course sexual harassments are included as well they added the equal housing opportunity poster which is the house that has the equal sign on it then the fair housing amendment act of 1988 added that there is no discrimination allowed because of a person's disability okay physical or mental as well as familial status which is families who have children state of michigan already had a law back in 1976 that prohibited discrimination because of a person's disability which includes a disease like aids is a disease people who have addictions to alcohol drug addictions as long as they're trying to recover they're getting treatment all that is included in the meaning of a disease which is a disability okay injury and so on and so forth michigan had its own law back in 1977 that we called elliot larsen which prohibited discrimination because of the person's age and marital status with regards to employment not building houses and real estate related issues but with regards to employment there are two more categories which is height and weight like in hiring people let's say you had or you needed a company dispatcher and you preferred someone who's slim versus someone who's overweight okay if somebody's overweight they could still work as dispatchers so now you're discriminating but if you tell me that fat person or overweight person could not climb on the roof because of their weight they could fall or it's very hard for them that's a different story but if they can do the job and you still discriminate against them with jobs the height and the weight is an issue okay americans with disabilities act also applies to companies who have 15 or more employees and it requires you to accommodate your employees and members of the public with regards to disabilities again you have to treat them fairly [Music] this is a copy of the fair housing poster that must be displayed at your office as a builder to show that you believe in equal housing opportunity for all people and this is the house with the equal sign it must also be displayed when you have large display ads newspaper magazine website you have to show this as well which means equal housing opportunity for all people with regards to ownership by syndication syndication means pulling people's money and abilities together to do business you notice you could be involved in a general or limited partnership the difference here the general partnership is where all members equally share management and decision making opportunity or responsibility if there was a big huge loss because of the bad decision you made you and three other partners all of you will take the hit of course you're sharing in profit and losses according to the amount you've contributed so if somebody put twice the money they will be taken twice the profit and so on a limited partnership is where you get involved with a group of people your partners but it's run by the general partner if you're a limited partner and you only invested five thousand dollars then when there is a big lawsuit and a major liability loss you can only lose your five thousand because the general partner makes all the decisions you don't share in decision making you see so if he made the decision he takes the loss you can only lose your original amount of money here you could be personally liable because you made a bad decision and there was a big liability suit somebody was injured or got killed and so on and so forth here the general partner takes the head so that's the major difference between a general partnership and a limited partnership [Music] as far as corporations the corporation is owned by stockholders and we study the c corporation and will study the s on the next slide the c corporation is treated by law as an individual who actually pays income tax on its profits once the income tax is paid then the profits will be paid to the stockholders as dividends okay then they'll pay taxes again so you notice there is the possibility if there are profits there will be double taxation taxation uh paid by the c corporation and then you will take the dividends and you will pay your income tax on it again [Music] as far as the s-corporation here it's still an entity and it provides protection against liability but there is a direct profit and loss pass through to the investors so if the corporation made a hundred thousand you'll get the hundred thousand and you pay tax on it once under c corporation the corporation will first pay income tax maybe there is 80 000 left the 80 000 you receive and you pay tax on it at that point okay so as corporation you avoid double taxation but as far as protection against liability this is i explained that to you when we talked about a builder who operates as an entity earlier okay it does provide you with protection as far as liability sure the limited liability company is another excellent form of protection against liability it's an unincorporated association having one or more members and we see that real estate people use it builders use it and so on and so forth and it operates in a similar fashion to the corporation it provides you with protection against liability and the income is taxed to the individual members just like the s corporation not on the entity level so that you enjoy uh you avoid rather the double taxation as well some more definitions what's a lien a lien is a claim or a charge against the property because you owe money they're holding your property hostage so to speak document gets recorded at the register of deeds showing that they're threatening to foreclose on this property because you owe money so there is a mortgage lien property tax lien income tax lien construction lien and so on as far as transfer of title houses in your name you're a builder you build it you want to sell it now you want to put it in somebody else's name name is equivalent to the word title so how do i transfer the title from one individual to another we use a form or a document called the deed the deed is an instrument or document that is used to transfer title from one individual to another okay so from your name to somebody else's name deed restriction is a clause written in the deed they call it a covenant as well it's written into the deed that prohibits the future use of the property you know who uses it for example i have a new subdivision coming up i'm a developer and i want to state in the deed that the smallest house you can build must be two thousand square feet you may not have a gravel driveway must be paved you know i'm trying to monitor the quality of the building so it's used that way i could say that you may not have a fence privacy fence you're not allowed any sheds in the backyard all i allow you to have is an additional say you build the house and have a two-car garage and it must be attached not detached see that all that is in the deed restriction and the deed restrictions are enforceable by the local association see if there is um an issue between you know who's more restrictive is it the deed restriction or the zoning ordinance then the one that's more restrictive of the two will win will prevail so you could have a deed restriction that says residential use only so it's not saying whether you can build a single family or a duplex as long as it's residential you're happy the zoning ordinance says residential use single family only so can i build a duplex the answer is no because now the zoning ordinance is more restrictive it allows you single family use only so you're not going to be able to get a permit what if it's the other way around what if the zoning ordinance says you can build from one to four family dwelling and if you want to build a four unit we will give you a permit but the deed restriction says residential use single family well then you have to stick to single family even though the ordinance allows it the deed restriction does not then the neighbors can sue you and get a court injunction and stop you from building they could come and knock it down for you they follow [Music] years ago they used to put deed restrictions that are today in violation of the fair housing act so a racial covenant for example you cannot sell this property to anyone unless of a certain race for example this has no validity under the law understood you don't follow it and you don't even don't even mention it and don't make copies and give it to someone it's just unacceptable it's illegal things like that if it talks about religion if it talks about color or race unacceptable and again the court injunction can be obtained by the local association in the event that you're violating a reasonable and a legal restriction so if you put a fence and the city gives you a permit to put the fence up the association will notify you and get a possibly a court order to knock it down for you all right now what is title insurance it's an insurance policy that's issued by the title insurance company that will ensure against any monetary losses that results from a bad title from a defective title so if i bought property today and i do have title insurance and they did the search on the title and i found out that the individual who sold me the property has a partner who never signed the deed i go back to the title insurance company and they settle it they're going to write a check to the partner and get her to come in and sign the deed and clear my title because i am insured they should have seen it they missed it right they should have known that there are two partners okay is the guy who lied to us and said i'm the sole owner is he getting away with it no they could sue him and get their money back but me as a purchaser as an innocent purchaser who was told that only billy owns the property not billy and sharon i'm protected because i have title insurance same goes for any for for any liens unpaid bills so i bought the house even from a builder see people will buy your new built homes and they ask you for title insurance because after they buy it and you bought them title insurance and turns out you forgot to pay somebody one of the suppliers who wants to put a construction lien while the title insurance company will compensate you see that doesn't mean you get away with it you really have to come up with the money but the home purchaser is protected he doesn't have to go pay the bill out of his pocket they're going to come back to you eventually and say hey we had to pay this bill for you you forgot to pay it and they'll sue you see that what if you're bankrupt you're not collectible well then the insurance company just came up with the money and they they lost out but that's the benefit of somebody buying property and getting title insurance what are bonds a bond is a form of insurance that's provided by an insurance company or a bonding company as we call it we use it to ensure that a certain individual will perform work will come back and do maintenance will actually act upon a bid that's been provided and so on and so forth for example we have a bit bond when you go to place a bid on a project usually government projects require it some of the private projects you're bidding but you may not have the financial ability to carry on and do the job so they don't want somebody bidding and not coming through with it because they have other construction companies bidding and they have to tell them sorry you know jimmy got the job xyz construction got the job and uh six months later you have not started see and that creates uh big delays and uh extra expenses they have to start again and have to to go solicit other construction companies to come in right and it's very embarrassing to everybody including the government entity who had the job so you go to bid on a three million dollar job with the government they tell you we need a bond for say 10 of the job so if you don't start you don't perform okay the insurance company will pay the city thousand dollars of course the insurance companies not gonna let you get away with it when they gave you the bond they expect you to perform on it if you don't perform and they have to pay the city three hundred thousand they may be coming after you to collect their money back from you so it's a big issue all right of course a bit bond goes hand in hand with issuing a performance bond on the contract and uh it has to be already underwritten or approved so um there would be uh very few defaults under the bitbond the bitbond and the performance bond as well that ensures that somebody will perform the work [Music] said the performance and payment bond goes hand in hand with the bitbond let's say he started but he wouldn't finish he started and he wouldn't pay his bills so this uh bond this insurance bond i keep saying insurance because a lot of the students say what's a bond and what's insurance same idea because it's provided by the insurance companies so in this case if you don't finish the job and perform it completely this will indemnify or hold the owner harmless against any losses resulting from failing to complete the work so and it all depends it could be just for five percent could be for ten percent it all depends of the amount of the job you're bidding you tell me what if it's a twenty million dollar job then uh i'm gonna need a million or two million dollar bond that will cost me a lot of money exactly exactly that's why you don't find too many construction companies bidding on an airport for example because for one thing do you have the ability to provide this type of bond and do you have the financial ability to do the work you see that what's a maintenance bond well if you don't come back to do the maintenance right your workmanship is bad and you use some very you know bad and cheap material and you don't want to come back and stand behind it then they have a maintenance bond that would pay that entity usually as i said the government entity wants it and there will be compensated if you don't want to come back and they will go hire someone else to do the job those bonds are for starting a new subdivision the local government the city possibly who knows the county road commission who must approve the roads they want to make sure that you're doing everything the right way that the site improvements the utilities the pavement of the roads everything is installed properly and there are no problems because if you if you do it wrong who's going to come back and fix it so you're bonded and you know you have to do it right otherwise if your insurance company kicks in and pay the bond you might have to face the music as we say they're going to come back at you and by the way if you run into a clause it's called the subrogation clause i don't know if i have it here written somewhere it must be somewhere that is the clause that allows an insurance company under subrogation to go after the person that caused them to lose money and collect their losses back so it's not as simple as i have a bond who cares they could call go after the bonding company no because you're going to have to come back and pay for it yourself very possibly all right a supply and subcontractors bond here they want to make sure that specific items and workmanship will be furnished by the everybody the manufacturers the subcontractors and so on a very important policy that you can have is the comprehensive general liability insurance protecting against liability for bodily injury to members of the public out of your operation as a contractor your employees and even your subcontractors of course we prefer that the subcontractor has his own policy as well okay malpractice malpractice coverage also known as the ano or arizona missions this one will protect against any error or mistake in judgment and know-how the example here is underestimating how much reinforcement you would need how much rebar you need for a concrete beam which will may result in a collapse of structure okay in that case you're covered you have insurance coverage because it was your mistake that's the malpractice or the errors on emissions automobile coverage as you know if any of your vehicles runs into an accident and there are some injuries or damage to other people's property then you got coverage there the builder's risk involves any contents that you could have and you could lose it because of theft vandalism or other natural causes we hear once in a while that they're breaking into houses before they're finished by the builder and stealing the appliances from them or stealing material and lumber that you leave in there you come back the next day and it's gone as far as workers compensation insurance it's an extremely important one because it covers employees loss of wages medical costs due to job injury you have to have it if you have one employee only that's working for 35 hours a week or more for at least 13 weeks of the year or if you have three or more employees full or part-time doesn't matter how many hours once you have three employees you have to have it or if you just have one employee who is working kind of full time you know 35 or more hours per week for 13 weeks [Music] with regards to environmental issues we have the asbestos abatement licensing act which provides for licensing of asbestos abatement contractors testing and removing asbestos from structures the department of lara stands for licensing and regulatory affairs they could charge fees for project modification and licensing and there are penalties involved as far as licensing requirements anyone who does any asbestos work must be licensed and to become licensed the contractor has to carry workers compensation insurance of course they have to attend courses as well to get certified here we talk about all the penalties and prosecution as you can see can start at five hundred dollars for the first time it can be a thousand dollars for the second offense with imprisonment of six months a lotta which is as i said licensing and regulatory affairs the department has established ten thousand dollar penalties per violation per incident it can go up to 25 000 and so on and so forth i'll let you read this [Music] lead paint is a pain that has a high content of lead became illegal in 1978 but homes built before 1978 are called target homes or target housing anytime you work and disturb paint lead paint in target housing you must have this certification the rrp otherwise you could be fined thirty seven thousand five hundred dollars and this is according to the rules established by the epa environmental protection agency let paint will affect people especially children it will cause it will cause all kinds of problems ultimately death because they will inhale it and they swallow let chips you know let paint chips it affects the brain their blood their kidneys the nervous system so on and so forth there are requirements you will learn that when you get certified for rrp you have to provide an educational booklet to the owners and to the tenants in residential housing and of course you have to carry that certification we offer that at the institute here and it's offered every you know four six weeks and you have to attend it you cannot do it online because there's a lot of hands-on work that could not be achieved online because we have to show you how to test for let paint and how to contain the area and how to protect the individuals in the home as well as you and your workers all right wetlands are defined as land upon which water is normally and frequently present to support wetland vegetation and aquatic life we need the what lands because it protects us against flooding and it provides for protection to vegetation and aquatic life and you may not build on what lands without permission from the deq that's the department of environmental quality these are the following things you cannot do without a permit you may not fill the wetlands you may not excavate or dredge and you'll see on the next slide that you cannot build on it or drain the water from it okay let's go to the next slide right here you cannot construct without a permit and you cannot drain the water in the event that you do any of the things i talked about without a permit then you will be fined there are some big hefty fines as you can see prison can be imposed as well and you must restore the land to the way it was before so if you filled it or if you drain the water all this has to be restored which can be a big big problem especially if you had some construction done and now you have to take it down okay let's go to the next slide the radar on glass is another issue colorless odourless radioactive gas results from the decay of natural radioactive substances such as radium and the problem is it travels inside the ground it enters the building from the lower level right by the basement level and it gets trapped inside if you breathe it it can cause health problems possibly cancer okay so you need to test for radon and make sure that you don't have a level that is unacceptable or above the minimum levels that are set by the health department okay to get rid of radon usually we have to ventilate the basement you open up the windows and uh you put like exhaust fans and that kind of thing so that is a problem if you have a lot of radon under the michigan uniform commercial code there are different issues that uh affect everybody's anybody who's in the business any merchants but as far as builders are concerned you need to remember that if you have a contract for the sale of goods which is a thousand dollars or more you cannot enforce it in a court of law unless it is in writing this is what i need you to remember from the michigan uniform commercial code the ucc under the home solicitation sales act we're not allowed to use a recorded message to solicit business they used to use it few years back and they stopped doing it most of them where somebody calls you and says this is a recording and if you're thinking of replacing your roof very soon say yes and if you need any remodeling services or estimates say yes things like that this is prohibited under michigan law also under the home solicitation sales act at the beginning of a telephone conversation by one of your sales people they must introduce themselves identify themselves who they are give their full name and the organization that they're with also your sales people cannot intentionally block their caller id so if i see that a call is coming up from a window company i might decide not to answer okay that's important as well also very important under this law that if you go to somebody's home and get him to sign a contract the people buying the services whether window siding anything a buyer has the right to cancel a home solicitation until midnight of the third business day okay now if they come to your showroom it's different than you going to them at their home all right they have three business days until midnight of the third business day after deciding to cancel we will go next to chapter two business management estimating and job costing in order to be a successful estimator you have to understand how to calculate the job cost an estimate is the result of cost plus markup you know anyone can add a markup hey if you need 33 percent of the total job it cost you hundred dollars you should charge 150. so the 50 will be the profit 50 divided by 150 is 33 i understand that just double it if you want say everybody works differently but the cost is what really counts because if you underestimate the cost by five thousand dollars there goes your profit say so you have to know the difference between cost and estimate the estimate is the result of cost plus markup when you have a large residential construction company there is a job allocated for the estimator that's all he or she will do day in and day out it'll be easier even though she's estimating 200 home project but she's very familiar he or she will be very familiar with the market but when you are a builder just one individual you'll be the estimator you'll be the contract administrator and the project manager and the person who promotes the company and does marketing like you're doing four or five or six jobs at the same time and it's difficult okay any mistakes committed will be reflected on your bottom line either you make a profit or you lose and it's a well-known fact that number one reason for builders who go out of business or really lose a lot of money is because they're not good estimators so don't feel bad if somebody told you you cannot add if that was me i'll say can you show me what i'm doing wrong because the person is doing you a favor if they say you're not really good with math i would tell them okay show me because it's just gonna mean the difference between me making it or not making it you have to be good at understanding the details you need to know different construction techniques if i don't do it this way i'll do it that way detail oriented because it's the small details as you'll see that will make a big difference too and you have to have good management skills because you really have to tighten your budget when you do an estimate you need to monitor what's going on eventually we talk about project management and as you estimate something like a portion of the job and you perform then you have to compare and really have a good eye for things and if you tend to lose money on one phase of the project you have to make it up in the next phase and so on to talk to you about types of estimates and the first type is called the conceptual estimate and we're breaking this down one two three four the conceptual estimate is also called a ballpark estimate that's not a good way to commit to signing a contract with a customer based on a ballpark but as a part of marketing my products when someone says so how much should it cost me to do brick paving on my driveway and i'm saying i cannot keep telling people yeah well it depends and i'm gonna get back with you no no give him something as a ballpark it's 12 dollars per square foot you know here i'm talking about it why do you say that because it's a starting point until i see the details of the job so that's a ballpark don't sign a contract until you see the project and really calculate everything all right let's move on second type is called the preliminary estimate we have like three types the bottom one is the ballpark now this is one step above i'm still not ready to sign a contract but i'm coming closer why because i have some sort of a floor plan in front of me maybe i went and measured the brick paving job and now i know how long how wide what type of brick and stone is the homeowner looking for now i know see so now i'm getting closer to a final estimate in this case the homeowner gives me a floor plan it's 2 000 square feet and i know that i've built several houses i know what the cost should be about 120 dollars per square foot so i can comfortably tell a homeowner you know 240 000 plus land but if you want every floor and everything to be granite right i don't know about 240 000 it's gonna cost me more i'm giving you an idea but that's give or take and before i sign a contract to start construction i need to give you a more detailed estimate but that's a preliminary estimate we measure the length and the width and he says okay i have a driveway it's 50 feet by 12 feet i tell them well 50 times 12 is 600 square feet times 12 dollars 7 200. see i'm much closer now i gave him a number but i don't want to sign because it turns out he wants retaining walls and he wants steps and he wants lighting see that and then we have to go pull a permit there's a cost for the permit so but it's still closer than the ballpark 12 dollars a foot see preliminary estimate and i told them 240 000 plus land and now i need to get to a very detailed estimate before i sign let's talk about it on the next screen the detailed estimate takes the most or the maximum amount of details into consideration if i'm looking at a floor plan for a house i even calculate like how many chandeliers will be in the house and instead of saying i want you to tell me exactly which chandelier like uh come with me to home depot and let's select it i go as far as saying i'll give you 500 allowance per chandelier okay and um anything above and beyond that you pay for it yourself that's a good solution i want to know what type of uh how much granite and how much ceramic tile and how much carpeting give him an allowance for the carpeting because she wants a hundred dollars square yard carpeting and i'm only figuring 35 dollars so you give him an allowance on the carpeting on the granite on the ceramic because even granite there are levels of granite right there's cheaper granite so i must be very detailed before i sign the contract and that is the detailed estimate as a reminder a good estimator would make arrangements with material suppliers get him to commit if he tells you i can get you the most expensive granite no more than forty dollars per square foot and then by the time i go there and she selects it and he says oh i'm sorry it's going to be 55 you know the price of granite went up since i talked to you yeah but that's not fair so we would go even as far as signing contracts with the suppliers with the subcontractors that offer to work for us yeah i will sign the contract subject to getting started if i don't get the contract you don't get started why because i did not get the contract but if you tell me you can do the foundation for 22 000 and i like the price i want the contract side and if you tell me that she will provide me with those beautiful kitchen cabinets that she's asking for then i need a contract with you say and again as many contractors do and engineers do who do work you know you make the contract subject to you the contractor getting the job if i don't get the job you don't get it but i have a commitment from you in case i got it let's move on so what influences the cost of the project different factors i'm sure you'll agree with me as i start talking about it you'll nod your head and say yeah he's right but listen you have to think ahead of time okay if you don't think and you hurry up and you throw a number at people and sign your name to it and a lot of contractors do that then you realize you made a mistake and you end up working for free because the low estimate will eat up your profit see the size of the project think about it i have a small crack in my driveway i need you to come and fix it well you still have to bring your equipment and you still to have to hire maybe a worker or two to help you out these guys work by the hour but you cannot hire them for an hour and a half you probably end up paying them for the whole day and you'll have to get your mixer or you have to go buy ready mix concrete and can you just call the mixing plant and say hey send me one and a quarter yard no they have minimums right if you only need a couple they may have a minimum of six yards or three yards so at cost the homeowner says it's only a small crack why would you want fifteen hundred dollars that's because i'm smart i'm not making that kind of profit on you you would think i am no but the cost goes up it's a small job for 1500 i could have done a job three times as big it cost me the same i have to buy a minimum amount of concrete i got the workers with me right so it's costing me the same therefore estimating the cost would be here you know in item a i'm saying there are jobs that are even harder to estimate of course common sense if you have that brick paving job it's not the same as a 10 000 square foot home see but here i'm saying hey you go rent a bulldozer for five hundred dollars a day and the job is only three hours you wasted five more hours had the job been an eight hour job that pays much better still cost you 500. say but the pay is better and then here i'm talking about the preparation cost how a lot of it costs the same in business i go to print 50 business cards because i seldom get asked for a business card for example and he gives me a price but then when i ask him how much is it for 500 and the print shop tells me it's a little bit more just a little bit more not 10 times more 50 to 500 maybe 30 percent more because it cost us money to set up the press and do the type setting what's left is just let the press run a little bit longer and use more card see so this is true in everything complicated the project is will cost here in this example i'm saying there is a waterfront home and the ground is not really strong enough to carry the home so i need the house to sit on piles okay this is a specialized job and a specialized contractor that you'll have to get they'll be your subcontractor yovalo and they have some complicated architectural styles on it money is not the issue here it's who can do the job this is much different than just digging a basement on solid grounds and building the house see so the job is complicated it will cost more money another issue why is it complicated the height if i have a bricklayer charging me 25 an hour and he is working standing on solid ground and he's got the material nearby he's got a worker who's helping him and he's doing good production now put him on scaffolding 30 feet up in the air what's going to happen his mobility is limited the supplies that get to him will get to him slower he's worried kind of about falling so his production is limited therefore working on ground is better and more productive than working a hundred feet up makes sense right using unique material so i want you to install stucco versus siding sightings of course easier than doing stucco and again stucco not anybody can do stucco even some of the contractors that say they do it they really don't do it right you have to follow special drawings architectural drawings why because for example especially stucco i've seen some jobs that look miserable i feel bad for the owner because if you're just going to have some styrofoam and you're going to lay this tucker on it as a paste and you just lay it and i've seen that you know i'm i was an engineer working in commercial projects and i've done residential and you know i teach but i've done it before i was a layout field engineer and i've seen a lot of stuff but they come in a hurry they do the job and then the moisture get in behind the stucco and you know what happens in the winter time it will condense into water and then once the water freezes it will expand once you expand you're going to push the stucco then it's going to crack so what do i do what you do is the same idea what we do behind the brick veneer wall we put weep holes say this way the wall does not crack if there is water behind the brick then it will leak from these weep holes which is required by code and you study code in the other builder course we have builder two you know the spacing the 33 inches etc but here i'm going to have like a corrugated sheet behind the stucco and then it will allow the water to condense and go down into a weep channel same same idea get rid of the water see let it leak out and then we won't have any water behind the stucco and it will last forever that's why when you find these big department stores and pharmacies those big drug stores the cvs and the right aids and you look at the stucco and you say beautiful this thing is 10 years old and my sister had some stucco done and i feel bad every time i look at her house and look at this beauty why they're both you know in michigan and we have the cold winter months why is this not cracking oh because the moisture behind it found a way to escape it's following the design you see when it's a complicated project versus go put siding i'm not saying those guys that do deciding you're not working hard oh you work very hard but it's not as complicated you see that less liability so you do stucco before you know it they're so in you because you did a fast job here in item d i'm saying even if it's the same material and you lay it differently the cost is different today i will talk to a ceramic installer how much do you charge and he says labor only i want three dollars and 50 cents by the way is that straight or diagonal because diagonal requires more ceramic more cutting see that so i want to charge you more or had it been straight vertical and horizontal it will be maybe three dollars but for 45 degree i want five or four and so on see let's move on site location are you telling me if the house is located on an island like mackina island where you have to take your material and labor by ferry probably in the summer time only is that the same as having a house in a subdivision of course not i had a student in class told me he said when i do work in mackinac and some of the other islands they don't ask me how much they simply ask me what can you get started and what would you be done and then i give them a price and they say okay why because it costs more money you're getting paid more they realize it's not all going in your pocket it's hard to get there top of the mountain bottom of a valley versus right here next doors in a subdivision that makes a difference time of the year for construction sometimes the customer delays the project and other times it's the builder if it's your fault you pay for it but when the customer delays the project i'm supposed to get done right i want to get done in november building a house and he will not allow me to get started until april and it takes maybe 10 months i'm not done till next year february or march or even next april that's not fair the price of the material may go up and the contract should reflect that fact now sometimes say in michigan here we have deer hunting now if my workers leave and i cannot find any workers what's going to happen i was supposed to get done before the deer hunting season now i'm in the middle of the season why should i have to pay late charges so all this has to be addressed in a good contract that we will be talking about in the section under contracts liabilities and risk management cold weather construction cost more for labor and material because you need concrete admixtures you study that in builder two it's on your state exam you may have to heat the material you may have to add antifreeze for the water not to freeze and other material as well the labor will cost more because you have to cover the structure and keep it warm all that is cost i remember back in the late 70s we were doing a huge project and we're pouring concrete this was for a big several big blocks of concrete like a base for a generator for um consumer power company and when we poured the concrete it was february we had to cover up the structures and we had to stay there on site at the trailer uh with myself a couple other guys were with me like every third day one of us will stay all night from the end of the business day 5 pm until the next morning why i had to monitor the temperature inside the enclosure for the concrete to be uh you know hardening curing you know the hydration process all that and uh you know each one of us did it like three times or four times until the concrete had cured enough where we can trust it and we could take the enclosure off see that so it costs money that should be a good example even if you're just building a house and you do the foundation you still have to worry about the concrete you cannot be pouring in the middle of february i prefer not to although a lot of contractors will say well as long as we protect the concrete and we put the right mixture into it it should be fine yeah theoretically should be fine if that was me and i could wait until april i'll wait until april say although it should be it should be fine okay let's move on the quality of the work is dictated by the customer according to their wants and needs and this will dictate the level of quality for the project if i'm dealing with complicated architectural drawings if i have a bunch of cantilevers you know overhangs and i have a big open structure open foyer etc all that will add more to the cost what makes up cost well you got material and labor any builder will say material and labor well what about pulling a permit that costs money and the cost of supervising the project you may need an on-site trailer or several of them depending how large is the project portable toilets portage ons scaffolding freight charges bonds insurances sales tax right we have some direct and indirect cost direct is money that you spend only on the project if i got five carpenters that's labor for that project if the carpenter is on salary and he visits two three jobs in one day then we can call it indirect but if you buy material and you assign laborers and you rent a bulldozer or a backhoe and send it to that project only right all that is a direct cost subcontractor charging you money just for that job that's a direct cost the indirect cost that's for example i have a dispatcher on salary that's dispatching different workers to different jobs and i have a receptionist and i have a sales person now if it's a commission salesperson who gets me a job and i pay a commission just for that job we can call it the direct cost but if it's a sales person who sits in a model on a salary and could be selling six different houses in one month that is indirect see that safety supplies could be used on different jobs you know if i'm wearing a helmet then or goggles it could be used on different jobs office expenses secretaries buying insurance a lot of times instead of just insuring one job i have an umbrella on everything i do they call it an umbrella right so hey that's indirect we will move now in steps involved in providing an estimate the first step we need to know the plans and we need to know the specs we need to know exactly what's involved you have to pay lots of attention to details understand what your customer wants consider if they want special material and special workmanship if you remember the stucco versus the siding any time constraints time of the year time limits to finish the job late charges right if the job is not finished so on and so forth go out and take a look at the construction site if it's a house okay they want to walk out i want to see for example if the site is suitable for a walkout or do i need to do some landscape work right where's the job location how far away is it from the other jobs my home office if i have six jobs within 20 to 30 minutes from my main office and i have one more additional job that i want to take and it's two hours away that's a problem if i have a backhoe or a dozer i could share it between four or five jobs but the one that's two hours away by the time i send them out there and they need him there for an hour or two and then he comes back the whole day is gone how easy is it to get labor in that area material equipment right remember the island and how how hard it is to take everything by ferry what are the specs of the soil and water levels we have to take certain tests the soil boring test the soil bearing test we need to check the ground water what good is it to dig a basement and then i thick four feet and i have to start pumping the water out that's going to cost me money what about traffic considerations is the site accessible is the general public protected or are they going to be coming and going are there security issues am i going to have to worry about the material i lay there coming the next day and not finding it am i right are there any adjacent structures i should be worried about because if i start excavation i start work i need to give the neighbors a week's notice i'm required so who's next to me are they going to complain about the work i'm doing about the dust and about the noise and other contamination i need to check the site itself for possible contamination because i may not be able to do any work if i got toxic waste barrels you know sitting there do i have water on site gas electricity available storage available right all this you have to take into consideration how do i calculate quantities [Applause] well volume like concrete you buy it by the cubic yards excavation can be done by the cubic yard so we use volume what about area i might be like doing square feet say ceramic tile they're laying that's area length of drain tile and rebar this is calculated by the lineal feet just how long number of doors and windows we calculate that by the count of course on top of that we need to estimate labor how many hours for labor how many workers do i need and how much would i pay them this will have to be added on top of that when we do the calculations if i'm doing the area this structure is 30 feet high by 40 feet wide this is called the base this is called the height you might call it the length and width which is fine i multiply the length by the width base and height just multiply 30 times 40 or 40 times 30 that gives you 1200 square feet here this might be a small house that's 1200 square feet but if i was laying carpet in this room and i wanted that by the square yard we will divide the square feet by nine to get the number of square yards there are nine square feet in one square yard as far as volume this shape has length width and height i multiply the three dimensions 10 times 50 times 40. when i multiply it it gives me 20 000 cubic feet if i buy the concrete by the cubic yard there are 27 cubic feet in a cubic yard so i'll take the 20 000 cubic feet which is right here divide that by 27 get a calculator do it go 20 000 divide it by 27 it should give you 740 cubic yards see that we usually figure out about five percent for waste because even when i'm pouring foundation walls if you've seen it on site we vibrate the concrete you study that under under concrete and specs in builder two as you're vibrating you can see that the concrete settles because the air bubbles will escape so you should add a good five percent for waste on a state exam if they don't tell me there is waste i don't add waste i'm not being told to add waste okay so do that you know take 30 times 40 1200 on a calculator try it out because i'll be asking you to do some of that soon then you divide by nine just become friendly with the calculator you're using let's go and do another example i'm looking at this shape and they're asking me how many square feet or how many square yards 10 by 30 by 45 so what i'm doing i divided that into two shapes a and b when i multiply 10 times 30 i get 300 square feet for shape a shape a 330 times 10 300 shape b is 35 times 10 which gives me 350 square feet how did i get that well if this is 45 and this piece is 10 right this piece is 10 45 minus 10 should give me 35. so 35 times 10 350 square feet the total 300 plus 350 is 650 square feet that's the total square footage in this shape in this building combination a and b if i'm buying carpet and i'm buying it by the square foot no problem i got 650 times 10 dollars or five dollars whatever for the carpet if i'm buying carpet for example by the square yard i divide i go 650 divided by 9 because we have 9 square feet in a square yard so i go 650 divided by 9 and that gives me 72.22 square yards of carpet so if you're buying the supplies in square feet wonderful you know could be ceramic tile whatever if you're buying it by the square yard just divide by nine okay now you can put this on still and you can do it yourself on the calculator just make sure you get the right answer along with me here is another example and this is a three-dimensional let's say it's a concrete wall and it's 15 feet high six inches thick 4 feet wide so it's 15 by 4 by 6 inches how many cubic feet and how many cubic yards does it have well i multiply 15 times 4 times 6 inches you cannot go 6 you have to go 0.5 because when i give you inches whether 4 inches or 6 inches always divide by 12. so 6 divided by 12 is 0.5 therefore i multiply 15 times 4 times 0.5 it gives me 30 cubic feet so if you're buying concrete well they sell it to you by the cubic yard but if you're looking after cubic feet be my guest you got it but if you need to buy per cupid yard then you go 30 divided by 27 because there's 27 cubic feet in one cubic yard you get a little bit more than one cubic yard so this shape will take a little bit more than one cubic yard all right what if this was four inches well then we would go four inches divided by twelve we will go 15 times four times 4 divided by 12. you can try that instead of 4 divided by 12 equals 0.3333 you can go 15 times 4 times 4 divided by 12. i'll give you the same result okay just remember when it's inches you have to turn them into feet so this is a foot this will be a foot this will be a foot but this will be 0.5 this next example is asking me to estimate the cost to paint a room the dimensions is 20 by 30 by 10 feet high i'd like you to subtract two doors three by seven and two windows that are eight by four a gallon of paint covers 250 square feet it costs 45 dollars plus tax per gallon and 25 cents per square foot for labor of course you got four walls twenty foot thirty feet twenty feet and thirty feet again front back right left i added up to a hundred foot long as if though it's one wall that's a hundred feet times 10 feet high i have a thousand square feet to paint as far as walls i'll subtract the windows on the doors a little bit later on the ceiling 20 by 30 which is 600 square feet so um i'm going to come down here 1000 square feet worth of walls plus 600 for the ceiling minus the two doors minus the two windows it gives me 1494. i divide that by 250 it gives me six gallons of paint at 45 adding tax is 286 and 20 cents and the 14.94 at 25 cents for labor is 373. i add it together and it gives me a total of 659 the markup is up to you you can mark it up 50 you can tell them a thousand dollars see as long as you do not underestimate you're okay when you add sales tax right here i multiplied by 1.06 because sales tax is six percent on the basic calculator there is a feature when you go six times 45 which is 270 you can add you can go plus six and you hit the percentage key there is a button percentage key and i'll give you the same result which is easier to do let's move on in this section we will talk about construction contracts liability and risk management a contract is a legally binding agreement between two or more people or companies to do something or not to do something the construction contract talks about putting an addition on a house building a family room building a brand new home like that and the contract must be in writing according to the statue of frauds otherwise a court of law will not enforce it if for example a homeowner agreed to give you fifteen thousand dollars to build a garage and that was verbal not in writing and later she gave you twelve thousand you're not breaking the law by accepting twelve thousand it's not illegal yeah but it's unenforceable okay so that's the difference between legal and illegal versus enforceable if you went to court you could not hold her to that fifteen thousand you can bring a witness with you and still the judge will say that according to the statue of frauds your contract should have been in writing if she's giving you twelve thousand just take it and be quiet i cannot help you statue of limitations sets a deadline time deadline to enforce your rights under the contract we discussed the construction lien we said you have 90 days to record a lien after finishing the job that is statue of limitations once the lien is recorded you have one year to go to court and start foreclosure that's another statue of limitations here is a real life example one of the real estate agents told us a story how he wanted to close a deal and the title company said there is a four thousand dollar construction lien on this house but it's 11 and a half months old in two more weeks the lien will expire we will agree to close the deal if the seller takes four thousand dollars and sets it aside at an escrow fund with the title company we'll give it 15 days let the statute of limitations expire then the lien is expired means nothing anymore we'll give him his money back but if the builder did go to court we're not going to go tell him to go to court no it's up to the builder but if he goes to court within the next fifteen days then we'll give it to him the four thousand what happened was they waited the fifteen days and the builder forgot all about it he did not go to court his lien expired maybe he was assuming that his lien will be good for many years he did not know about the statue they gave it an extra 15 days so they waited a year and two weeks they went ahead and sent a check back to the seller who sold the house for 4 thousand he was lucky that the builder did not take action so the statue of limitations is no joke essentials of a valid contract we're talking in general you could make an offer to buy a vacant lot so you could build the house someone can come and make an offer on a spec home that you build or it can just be a construction contract agreeing to build so what makes a contract first of all we need to have offer and acceptance also known as mutual assent or meeting in the minds of the minds in the minds that's acceptable when i make you an offer i'm going to put certain details that you need to understand and agree with me 100 percent both of us have to agree 100 if you don't like something about my proposal you could send me a counter offer but if you don't send me the counter offer and you still don't like my proposal then you reject it either reject it or send me a counter offer once you've accepted my offer and i'm notified that you've accepted we have meeting of the minds see the acceptance has to be communicated typically if i'm going to build the deck for someone for eighteen thousand dollars i make her a proposal she signs i sign we have meeting in the minds if she wants to make changes that's fine as well that's the most important part you really need to know for your exam let's move on an offer may be contingent so i will buy your spec home if the bank gives me a mortgage to buy it if not i want my deposit refunded so a lot of times people put a down payment or a deposit but they reserve the right to get it back if things don't work out for them this is uh usually the case when you're trying to buy something or sell something as for the construction contract it may come up with conditions as well time is of the essence that's when they tell you that the contract time is not flexible you have to finish this job by october 10. after that you pay me 500 a day penalty that means time is set in stone in the contract we have to have valuable consideration which means i'm going to offer the homeowner my services labor material and they offer me back money we exchange valuable consideration that's what's called the bilateral contract that's when both of us have signed and both of us have agreed and that will make it a binding agreement on both of us legal capacity means you should not be signing with someone who's below the legal age of 18 or who might be temporarily insane like they're high on drugs they're drinking alcohol you shouldn't be signing with them legal objective means you cannot contract to break the law then call upon the law to enforce the contract he's a drug dealer and he's asking you to build them a place to hide his drugs well then can you go to court and say your honor i built that place and he's hiding his drugs now but he did not pay me in full how can you do that you're breaking the law okay in a construction contract you're going to have drawings specifications we call them specs and other conditions in the setup plans there will be many plans needed to build a house or an addition to the house if it's just a deck you're building or some brick paving you're doing there'll be less plans and less specs needed usually plans and drawings are built to scale and they show you different portions of the structure as you'll see later we're talking about a floor plan elevations sections lots of different plans that we when we put them together we call them the set of plants the builder starts by looking at the elevation to see what kind of house he's building one story two stories then they will extend their search or their investigation of what they're supposed to be doing and they start looking at the set of plans your trades people if he's an electrician he's going to look at the electrical the plumber looks at the plumbing portion of the plants the heating air conditioning contractor looks at that portion as well you take it to the lumber dealer and he's calculating how much lumber you need he looks at the other portion of the plans that has to do with framing and so on what do you see in a set of plans well i'm going to be seeing here the plot plan foundation plan or basement the floor plan other drawings mechanical systems elevations sections other details you can buy stock plans ready to go five hundred dollars i'll give you a set of plans designed by an engineer but of course they have sold hundreds of it so you may find houses like this one built here in michigan or in other states but that's not bad because you can build a spec home without the interference of the purchaser house is finished they just come and buy it a lot of builders like to do that the scale here for the plants it's usually a quarter inch scale which means a quarter inches worth a one actual foot therefore a ten foot wall i will take uh 10 divided by four because it's a quarter it'll be two and a half inches long okay if i need more detail sure why not i can use a one inch is equal to one foot this will be four times as large the common types of drawings i have the architectural drawings of course it includes interior and exterior elevations room sizes hallways utility areas closet space sectional drawings detailed drawings okay if the job is really complicated if i'm going to build the high rise well we don't get involved in that as residential builders but they will get a civil engineer involved a structural engineer involved hey you might be building a 20 000 square foot mansion you're going to need to calculate these things but let the engineers handle it you got floor and foundation plans which involves details about the basement you got plumbing fixtures shown very well on the floor plans you're looking at a floor plan but you see plumbing fixtures you see appliances you see the refrigerator they point to a stove and so on and so forth the foundation plan is similar to the floor plan but they address the basement area it shows you the footings for example underneath the basement wall it will look like a dotted line dashed line because that's the symbol when you study drawings anything that is not shown to you but is supposed to be there will be a dashed line like if i have a table and i'm putting my phone my cell phone underneath but i want you to know there is something that looks like a cell phone i will show it as dotted lines that means you're not supposed to see it it's not sitting on top of the table when you look it's really behind the table so the footing which is about twice the width of the wall itself the basement wall will be a dashed line elevations also will be shown the drawings are scaled and various elevations shows you different directions the north the south elevation east west elevation and so on in this uh course we're not ready to study plans in detail that will be coming up in builder too and we give you a copy of the modern carpentry book and there is a section on drawings and you got an electronic copy you can zoom in you could really study the drawings zoom in to 200 percent and see it on the screen you could really study it easier than the actual book even an actual book i need a magnifying glass an electronic copy i can zoom in right there on the screen see that i'm just talking in general what would a builder see when you're signing a contract you got those different plans we're talking very briefly now the framing plan will show you the size of each structural member how many and where is it located different plans will be drawn for the floor versus the ceiling the wall the roof whether you have rafters whether you're going to use trusses and so on okay chimneys windows doors all that will be shown you'll know when you sign the contract you'll know what you're getting yourself into you'll see section drawings detailed drawings important information about the size what type of material how is everything held together how is it fastened okay all that stuff you're going to see section drawings including walls windows door frames footings foundations get everything because when you price the job you cannot afford to go back and say i did not know that this thing existed you're going to have mechanical drawings including plumbing heating air conditioning you're going to have electrical you're going to get a list of material and i'll show you a sample we also call it the bill or the lumber list or the mill list another part of the material will show you a schedule for the doors and windows how many what type what's required all that this is a sample a material list here how many face bricks do i need how many common bricks do i need what about how many cubic yards of concrete do i need you see do i need steel how many beams this is the lumber see first floor joists and headers all that stuff that's under the material list window and door schedule how many windows and how many doors those are all the doors those are the windows the quantity what kind say everything is here take a look at it take a minute to look at it see here's this door by fold what type of door is it a pocket door here it's a garage door and these are the details on the garage door and so on if you have a change in plans even if it's the color of the formica you need to have a change order the changes could be minor it's okay i'll do a change order i don't need an architect to change the formica from green to blue i need the contractor and the owner to sign that because later she'll say that's not the type of blue i meant okay if it's a complicated change then i need to go back and get more sketches drawn by the architect or maybe we need a structural engineer depending on how complicated things are specifications we're talking about what does it include well they're going to i'll show you a sample on the next couple of slides but we're going to have general requirements the excavation will be addressed masonry and concrete work sheet metal work and so on everything will be in there electrical work plumbing heating landscaping everything in the specs you have to understand the specs because you're going to price the job accordingly the quality everything will be controlled here under each heading we're going to show the scope of work what are you going to do labor is it labor and material you're going to show besides the spec of the scope of work specification of material what type of material what type of quality okay method and procedure of application of material what kind of guarantee of quality see and uh good specs are extremely valuable to you as a contractor as an estimator as a trade okay they may include information regarding building permits contract payment provisions insurance bonding and so on this is a sample of specs carpentry mill work general conditions you see scope of work the rough lumber crowns unblocking doors all that stuff see down to you have to do caulking wood paneling everything that is required is written there we deal with different contract types in this business there is a lump sum contract which means that i would give the homeowner one price to do the job i have to be extremely careful and i need to receive the job drawings and specs because if i give a price and they come back and want other things and it's ambiguous we're not sure what they wanted in the first place i could lose money even if i'm building an entire house and i tell them 350 000 there'll be a lot of items that i can only give him an allowance 500 per chandelier 40 per square foot for granite you want to choose granted that's fifty dollars be my guest you pay the difference very careful you need to know the specs you need to know the details because you're going to give one price that's called the lump sum the cost plus fee contract when the homeowner says you're making too much money you're building me a seven hundred thousand dollar home and i'm sure it only cost you half as much i tell them okay why don't you pay for the material and labor cost and pay me an additional percentage to supervise that's called the cost plus i want 15 homeowner says there's no way you're only making 15 i heard contractors double or triple the cost of material and labor and i tell them well just pay me 15 i hope that makes you happy see that this way we can go back and forth and make all the changes they need it does not bother me you don't like the granite you want me to redo it i'm getting 15 on the old granite that we took out and the new granite that we're installing does not hurt my feelings you're happy i'm happy and i'm guaranteed i couldn't make more than fifteen percent sometimes the builder says i shoot for twenty five percent here you're limited 15 but you're guaranteed the 15 you couldn't make more but you guaranteed the 15 you cannot lose another way to price the job is cost plus variable fee homeowner says we're shooting for a cost of six hundred thousand but what if it goes up to a million i could say something like you know i want fifteen percent up to six hundred thousand anything above six hundred thousand i'll charge you maybe ten percent if the cost goes up you can do that the contract should spell out which cost will be reimbursed out of fairness to the customer because the builder might say so a part of my cost that i will get reimbursed for is if i fill up my truck with gasoline to go to the job isn't that cost you tell them no that's a part of your 15 supervision oh i pay a salary to my receptionist or my dispatcher in the company isn't that a part of her salary goes towards the job not really it should be a part of your 15 so the contract has to spell things out and usually in these cases the contractor is advised not to spend his own money for labor and material to be reimbursed although that is possible i prefer to see the customer pay for everything and then pay me my 15 or the other way as i said we could buy the material and they will reimburse us plus 15 percent but if you're going to spend all your money then you have a cost of the money itself you may have to go get a construction loan and there is interest on the money say that so i prefer if the customer pays for all the material and the labor and then pay me my 15 all that will have to be addressed in the contract you could do a cost plus fixed fee so i'll build your house for about six hundred thousand i want fifty thousand dollars to do it that's it if the cost is only five hundred thousand four hundred and seventy five thousand if it goes up to 650 000 makes no difference i want 50 000 again i'll let the customer pay for everything the material the labor because i'm getting my 50 000. okay this is still a cost plus but you're just telling him up front what you will be charging without a percentage there is another setup that's known as a guaranteed maximum price contract this is a cost plus but you guarantee that the house will not cost more than 700 000 no matter what here the customer gets the best of both worlds and you have to be extremely careful because if you're not cautious if you don't know all the job details what if the job costs 735 000 that 35 000 comes out of your profit say so i hesitate in giving somebody a definite maximum i would rather give them a variable fee i would rather give him a fixed fee than giving him a charge of 15 but i guarantee you will not go up more than so much yeah but it's out there some contractors do it the general rule both contractor and customer have to stick and adhere to plans and specs okay because if any of the parties try to make changes on the zone and that is not the color i wanted that is not the quality of granite i want it see that's where the problems will start so um for example if you're going to do a guaranteed maximum price method oh that's very very dangerous and a lot of the changes may not be you know paid to you unreimbursable cost that's the last thing you would want to know or do you can price the job sometimes under the unit price contract that's when you don't have a good vision as to what you're required to do this gas station has been shut down by the department of environmental quality because their gas tanks are leaking i ask you to excavate you tell me i charge you by the cubic yard of excavation because we don't know how much excavation is required we're going to excavate and you keep taking soil samples to test it at the lab until you get to a point where the ground is not contaminated anymore how many cubic yards do you need customer says i'm not sure okay then it's a hundred and fifty dollars per cubic yard to excavate haul it away and dispose of it in a toxic waste dump site if you end up needing 500 cubic yards it'll cost you 75 000 if you only need 100 yards it'll cost you 15 000 and so on we talk about contract administration and we touch on risk management under risk management there's something called indemnification in a contract indemnification means to hold the parties harmless this can serve the customer or the contractor it requires you to compensate the other party for any losses that were the result of your action for example i'm doing work on your house we're spray painting and a third party let's say the neighbor came forward and said the paint fell on my car then i have to protect the homeowner compensate hold the homeowner harmless you might tell me what about insurance yeah that's one way to get compensation i'm fully insured homeowner doesn't have to worry not everything is paid by insurance there could be payments of lien claims i may have had a dispute with one of my subcontractors and failed to pay him and he attached a lien to the property i am responsible to resolve this issue why should the homeowner who's paid me a full face a lien payments to other people while an engineer an architect surveyor appraiser those people cannot put a lien but they're still making claims for payments if i have a dispute with them i have to resolve it and hold the customer harmless payment of government citations i might be penalized by the state for something that has to do possibly violation of osha or miosha right safety laws they find you violation of code violation of labor laws and so on the homeowner does not have to worry about that payment for time delay okay there are two ways that a contractor will pay the homeowner liquidated damages or actual damages actual damages means you delayed the project 15 days it cost me half a million dollars because of your delay you owe me that much that's actual liquidated damages no we don't calculate what's actual we simply decide on this ahead of time every day that the project is late i owe you five hundred dollars if it only meant ten dollars a day lost to the customer it doesn't matter i'll still pay 500 and if it meant 10 000 dollars a day it doesn't matter i'll pay 500. we agreed on liquidated damages that's predetermined in advance this is different actual means we'll just have to calculate the amount of loss and reimburse the customer that much usually we use liquidated damages we may add a force measure clause this protects the party against obligation under action of other people or act of nature act of man that's beyond my control and if that happened then i like the builder the contractor i'm not responsible so if because of rain i was delayed 10 days that's an act of nature i will not owe you a late charge for those 10 days the clause is usually inserted for the protection of the contractor it might be inserted for the protection of the customer as well if the customer was not able to turn the project over to me for another month because of an act of nature or an act of a third body i cannot complain that you're delaying my work i have other projects that are starting right he'll say that's out of my hands i'm sorry see it could protect either side the construction contract need to address how the payments will be handled between the contractor and the customer the mechanism for invoicing once i give you an invoice how many days do you have to pay me see that for the draw sometimes the customer agrees to pay me in advance we give you 10 000 you get started you give us ten thousand dollars worth of work and material we give you another ten thousand now this is a good way to do business but sometimes the customer is concerned with paying the money in advance which is legitimate if he hasn't dealt with me before my suggestion would be that the customer can open up an account with the place where he's going to buy material from the department store lowe's home depot the lumber yard give them a credit card or something and have the material shipped directly to the job location i can get started with labor after two or three days worth of work they're going to owe me for labor that's not as bad as me spending my money for material as well and then they're going to owe me for the whole amount a lot of homeowners don't mind that they got the money they just want to make sure the money is not going to waste so you tell them have the department store send the shingles directly to your house so now you're paying in advance as far as labor either give me some money or don't let me get started then pay me for labor this way i can handle it and you can handle it another way they pay me is for each phase of the project i will put the foundation you owe me 25 000. i'll frame the house you owe me another 15 000. see that there could be a payment upon completion like we're building a new subdivision the builder has the financial ability to build so we can build you a house on lot number 19 give me a 25 000 deposit we'll build the house when we're done you get a mortgage borrow the money from the bank come and pay me in full see that so you'll pay me the total sum minus your deposit they do that some contractors will do it that way but they want the home buyer to pay the interest you know i'm building you a five hundred thousand dollar home the interest on it will be twenty five thousand dollars so at the end i want you to pay me the price of the house plus the interest minus the deposit i want to deposit up front thirty five thousand dollars so that's another way a homeowner needs to read the fine print there is really no fine print it's just written it's not fine it's not large print it's written in the same font size but a lot of the homeowners don't read at the end they complained that i owe an extra 25 000 nobody told me about unfortunately for the homeowner or the buyer it's already written there and if you sign it you're responsible for it they should read the contract there is always a responsibility to provide paperwork if the owner is going to pay me every time i ask for a draw or his bank may be requesting the lender requesting paperwork they want to see a sworn statement we've discussed that they want to see lien waivers conditional or unconditional they want to see inspection reports why should i pay you if the work is rejected by the building inspector responsibility for paying transfer tax that's another issue under michigan law there is a transfer tax every time you record a deed at the register of deeds office an amount is paid to the county and another amount is paid to the state the total is eight dollars and sixty cents per thousand on every hundred thousand dollars the seller will pay eight hundred and sixty dollars if you're a builder you're building a house people are buying it from you when you deed the house you're going to owe that much money if it's a five hundred thousand dollar home that you just sold them you know that's if you divide that by one thousand multiplied by eight dollars and sixty cents i'm doing it as i'm speaking hey that's a lot of money that's uh four thousand and some over four thousand dollars so um what you do in this case you have to account for that it's a part of your expense see over four thousand dollars therefore sometimes um the contractor requires the home buyer to pay it not fair to the home buyer but if he agrees to pay it the government does not mind this can be done if you write it down on the purchase agreement in the contract what some contractors have done they will deed the vacant lot at a very low cost of course the vacant lot is worth 50 or 60 000 and they'll pay the transfer tax on it then they will build the house while the home buyer owns the lot in that case the home buyer can get his own construction loan and the house will be built by the builder and there is no need to issue another deed because the deed is already recorded and the homeowner owns the vacant lot and now somebody builds a house on it so there's no need to pay the rest of the tax we calculated okay so instead of paying three hundred dollars on five hundred thousand he's only gonna pay on the fifty thousand dollar lot eight dollars and sixty cents you know that's about four hundred four hundred and thirty bucks that's about it see and that's legal to do it's been tested under michigan courts and it passed the test what about the right to stop the project under michigan law if you abandon a job without a legal excuse you violate the law and you will be disciplined as a builder but what if i do have a legal excuse my contract says that if the customer fails to pay me we can stop the job then it's legal so make sure it's written in your contract sometimes the customer wants you to stop the job listen i owe you five thousand and i'm not able to get more money please stop because if you continue to work by next month i will owe you 25 000 and i don't know if i can pay you so stop so both bodies if they agree to stop the job or if i invoice you and you don't pay me in 10 days i have the right to stop the job i cannot continue that's a part of the legal contract that we have signed so this needs to be addressed in the contract the contract risk that we're discussing here there is an issue with who drafts the contract and what does it say for example i'm the builder and i write a clause saying in the event of rain the contractor is allowed a reasonable time to stop work until the job site is dry notice we said reasonable time now if the customer and his architect says you cannot wait eight days after the rain that's too long well i said reasonable and i think eight days is reasonable if this goes to court or to arbitration the judge is going to see who drafted the contract if the builder drafted the contract they might suspect that you did this on purpose to give yourself extra time as you please but if the customer or his attorney drafted the contract the judge might lean towards you and say you gave him reasonable time you did not tell him how long and if he feels this is reasonable what's the problem what you should have done you should have told him for every rainy day he's got three extra days for the ground to dry why you say reasonable see that so of course eight days might be too long it might be an exaggeration you might wait four days and they could say to you isn't that too long and you tell them not really that's reasonable see the moral of the story is that when you sign a contract that's been drafted by someone else read it in detail because whoever writes the contract will write it in his own interest and that's a known fact that's why the judge will lean towards or rather will lean against the drafter in favor of the opposite party he will tell you you drafted it why didn't you say it specifically you cannot stand in front of a judge and say well you know what i meant you cannot say you know what i meant or you know what i mean specify it if you are drafting the contract for yourself make sure you have a really good contract and if people sign it that's fine but i'll bet it's written in your best interest because you're the one who drafted it you or your attorney again contracts written by the customer must be carefully reviewed if you sign a contract you are bound by it there is no excuse you cannot sign and say i did not read it seek legal advice before you sign the contract here's a few points to follow know what's in your contract there are builders who ask the customer to sign a contract later find out that there were clauses that served the customer did not serve the builder now that's not that's not good know your rights and obligations and the contract seek expert advice go online read a few construction contracts published by different companies learn from it look at things that they talk about that maybe you never thought could happen to you then if you're going to use a contract there are services usually legal firms that will license their contracts to you and you can use it ready to go drafted by an attorney and you can add clauses to the contract see that like the idea of the right to stop the project i don't think or maybe a lot of these so-called pre-printed contracts or forms may not address the issue but you're in michigan and if you stop the job you could be disciplined so i need to add that to it things that you pick up from here and there ideas added to the contract to protect you if you're going to make a claim for your money if you're going to go to court so on you need to document everything any changes in the signed contract any amendments or change orders must be clearly stated and it's required under michigan law otherwise you won't have a leg to stand on try to minimize your risk some work you do is less risky you know laying ceramic tile is not the same as digging a trench you hear people getting killed when a trench that's not supported collapses and kills them i haven't heard of too many people laying ceramic and killing themselves either way there are rules to follow no matter what you're doing you'll be studying miosha michigan occupational safety and health administration rules insist that every one of your workers and contractors they everybody follows miosha the goggles the steel boots when necessary the helmets the gloves no long hair don't fill up gas in an in in a running engine things like that you'll be studying all that make sure you have plenty of insurance no matter how careful you are construction business is very risky and there are no guarantees you could set up the scaffolding properly the guy's got a helmet goggles teal toe shoes he's wearing a bulletproof but he could trip and fall down and get hurt see that good insurance is a must it's always good to avoid litigation because litigation attorneys is very costly it might very well cost you more than the award the amount of loss that you're fighting michigan allows you to arbitrate in front of a third body all you have to do is sign an arbitration agreement and it's binding if you put that in the construction contract the customer cannot take you to court both of you will go in front of an arbitrator arbitrate and the result is final if you don't like the result too bad but the cost is very low compared to the cost of litigation state of michigan says if a customer files a complaint you have 90 days to comply with arbitration and if you do we will not investigate you because we'll consider the matter closed arbitrator wanted you to do certain things to make the customer happy and you did it that's enough okay even if you don't mention the arbitration in the contract and somebody wants to go to court you can still invite him to arbitration and see if they would agree to that and expedite the solving of the problem protect your personal assets if you operate as larry adams builder and a lawsuit comes against the company then your personal assets are at risk and you may own a backhoe a bulldozer money in the bank property you lose all that but if you operate as an entity such as a corporation or an llc the lawsuit will have to go against the entity not against you personally and the entity may have very limited assets what do you have in your office as a builder or construction company you may have some tools you may have some furniture in the office a computer and a copier that needs toner say you form the corporation or the llc and you become the qualifying officer the entity will not protect you if you're not being sincere in your operation if you are grossly negligent by getting a handyman to install a furnace hoping that he will do a good job you're not protected personally if you know that you're violating miosha and the code and you don't care you want to make a profit that will not protect you personally if you go to sign for a construction loan and you give him a personal guarantee you give the lender a guarantee then corporation and you both of you are liable in all these cases that i discussed both of you are liable but if you're acting in good faith and an accident happens then yes you need to discuss this with your attorney in this chapter we talk about project management and scheduling the different jobs the definition of a construction manager is someone who coordinates the project from very early in the planning stages until completion large companies will employ different individuals to oversee the projects many specialized individuals will be needed people go to school universities to get degrees and so on a small company on the other hand when you look at yourself as a builder and you have a company that consists of you only then you're the manager and you're the estimator you're the engineer you're the surveyor you're everybody and of course there is no substitute for hiring the right people to help you if you do need a surveyor by all means hire a surveyor but when you're laying brick paving you go get your own level you check the height and you decide how much to fill as far as leveling that patio in the back of the house so you'll be doing everything yourself you don't have another layout engineer to come and help you as a project manager i'm involved in soliciting bits because to estimate the job i need to know which subcontractor and which supplier will be backing me up either way soliciting bids signing contracts with the right people is a very strong management practice because you'll have people on standby when you get the job when you get started you know 100 percent that those subs and those suppliers will be there on standby to do the job nobody will apologize and i picked up two more jobs i'm sorry i cannot do it no such thing when we get involved in bidding the solicitation of bidding we do have open bidding and we have closed bidding open bidding is when we invite everyone to bid the city will invite builders to come and give them a prize on building that many houses or on doing a school or a commercial building closed bidding invites certain contractors only that's when the job is sensitive maybe government is building some sensitive installations they don't want everybody to see the specs and the plans so they invite certain companies or even a private residential contractor might say i only trust those three contractors to do my work i don't want to deal with anybody else and i will only invite those three to bid for me that's possible as well we also have sealed bits or unsealed the sealed bit would arrive to the owner and the example here is building 50 houses for the city they have a certain date and time to open the bids no one knows what's in it and the lowest bit is the winning bid the unsealed bid is different i call a bunch of contractors i need a roof on this house and they say one guy says fourteen thousand one guy says twelve thousand we can even do a price war go back and forth and tell the guy i like your work but you said fourteen can you match twelve i'll give it to you instead see so sealed bits versus unsealed how do we select the bit how do we choose someone first of all we could go strictly by low bid basis i know the job it's a basement 30 feet by 40 feet 10 inches thick foundation could be a 10 foot high basement i tell two or three contractors that i know and they give me a price and i go with the lowest bid that's it i'm buying concrete at a certain mix six-pack mix let's say you know the one two uh four mix and uh how much one company says a hundred and twenty dollars per cubic yard someone says 125 i'll go with the 120. that's it nothing too fancy about it another way to select a bid is with the best value selection if i have a basement and i'm approached by two contractors but one does a better job i've used him before he's done hundreds of basements the other guy is okay but not as good as the first one so i may choose to pay a little extra because he's more qualified say that so we call that the best value selection you can choose by qualification only i cannot find someone to lay stucco the right way and i found one i'm not going to argue about the price i'll just pay it and get what i want i need to drive piles into the ground for that big home on the water and you know what especially if i'm uh working on cost plus basis i'll tell the homeowner this company i found i couldn't find too many companies to do this type of work they're going to charge x amount of dollars i suggest we go with them let's not uh you know fool around with this professional company they do big jobs and your house will be you know as uh strong as a tank that's it we're done see so it just goes strictly by qualifications as a project manager not only you oversee the design and the specs and the estimates and the bid solicitation you have to manage as you go managing cost we need to break the job down and don't wait until the end of the job to decide that you're losing money break it down into phases i'm supposed to spend twenty five thousand dollars on the foundation and i spend twenty two that's good i want to stay at or below the initial estimate see that um i go to phase two and it's costing me too much now if the foundation cost me too much i went over i know i'm running behind on my budget then the framing i have to squeeze the cost maybe i will frame it myself i wasn't planning to do it i wanted to subcontract it but you know what i'm gonna do it myself and save money because i wasted money when i was doing the foundation so all that is a part of managing cost breaking the project down into phases and monitoring the cost on every phase we manage time well-established business rule time is money even if there is no late charges it shouldn't take you a year or year and a half to build the house when you could have built four houses of the same size and cost during those 18 months manage your time watch the different phases of the job if it's going to take you supposedly 10 days for the foundation it shouldn't take you 15 then if you went up five extra days then you have to hurry up and finish the next phase and so on okay whenever you waste time again don't wait six months or eight months and say i plan to finish the building the house in eight months i'm only done seventy percent oops no you should have monitored yourself as you go we tell the student when they take the builder exam same story you have 150 questions don't wait until you have 10 minutes left and then oops i got 25 questions to go no you monitor yourself as you go i have a minute and a half per question this math problem shouldn't take me 10 minutes if it's going to take me 10 minutes no way i'll skip it i'll go to another problem because if i go spend 10 minutes per question i'll never get done i'll fail for sure every step of the way i monitor myself when you take the job know your financial ability do you have the staff to do it do you have the experience to do it do not bite more than you can chew what is the bar chart we have a sketch that outlines the different activities and how long it should take time-wise let me show you an example this is an example of a bar chart i'm starting the job with site cleanup and prep i'm saying it should take me three days one two three in week number one installing footing should come right after that and it should take me three more days notice i have a five day week i figured day six and seven the weekend will cost me time and a half maybe i wouldn't do it the basement should take me from day eight you know i gave myself an extra open day i'm not doing anything here just in case that the footing takes too long i have six days one two three four five six see that during that time when i'm doing the footing during the same time i'm installing the water and the sewer i'm tapping into the system framing is taking me maybe seven days you follow that's called the bar chart this information here is explaining what you would conclude from this chart okay you could have a question on the exam i could draw this for you and i'll tell you which of the following is not true cleanup takes three days that's true footing three days that's true the water installation and the sewer is taking place at the same time that the footing is being installed true at the same time then i will tell you like the framing is taking 15 days no it's not taking 15 days it's only seven days supposed to take that statement is not true see that as a project manager i need to manage quality this is controlled by the specifications that they give me which is fine i have to at least meet the code high quality work means repeated business for me less problems headaches less warranty work less complaints with the state and with the lawsuits no lawsuits and no disciplinary action if i manage quality and monitor and make sure i'm doing a good job extremely important part of my management will be safety what good is it if the job is going well and somebody got hurt injured or even died make sure everyone observes safety rules you'll be studying miosha and make sure that everyone follows through even these subcontractors who tell you that they're independent contractors that doesn't mean i couldn't talk to them you're an independent contractor you're insured right i'm assured you're insured it's not about insurance it's about somebody getting killed here so please i want you to follow safety rules operation of equipment scaffolding hazardous chemicals there is a lot more than that you'll be studying okay let's move on contract administration that we already talked about is also supervised by the project manager we have a deal going on with the customer at the same time i have a deal involving my subcontractor my laborers my suppliers so who's above me the customer and his architect who's below me these guys so we need to coordinate all the time permits change orders inspection reports payroll all that managing the contract means you make sure that you deliver what you promised at the price at the quality at the right specs everything is going smooth there will be different people hired in large projects to help manage the entire construction operation where the manager will delegate down to the other people in a small construction company it's the builder who finds himself or herself performing some or all of the tasks hands on as you'll see next in the large project there could be a project coordinator who oversees the construction process cost of labor material other expenditures the budget is monitored help to solve problems and work around unforeseen delays may have to reschedule different tasks may have to estimate and order supplies and deal with paperwork and workers payroll change orders construction draws soliciting bids and so on this is known as the project coordinator it doesn't mean that the work couldn't be done by the project engineer for example it all depends how big of an outfit are we dealing with and who do they involve in there building a 350 home subdivision is not the same as building an addition on a house two different operations but you as a residential builder have to have an idea about everything again in a large project there will be a special field or layout engineer and this individual his job is kind of similar to what a surveyor does you see him looking through a level or a transit but his job is to lay out the boundary lines and different elevations of the structure itself what a surveyor does the surveyor is looking through a level or a transit to lay out the boundary of the parcel of land but the layout engineer does a lot more work because he's there every day you're doing excavation you want to know how deep to excavate you're laying the forms for the concrete you want to know where to stop okay how high should it be so everything is done by the layout engineer you could end up with an office engineer they'll oversee the plans the specs contract changes they solicit bids they monitor workers attendance and you know they're absent what about the subs are they showing up to work are they finishing on time their performance payroll project budget procures suppliers and equipment monitors cost expenses request draws all right another position we find is the quantity surveyor involved in the cost such as cost planning risk management dispute resolution protection of assets cost management and overruns contract administration see they do that as well insurance claims this is all done by the quantity surveyor see the luxury you have when you have a big operation versus one contractor who is the builder who carries the hammer in his hand and he's doing everything at the same time you could have a project engineer who acts as a go-between the project manager and the technical staff involved in design developing different portions of the project his job may overlap with its description with the project coordinator with the office engineer with the quantity surveyor and so on you can have a special contract administrator helps the project manager as well as helping the superintendent with different details of the contract such as quality and spec control following specs bidding issues negotiations with different uh labor organizations and subs inspection reports any contract violations liability issues handling the purchasing and other expenses requesting draws all that can be done by the contract administrator if they have a separate individual for that a superintendent for a large project will be extremely helpful everyone works for the superintendent and listens to that individual i used to be a layout engineer back in the 70s and i listened to my superintendent when i go to work he says today i want you to lay out this portion of the building i want you to help them with the excavation and they're going to start doing some forms as well i want you to show them the exact levels see i get my instructions day by day from my superintendent so the even the project manager may have to work hand in hand with the superintendent the project engineer the layout engineer that was me the subcontractors everybody the superintendent keeps track of material equipment supplies hey we need a crane i go to him i say we're going to need a crane he says okay it'll be in next monday like that handles disputes he has to be really good with everyone he has to develop a good relationship with everybody you know i could be an engineer and no one likes me fine the project will still go through but if the superintendent could not communicate with all of us it'll be a problem substantial completion is achieved when the customer says this is it that's what i'm looking for i'm happy i'd like to move in that's substantial completion we might make him sign a statement to that effect so they don't come back and say that's not what i wanted we need to do a final inspection and a certificate of occupancy to be issued by the building inspector some localities may give you a temporary certificate others will insist on giving you a permanent certificate from the beginning they don't give a temporary you tell them the conditions are safe you can give us a temporary they say no finish up and i'll give you one at the end others will give you a temporary and they'll cite certain conditions to be met then they come back and give you the permanent depends i have a couple math problems for you on project management let's say you have a nine month project i want you to determine the cost you have a manager that makes seventy eight thousand a year well seven eight thousand a year divided by twelve months times nine months is fifty eight thousand nine hundred that is the cost for nine months what i'm paying my manager i have the electric hookup 1000 bucks flat electric bill at a hundred dollars a month will be nine hundred the water bill's seventy five dollars at nine months is six seventy five the cost of material is three hundred and fifty i add everything comes up to be four hundred and eleven dollars and seventy five oh seven five four eleven seven five right there c the answer should be c that's how you calculate if you're managing the cost in this problem i'm purchasing material 200 studs at four dollars with a five percent discount 300 drafters at eight dollars and so on try to do this yourself do the multiplications and the discounting and then you'll see that the answer will be in this case b on a basic calculator and i'll show you a video on how to do it you can multiply 200 times 4 then hit minus 5 then hit the percentage key i'll give you 760. you don't have to go 200 times 4 then multiply multiplied by 0.05 and then subtracted i can give you a shortcut watch the video that's coming up using the figures also below i want you to monitor this project from the time you estimated until the time you actually did it and tell me how you did i have these three items i estimated for 25.5 and the actual here i say 500. the electrical was over by 500 and excavation and basement was a little bit extra so i estimated a total of 25.5 the actual came up to be 27. so is the job on budget no how about 1500 over budget yes that's the right answer this chart or irs table helps you determine the amount of taxes that must be deducted from your workers and you notice here it says at least so much but not to exceed so much and then the person will claim how many dependents does he have 4 5 6 7 8 and so on i will show you another part of it on the next screen [Music] so this is for married person okay and let's say he was making between thirteen hundred and forty and thirteen fifty at least thirteen forty but not less than 1350. if his gross pay that week it's weekly all right it's weekly if his gross pay was between 1340 and 1350 the amount of the deduction is shown here if he shows zero dependence you deduct 168. if he shows four dependents what do you deduct you see between 1340 and 1350 that's zero dependent one two three four so you deduct 126. that's for four dependents it's 126 because that's the line okay that we follow between thirteen forty and thirteen fifty what if his income was uh in one week he made thirteen ninety five then i go here between thirteen ninety and fourteen hundred may 1395 and he's got two dependents for example and he made 1395 for two dependents that will be right this one 13 153 153 dollars will be deducted had he had or had he claimed for dependents it wouldn't be 153 it will be 134 less okay and that's because the guy's making 13.95 so it's anywhere from 1390 to 1400. what if he made 1400 still be the same it'll be 153. what if you only made 1390 it will be the same 153. what if he made 1389 then he's here between 1380 to 1390 and the two dependents see that it'll be 151 because he made a little bit less money that's how you figure out when you have a table on the exam that's what you do you figure out what the guy is making for the week they'll tell you he made 25 dollars an hour he worked 40 weeks or he worked 50 weeks so the extra 10 hours will be time and a half see then you go to the table how many dependents and you'll figure out his deduction [Music] this of course i've enlarged another part of the table same story if it's a married person of course they may give you a table for a single person or they give you a table one for married one for single but the question says he was a married taxpayer so you need to ignore the single go to the married depends how many tables they give you you may not need all of them the question talks about single then ignore the married here the question is about a married person weekly pay and it's between 740 to 750 for example say he made 742 bucks and with four dependents i will deduct 36 that's it same story all right i'm just enlarging those tables for you [Music] in this section we will study how to market our services you need to find your niche this means what would you want to do there are good and bad things about the business that we're in what's good it's easy to get into class and exam what's bad is more and more people can get into it and to a lot of the homeowners a builder is a builder you know like a doctor is a doctor my back hurts or my throat hurts he's a doctor but then there are specialists you want to be a specialist okay so finding your niche means to specialize in something that you do really well you might be a roofing contractor and you do nothing but roofs i'm not suggesting you turn down business but if you're known to be a roofing contractor you can get paid well more than the other guy who does everything because the people perceive you as a specialist okay the industry as i said is relatively easy to get into and that encourages more individuals to get in but then you have to distinguish yourself and your company a successful marketing campaign will show people why they should choose your company you need to establish identity for the company let's say you enjoy doing landscape you don't mind doing other things but you like landscape okay so you want to specialize in doing that you're good with designing flower beds brick paving retaining walls lighting ponds and waterfalls okay you start by finding out who are the key players in your area go to the website go to the phone book and see who is doing what within the area that you're interested in that will be the first step that there may be five or six landscaping companies good ones they have a good website nice ad in the yellow pages i want to know what attracts people to dealing with them if you can see what they're doing right and what they're doing wrong their weaknesses you could learn a lot some companies they're good companies but they take too much work they buy it more than they can chew they may have poor customer service their work could be overpriced people are dealing with them but they know they're paying too much if somebody did the same work for a little bit less money they might go with you see that they could have good strengths what if their customer service is excellent they have a really good salesperson who will visit the homeowner and give them a an estimate on the spot without any delay see that's a big plus a lot of builders don't get back with you they're notorious for leaving and not coming back to give you an estimate what's good maybe they offer financing i'll do the job for fifty thousand dollars but i will arrange for financing with one of the lenders or the mortgage companies i deal with you pay me 300 a month okay that's a plus see what do they offer and what's bad about them i want to know their weaknesses i want to read reviews online about this company and i'm picking up four or five companies because i'm getting ready to be one of those companies you follow the next step is to now that you're trying to improve upon your company and try to kind of follow in other successful companies footsteps i need to know how to market my service and where is my business coming from if it's all word of mouth there is no sense in spending a lot of money on yellow page advertising if it's a lot of yellow page advertising well then i know how to or why i should spend more money on the phone book i build decks okay and i send flyers i have kids that go around and deliver flyers to the homeowners and that's bringing me 95 of the business along with word of mouth people tell other people about me wonderful there is no need uh one of the people you did at deck for him he's trying to talk you into designing a website it's only going to be 12 000 you know what you're wasting your money he's talking you into it yeah because he's a web designer but you're not going to benefit because why you're getting most of your business that way however if you've been getting inquiries from customers saying i tried to look up your website i wish you had one maybe i could have you know like seen some of the samples and some of the work you've done if i'm hearing that is it you have to decide then uh maybe i do need a website in that case i want to shop it 12 000 is too much see the guy wants uh to get a free deck out of me see that and maybe i will go spend a couple thousand don't go spend 350 bucks either you know spend uh a decent amount of money and get a website because i'm hearing a lot of people saying you don't have a website how come you don't have a website you follow see what's working for you where is the business coming from and do more of that find out why people choose you and why people decide not to choose you as painful as it might be to hear people telling you why they did not choose you it's okay after a few times and after you fix the problems that you're having at your company you won't hear it again so this one customer says you know try to call you leave you a message your voicemail is full what does that teach you another customer says you visited me tuesday i did not get an estimate i had to call you several times before you gave me an estimate so i just went with someone else you don't take care of business you say i'll get back with you tomorrow and then i have to beg you to give me an estimate another individual tells you that you walked into her home your shoes was dirty okay i'm sorry about that she says well yeah just so you know well okay thank you for telling me that i lost her business yeah but next time it's not gonna happen before you know what you'll forget about these negative things it hurts to hear it of course ivalo i'll never deal with you again who wants to hear that but if i could fix the problem you see somebody else says i even compared you to someone else i gave you the estimate that i got from another company you did not even bother to reduce your price or to at least justify why are you charging me more maybe i would have paid you more had you shown me the quality was better but she did not even bother you know what then i don't need you so try to find out why did they hire you if somebody said i hired you because when you walked in you were driving a professional looking vehicle a van and you were looking like a real contractor to me unlike the other guys that looked miserable then i make sure i don't go to give an estimate to someone unless i'm looking great because i heard that is the reason why some people chose me you follow me keep your ears open all right using all this information find out who you are what you believe in what you do best and uh what do you offer the public and how do you want the public to see you again to be a specialist doesn't mean that if they needed a new uh driveway i would refuse to do the work i do landscape as far as the concrete work i can subcontract it once people trust you and like you they will pay you even if they felt they paid a little extra that's the price of their peace of mind their safety why because you're in charge and you're good you get back with them so what if i paid another 10 you see then you can subcontract the work like that so you need to pay attention to these things yeah just because i do roofing it doesn't mean i wouldn't take landscape work i'm always out to look looking for opportunities to subcontract work it's advisable to try to create a target market here another example i'm giving you why you need a target market i'm good with water damage and smoke damage i talked to my local insurance agent hey what happens when people call you about water or smoke damage and she says well my company handles it we refer it to the adjuster who will then he has a few contractors he deals with and we will send the contractor to take care of it unless the homeowner insists on getting their own okay can i be added to the list sure why not you follow me you always have to be ready to jump on the opportunity here again i'm telling you just one line of work i do smoke damage and water damage right i start with my agency one thing i want to tell you is when you're dealing with big companies that allow you to do their work for them whether insurance whether a general contractor who gives you subcontracting opportunities okay he's a superintendent at one of the companies he knows you and he says you know what we're building a lot of houses i need 10 driveways done when he gives it to you you have to make him look good they don't want any headaches when you do not finish the job the headache falls on the guy who hired you you'll never hear from him again if he sees you at a gas station he'll act like he doesn't know you you follow me when you do good work the people that assign you to the jobs will call you again and again because you're making them look good always remember that two major sources of business the public sector and the private sector and we deal with them differently if you're the type of person who don't mind dealing with the city don't mind having the city engineer and the inspectors there all the time to check you out you love doing this type of work because you're so confident that when the inspector shows up to the job he only shows up once and he'll give you the green tag no red tags for you you do everything by the book fine then try to approach the public sector those guys are very tough to deal with they're very hard to deal with but it can be rewarding because not too many contractors are willing to deal with the public sector and here's why you're dealing with the state of michigan with the county city okay they're required or they will require you to provide excellent insurance on everything you do and you have to be bonded that can be a problem why is it a problem to get bonded because it can cost a lot of premiums if you're not a known contractor you go to a bonding company which is an insurance company and say i want a million dollar bond you know if you're not a well-known contractor who's got money equipment labor experience know-how if you're studying right now it's going to cost you more you follow me versus somebody else whose stock is traded on wall street these guys can go take a 200 house project and build it who's worried about them they got 65 projects in michigan alone and they're working in 15 other states if i was an insurance or a bonding company same because a bond is a form of insurance obviously if that was me i'm not going to worry about you you follow me so they want bonding they want insurance of course if it's a small job then you should be able to handle it but a big multi-million dollar job you're probably going to think twice about it with these guys the lowest bid is the winning bid they don't look at you and say this guy is more sincere i will go with him and pay him a little extra if someone at the city did that he could lose his job because the public will look at the city or city council or the city engineer whoever assigned the job to you and say are you sure he's not paying you a bribe under the table why would you pay more that's taxpayers money and there is a good point in that because if i give you a set of specifications and you follow every bit of the specs then there is no need to say i do a better job i'm not looking for a better job i told you the brand name of the window this type of window this type of door you went and got it thank you install it now is it working yeah is the door knob up to standards yeah so what's a problem what do you mean you do a better job there is no better job the good job is the job that meets the specs they're very very delicate very very detailed you see that's why if you say you're going to do everything by the book then the lowest price is the winning price case closed oh yeah what if the guy takes the job and he doesn't do it oh he's bonded he doesn't stand behind his work he does not come back to fix the work warranty everything is bonded we covered that the bit bond and the performance bond right and the maintenance bond everything so they don't care you screw up you go to court they'll sue you they got lawyers sitting there on the payroll at the city yeah they don't have to go find money and sue you it's not emotional for them when they take you to court it's not emotional they'll file the lawsuit like they dial a telephone number not like a homeowner to them it's very emotional they worry about where to come up with the money to sue you you follow yeah it's a different market if you like dealing with government if you're good yes why not i'll give them insurances i'll give them bonding i will submit my estimate and i'll meet all the requirements and the specs and i'll go finish the job why not and usually you can get paid well with them why because they're tough to deal with so no nobody's gonna go and do a a brick paving job for six dollars a square foot there you cannot afford to do that they're all going to charge retail and like that usually all right let's move on decide on which agency you want to work with and register your company with them they would want possibly your resume your brochures you need some professional brochures and business cards references what have you done before they want to see proof of insurance and who do you deal with as far as bonding and all that whatever they need you register this way they notify you every time they have an opportunity plus they're required to publish advertise okay bidding opportunities are offered through their publications and they'll notify the people that register with them not every city is organized that way there are cities out there that got population of 2 000 people yeah these guys don't have this kind of mechanism but if you're living there you may want to contact city hall and say guys if you need anything i'm okay and they may not require as much as the city of detroit would require for example all right create basic marketing material as i said and show all your references your completed projects why do they care because even if i'm a city engineer i'd like to deal with you if you've got a proven track record again you're gonna make me look good at least i'll invite you to bid and i hope you win why because you give me no headaches i'm always looking good i could come and check on you twice a day and your work is 100 i don't need the headaches you know i get a nice salary i get a pension hey i don't want my supervisor to come and say why didn't you watch him why didn't you correct his work where were you when he was pouring the concrete didn't you see they did not even come back what i don't need that i don't need that okay i need people that do good work so if it was left up to me i'll give you the job and sometimes they could they have jobs that doesn't require bidding something they want to do in a hurry okay they do a cost plus on it because their plans and specs are not even ready hey just go we'll pay you as you go like that so it's always uh advisable for you to look really good to the officials at the city so when they uh they always give you the benefit of the doubt even if the mistake happens they think no no this is a professional person he probably it was just a mistake versus no this guy's so sloppy i hate him and i better be there all day just watching what he does big difference let's move on the agency may even offer public meetings the city has a new project coming up and uh you know that there is a meeting that you can attend they're inviting everybody and the engineers will talk about it this is the project coming up this is what we're planning to do very soon we will be able to offer bidding opportunities on phase one even if it's something you cannot afford why don't you go to meet the big players the large players those guys that are on wall street that deal with the city and pick up a 50 million dollar job in a heartbeat meet their engineers meet their uh project managers why because you can do subcontracting work don't underestimate the subcontracting you tell me i can do brick paving i i'm comfortable doing it for 10 or 12 dollars a square foot you don't know what they picked it up for maybe they picked it up for 16 a square foot and you can still do it and make a profit so do not estimate subcontracting opportunities you might be able to get it at a good price and small enough of a job for your company to handle all right this page emphasizes what i was just telling you big jobs that a small contractor like yourself may not be able to handle oftentimes you cannot afford to submit a bond see that and i'm i talked about all this so uh a new construction company might be able to pick up the job at a reasonable price the big players are getting paid well but they're the ones who have all the expenses and as soon as you're done they pay you and you'll have no problem i will go and do the roof on 75 houses or maybe i can't even get 75 houses done i'm too small i'll do 10. but that's 10 roofs you follow me so not a bad idea to do some subcontracting work if you are a minority health company if a woman owns the company for example and i've seen this i've seen ladies coming to class to get a license just so she could own the company with her husband and tell a government agency that this is a minority-owned company because they're required to give some of their business to minority companies or minority owned how is it different marketing to the private sector a lot of you will be dealing with the private sector residential builders working on single-family homes and small projects the private owner is not obligated to advertise and he could pick anybody he wants it's different he wants somebody who can start the job and finish it on time good quality good price no headaches if the private owner was guaranteed that she'll start and finish on time good quality and he likes the price they will not hesitate when they hesitate is because they're not sure of you and that's what you have to review with them every time you're sitting with a homeowner who's trying to decide whether to hire you or not if he knew your quality is good you'll start and finish on time and the price even if the price is slightly higher it's interesting even if the price was slightly higher but if there is no headache they'll do it a lot of people cannot handle the headache i told you if you don't do a good job for the city and they sue you no problem they'll sue you a homeowner thinks before they do that have to go to court have to get a lawyer it cost me a lot of money it does not guys not backing up his warranty what should i do can i afford to sue him what about the headaches people cannot handle it they walk into a court they start shaking you see them for a deposition forget it you know i'm saying so it's not easy therefore they're looking not to get emotionally involved there's an emotional trauma in everything you know you're remodeling the house is a mess you're not finishing the work they're going crazy if you can be reliable you can get so much business you wouldn't know what to do with it it's good if you come highly recommended it's good if you're referred by a friend of theirs because that's a good start somebody else tried you and you're good the little bit higher compensation in their mind is worth it there is a car that's cheap but it breaks down a lot i'm gonna buy a cadillac and relax that's the whole idea but if i bought a cadillac and it's a piece of junk if i buy a cadillac and i have to go to the dealer every month then i'm sorry i did you want to be the cadillac and you want to come through so they're not sorry they hired you contractor must always communicate with the private owner when you get the job if there is a delay you call her we're going to have a delay she could be mad at you it's okay two minutes later she'll appreciate that you did in fact call her and you are reliable you understand unlike the public sector the private sector is not required to publish their future projects so you need to make some connections all right because you wouldn't know about the job unless you have connections and advertising and that kind of thing you need to establish a list of contractors who will refer business to you as a subcontractor architects who will recommend you because their customers will listen to them real estate agents who have a lot of investors who buy and sell real estate and they will refer you because if you do a good job they could buy and sell more houses the agent benefits the investor benefits and you benefit prepare for a sales presentation when you go to give somebody an estimate you're really doing a sales presentation you're trying to impress the homeowner i do i finish basements i build additions i build decks i do landscape and here is what i do look at the house before and the house after look at the testimonials i get look at the thank you notes i get don't just go give an estimate go to sell your company all right you go in there you see what they got if somebody else was there did a poor job it's okay to say this is wrong i can do better you're there to sell your company not just to give an estimate and even when a homeowner settles just for an estimate they're desperate they can't find somebody to do it for them still the contractor i noticed they go in just an estimate okay i'll believe everything you tell me and i'll get back with you and they don't get back with you in two weeks i'm not exaggerating try that sometime see if i'm telling you the right thing recently i personally needed some landscape done i went to a show a landscape show i even paid twenty dollars to get in and i went and registered with six different contractors and i told them all i'm ready to get started do you want me to write you a check i went that far do you want me to write you a check and everybody said no no let me come and look at the job honestly out of the six one of them showed up and that one did not get back with me with an estimate that's your competition that's who's competing with you see that it's not very hard to market your services if you're reliable if you're prompt if your quality is not superb but it's halfway decent and you're charging retail i'm not worried about what you charge charge them retail you'll get the work send the right person to represent your company if it's you fine if it's your spouse fine if your company grows and you have a salesperson you need the right person to talk to the customer you may not be the person you're an excellent contractor and you are the most honest person there is but if you do not know how to convey the message and how to educate the customer as to what you will be doing then you will not be a good salesperson and that's not an insult to you you're just not a good salesperson you go to a doctor who looks at you open your mouth writes you a prescription thank you not very personable he doesn't say much another doctor will talk to you for 15 minutes laughs jokes and tell you what's wrong with you you're like the second doctor they both give you the same prescription see but you like the other one he's a better doctor yeah maybe why is he better because he talks to you so you need the right person to be dealing with the public then you can go in there and do the job and leave educate yourself if you're a salesperson if you're going to teach someone to go out and sell they have to know the product you don't want the customer to know more than you about the product when you get there have company information brochures you need to have brochures about the product itself when you go there and what does it look like how was it before and how is it going to look after pictures once you finish your presentation you want to make follow-up telephone calls until they either choose someone else they choose you or they decide not to do the job all right how do you go about finding people to represent your company you need to develop a professional sales force first of all a residential builder can hire a salesperson but the salesperson must be licensed by the department he or she may not represent more than one builder at a time any money they get from the public must be turned over to you immediately the salesperson's image how they look how they talk how knowledgeable they are how much care they show to the customer would reflect on the company a bad salesperson means a bad company you might have the best company but your sales person makes you look bad people deal with you because of your sales person they must be trained very well in the line of business it's okay if they do not know certain things but they got the information available to them they have a laptop they have brochures they have catalogs but you cannot ask him about the price and she does not know what type of window is this i'm not sure is it double or triple glazed i'm not sure how much does it cost to replace my windows i need 15 of them i have to get back with you what kind of sales person is this you get my drift okay you have to for marketing tools and training seminars that will take your sales people and teach them things okay there is a lot to be said about training your salesperson recently one of my students in class said that they sell a lot of windows and he takes a group with him in a van and he releases them so to speak in a neighborhood they go and knock on doors and they try to get business to change windows he said do you have any ideas for me to um like to market it better to a homeowner i told them i said you know i don't know about knocking on doors without an appointment and without any leads but if i had a sales person talking to a homeowner even if the homeowner was not thinking about changing the windows and it's an old neighborhood and the windows are you know that they're wasting energy okay how much energy can we save with the new windows he said oh i can save him a third of their energy bill okay so if the average home was 250 bucks a third is about 70 or 80 dollars with that finance the new windows he said oh yeah okay are you listening to what i'm saying can you go to a homeowner and say i can get you three windows in a way because the savings alone will make the payments on the windows and once it's paid for in a matter of a year and a half or two years max maybe the rest is all gravy in your pocket so what i'm offering you is to put money in your pocket and give you a beautiful home with new windows how about that you follow me he's a sales manager he said you know what why i couldn't think of that myself because it always helps to get trained what you're doing with me right now you're getting trained so a lot of times you need to sit down with your salesperson and say here is what we would like to do every time we do a roofing job or a siding job i put a little sign in the yard for that week or two while i'm doing work i get calls i get calls on my company van because i have a sign and i get calls on that little sign in the yard okay how about if we go to homeowners and offer them you know rent me a spot in your yard like a billboard sign only this is a very small tiny billboard sign how about i give you twenty dollars a month okay i leave my son in your yard to advertise me we're not saying we're doing a job we're not lying it just says xyz roofing okay that's an advertising because i found out when i do that in reality i get a lot of calls okay i've told my students to do that and the reports are what wow it's well worth it the twenty dollars i paid the homeowner you know don't go put it in six homes next to each other you know it doesn't look right but if in a home if a neighborhood there's a couple of these and people are seeing it xyz roofing siding gutters whatever you start getting calls that's the training you need somebody to share an idea with you and it's very interesting how the state of michigan requires us to train you this has to be a part of your course i give them credit they don't do it with other industries they don't do it with the real estate people with the mortgage people with the appraisers you know we we teach all these classes we teach home inspectors you know they don't they don't make you learn how to market your services i give them credit because now you're getting ideas you know i can actually go get business because what this guy is telling me makes sense see that selling means educating the more education i give the customer i'm selling them selling is not fast talking just sign here and who cares no has to be a win-win the reason why you're paying fifty thousand dollars for this cadillac let me show you what this car has you see that this is a chrysler it's 35 000 isn't that too much oh let me show you all the new technology and the sensors and the cameras and the uh adaptive cruise control that hits the brakes all by itself let me show you the thing can park itself parallel parking just press the button oh i see i've educated you which means i've sold you so i educate the man why is it 50 000 to remodel his lower level because look at the material and look at the workmanship look at the warranty we give look at the trades we bring in and how qualified they are oh i see that's selling make sure you communicate with the customer as to the experience that your salesperson had that's another point why you have a salesperson visiting people you have trained her and she's talking to people and she's selling and educating let her know that you'll be checking on her because if i talk to people and let's say she wrote up an order start remodeling in this house she sold it i still want to ask the homeowner uh what how did you like helen uh did you answer all your questions what if you said no she's very impre she she's not professional at all really yeah i hired you guys because i know you my friend jack he's your he knows you and you've done his house that's why i didn't even need helen to come here if it was up to helen i would never hire you oh my god it's the exact opposite of what i thought i need to know if they turn her down i want to know that's why the big companies always send surveys so let her know i'm gonna hold you accountable you better do a good job otherwise you won't be working for me because you represent my company says salespeople may have to be bonded if they're handling money that's up to you so they run away with money then you have the bonding company paying for that and again let them know that they will be held accountable future sales people will reflect on the way salespeople treat the consumer a rude sales person is probably being treated that way top salespeople are usually involved they know a lot of people they're into their uh places of worship political organizations owners associations community work charitable organizations that's an indication that this will be a good salesperson if i hire him or her tell him not to oversell or undersell that's a problem especially over selling the landscape that my boss will do for you you will not find anything like this in the whole state that's an oversold because you know what the customer is now expecting underselling is a problem some of them will not really represent you properly after they tell the customer everything and the customer says so my house is going to look beautiful i hope and she says well you'll see okay that's an undersell now he's thinking what i'll see so she's not even excited about the work no i want to tell people it's going to look beautiful you're going to get compliments from your neighbors and friends it's going to look really nice i didn't say the nicest in the nation you see people need this type of assurance when they sign okay we need to reassure them that they did the right thing but within reason don't overdo it the company and the sales force need to be in communication with the customer we need to update them as far as timing we need to explain any delays as i said okay teach the salesperson not to have dollar signs in their eyes do not nickel and dime people to death because that will give you a very bad reputation some contractors i've been asked about contractors how is he i say he did fine but he's going to nickel and dime you to death he calls the guy then my neighbor calls me and he says you're right the guy is he's a problem what he would not even add a nail without making a separate invoice for it i don't like the guy i will not recommend him although he did an okay job see that yeah don't overdo it helps a lot when your salespeople have a cheerful attitude people would not like to deal with contractors you or your sales people if you depress them i know you're tired that's understandable but people do not know that you're tired you tell me what do you want me to do i hold the hammer i do the work i do the estimate i manage i make phone calls i schedule i'm everything okay and i'm tired i understand but if you show that to the customer the customer would not say oh poor guy i really appreciate him he's working hard no chances are they'll say what's wrong with this guy he can't even smile yeah i'm sorry but that's how it is so you need to have the right attitude it's okay to be tired but you need to have the right cheerful attitude so people will get along with you salespeople should not be afraid to establish good relationships with the customer and we'll talk about how you go in there and how you build up rapport respect your clients privacy if the job cannot be finished because the customer is getting a divorce or something no need for everyone to hear about that try to have fun with your work show the customer that you enjoy what you do they'll be a big plus there are enough contractors out there with grim faces in the building industry they are notorious for having a grim face and not talking to you and acting like you don't even exist and you ask them a question they don't even bother to respond to you okay there's plenty of that you don't want to be that type of person in fact if you start smiling as a contractor you'll be odd people will say what's wrong with the guy is he really smiling all right um here it says even if you underestimate the job and you gave them a flat amount flat fee and you had good rapport with them and they liked you and they think you're honest and you go back and say the price went up all of a sudden or i made a mistake in calculating the square footage a lot of times if you have the right positive attitude they may agree to pay you extra they feel they're getting paid or they're getting what their money's worth okay if i felt i'm getting my money's worth you know the item went up in price it's not your fault and i feel bad i don't want you to get hurt you're nice you're not a bad guy and you've you've treated me right so a lot of times you go back and say this is what happened if they cannot afford to pay you extra they'll still appreciate that you had the good attitude and you finish the job and they'll brag about you they'll say i couldn't pay the guy extra he underestimated or the price went up but you know what he went ahead and finished and i'm i think that poor guy didn't even make much money and he's excellent you love him he's a good guy that's what they're going to hear so where do you get leads where the mouth number one your sphere of influence people that you know friends and relatives and contractors and other people who may refer business to you the real estate agents and the engineers the architects everybody you advertise your brochures magazine newspapers and other media your website will bring your business yard signs member they'll bring a business mailers telephone canvassing that's if your company grows where you have sales people on the phone following leads because you can go and buy leads oftentimes and follow up on it automobile signs and so on yeah you can actually search online for leads companies that will sell you leads people who've inquired about the price of windows and those people are looking that's why they've looked into it see and you contact him and say i understand you're looking for windows i'd like to give you an estimate you follow up on these leads now we will move into the marketing presentation what's the purpose of a presentation i want to meet the customer i'd like to educate him which means sell him on the type of work i need to do for him or he needs me to do and show him what kind of service you provide who is your company why should they hire you instead of hiring your competition what are the steps i take into a good marketing presentation so i can pick up a job first of all people have their initial impression of you dress and look like a contractor drive the right vehicle and the right signage on it that will look professional respect the home that you go in don't be walking all over the grass and then you walk inside the home and your shoes are dirty and that kind of stuff common sense you need to warm up to the customer have a nice smile when you talk build up rapport rapport you build can be of different levels some customers like to talk they like to talk about the basketball game and the football game other customers just want to get down to business doesn't mean you couldn't have a nice smile you couldn't be comfortable with them and get down to business others want to chat with you and offer you a cup of coffee you need to know what type of customer you're dealing with okay very important if she has a nice taste and a nice home i pay her a compliment ivalo so uh you have to have a feel as to what kind of customer i'm dealing with familiarize the customer with your operation who are you who's your company what have you done do you specialize in something or not and what have you done before let them see it the nature of work that your company does and so on visual aids really helpful because i look at the beautiful landscape you've done and that beautiful waterfall and i visualize my home to have that make sure that the customer feels comfortable when they deal with you repeat to them the following statement always tell them this tell them i have to do a good job for you i have to make you happy because i get most of my business from referrals the word of mouth is very important to me because it cost me nothing and if i do a good job i will get a lot of satisfied customers because of you i have to keep you happy because you're going to send me business always say that every three statements you make tell them i have to keep you happy i have to take care of you i want you to send me your friends and relatives i want you to recommend me people love to hear that and they'll believe you they'll believe you don't tell them i'm gonna do a good job because i like you and you're a nice lady that's baloney tell her i'm gonna do a good job so you can be impressed with my work so you could send me your friends and relatives i need referrals that the lady will believe let's move on do not underestimate please be careful because you underestimate and you have to go back to the customer and tell him i underestimated and hope he feels bad for you and pay you extra that's bad even though a homeowner may not have a list of specs a lot of them don't they rely on you to provide them with specs give them a range of different quality material in order to do the lower level i recommend this type of drywall this type of drop sealing this type of insulation this type of bathrooms a kitchen everything i recommend but the price will be different see if they had an architect the architect will come up with a bunch of specs and say these are the specs if you're dealing with the city the city says those are the specs here you have to help them with the specs which means the price can be different and that's okay give them a range of prices explain in detail why you have priced the job this way you want me sharpen my pencil i can get you this different type of vinyl that one is cheaper over the years it's gonna scratch and it's not gonna look good this one is going to look good five years from today looks like you just installed it the guy might say yeah but i cannot afford it that's fine see you are communicating the chevy is an excellent vehicle the cadillac is an excellent one but the cadillac costs more and here's why always here is why explain it to them see how many times did i say explain explain that means you're selling selling means educating the customer and it has to be when when because even if he chooses a low quality job to save money he knows what he did he's not mad at you he knows he did it to save money it's not your fault i go to buy a refrigerator look they have one for 600 and they have one for a thousand they have one for 2500. and i look at the one for a thousand and the one at the 2500 i swear they look the same salesman comes and he starts talking and now i understand you see once he explains it to me he's selling me on possibly the higher priced one if i can afford it if i cannot afford it i'll buy that thousand dollar one that might look similar and then hope i'm happy because i could not afford the one that's two and a half times okay self-reasonable markup because sometimes you make mistakes and sometimes prices go up and you deserve to get paid if you do a good job you deserve to get paid if a customer wants to meet a certain deadline that's fine but be careful my daughter is getting married october 10 everything's gotta get done at least by the seventh or the eighth maximum i want a two hundred late charge okay think about it can you handle it can you get the job done maybe if you want a 200 late charge i want to charge you 200 for every day i'm early how about that yeah you want to penalize me i want you to reward me at the same time try to understand the difference between a true objection and an objection that seeks more information this is really important look at this item and read it try to understand the difference between true objection and an objection that requires what more info if you can only out of this whole entire chapter if you only learn this item g you've learned something here's why you're looking at a job and the man says to you the customer says you know my nephew is a builder oh really yeah and uh you want to charge me 35 000 my nephew the builder now he said it twice my nephew the builder and he might say it five six times uh you know frankly i might just go with my nephew okay you would really love to tell the guy why did you then call me why are you wasting my time if you have a nephew who can do the job why am i here go with your nephew and a lot of builders will say that yeah but you wouldn't say that you know objections like these why would i pay an extra five thousand dollars over the first contractor that showed up here you want five thousand more why would i do that see this is an objection that seeks more information the guy is asking you simply could you please explain to me why you're charging more and why i should hire you instead of hiring the other guy could you please show me that you do a better job than my nephew because if i'm really sold on my nephew why am i coming to you then you're doing something my nephew does not do it's very obvious very obvious you see if you don't understand what he's telling you that he's really want you to explain to him what you do sell me that's what he's saying how is that different than a true objection a true objection is an objection there's not a darn thing you can do about it how the bank was going to loan me 25 000 as a construction loan they refused i don't have the money okay we're done thank you for the coffee let me know if anything changes bye you see that but when they start asking you why wouldn't i do this why don't you do that he's saying could you explain to me could you please sell me but he's not selective he's not trained he's not a businessman like you are so you or a businesswoman you have been trained so now you say oh so that he wants me to brag about my services with pleasure oh you know why we're getting more money because of this and this and that now if you want to go for a lower quality be my guest oh i see yeah i can do it for less but now we're talking about a different quality work i see i do this i do this i do that before you know it he will not mention his nephew anymore why because it's obvious if his nephew was that good he won't even start or bother to call you say so don't be offended right away big difference between a customer who tells you that again not able to do the job because the lender here i just covered that versus somebody who has you know you know that's a true objection we're saying but uh when he wants you to give more explanation i just covered that okay so hopefully we learned something from item g true objection versus an objection that seeks info and this is true in every selling job they're usually seeking more education not to use certain wording just like i taught you to learn to say i have to do a good job because i want you to refer your friends and relatives to me stop telling people things like i'm in the business to make money i have to make money you know that's why i'm in the business don't talk like this don't tell them i'm not making any money on this job i'm taking this job i'm making no money look instead here's what you need to say i'm in the business to pay the bills i'm in the business to make ends meet i have a good staff i have good subs that work for me i want to keep them busy i don't want to lose them and they'll go work with someone else i'm just making enough money on this job to get a good honest day's work i'm getting paid for my labor and my supervision i'm not looking to get paid for my labor and supervision and make a profit on top of that because when you say i'm in the business to make money what they understand is that you want to make a an additional profit nobody ever denies you your labor even if your labor is fifty dollars an hour you don't have to explain that it's fifty dollars an hour or a hundred dollars an hour you don't have to say that but i'm in the business to keep my staff busy my workers busy i want to pay the bills i want to make ends meet people will love you for saying that they'll understand that and they'll say more power to you my son i don't want you to lose money either but don't use this language never ever tell them oh well you know i'm in the business to make money well i'm not making any money you're not making any money why are you then taking the job why well i just want to get paid for my time well then say so don't tell them i'm not making money tell them i just want to get paid for my time and that's honest and nobody wants to want you to work for free you follow me good let's move on closing once you've educated the customer and he seems to understand things it's time for you to ask for a signature a lot of customers don't know what to say to you once you've sold them on the job they don't know what to say now yeah some are sharp some will say okay can i write you a check like i went to that show hey guys come on i need work let me write you a check let's get started not too many people will do this you follow so you need to tell them does that make sense what i've just explained to you and the guy says yes okay why don't you go ahead and authorize me right here hand them the pen authorize me me sign so i can get started next monday every time you explain something you want to follow it with why don't you go ahead and authorize me why don't we just get this thing going then here's the paperwork here's the pen go ahead and you know sign it let's move on that is very important to close after you've done your education session to close is to help these people eliminate as many unnecessary choices as possible some of us cannot stop selling i saw i sent him to a store to choose the granite they chose a granite i found something she says oh i got three other addresses for you to go and look okay stop it they found what they want we're done there is no need to keep showing her more and more and more why human nature you show me 50 things it's hard to choose you show me 10 things i'll choose one maybe what if there are other things that are nice listen listen carefully to me they do not have to know about everything on earth you follow when you married your spouse were there other people that you could have married yeah okay thank you i made my point you see yeah i found some nice granite but she showed me 50 other tabs that granted i'll find three others i like by the time i found those three others you show me another hundred types of granted i found five more things i like now i got 10 things i don't know what i want i hate you so sure i'm hiring an employee in the company same story i hired someone now if i have 50 more applicants i might find three or four good ones as well now who do i choose choose something that is good and move along with your life as a part of closing you need to repeat all the important selling points you cannot just tell people something once and expect him to remember it why not because it's human nature if you tell people what's good about your company once do that sometime and tell them what did i tell you about my company they'll remember half of it yeah i think you said well you said you're good you know remember everything how do they remember everything repeat it two three times as i said we take pride in beginning and ending on time we do not like to be late we have other jobs that will be late and that will destroy us as i said the quality is superb and why is that i told you i don't like to get a lot of warranty calls it's a waste of time and money and effort for my company to keep going back again and again i hate that i do a good job so you're happy i'm happy and i keep getting referrals from you and the pricing i don't like to overprice i just want to pay the bills i want to make ends meet i do a good quality so i can enjoy my life just like you enjoy your life i want to make a good i want to see you hear that you hear that he keeps hearing he heard it two three four times and if he says yeah that makes sense you go ahead and authorize me let's move along you follow if he accepts what you're telling him you want a signature i like to use the word authorize instead of sign i like to use the word proposal instead of a contract people are scared of contracts and signatures for some reason you know so yeah use same word agreement versus contract like that okay so let's move on they're trying to put a contract together always have a contract ready fill up the forms while you're there put their name put the price try to get a contract on your first visit don't get back with them and then you'll never get back with them how many people have told me i hired the first contractor who got back with me while you're there give them a price yeah but i don't know if that stone is gonna be six dollars a square foot or eight dollars you know what do yourself a favor figure out eight dollars how about that okay because getting back with them may never happen you're busy what do you do when the customer hesitates i want to think about it you've explained everything two three four times then he looks and i want to think about it a lot of builders will just get up and leave and hope that they get a phone call i don't want you to leave yeah but he wants to think about it okay here's what i tell them i think it's a good idea if you think about it now what is exactly you're going to think about is it the price yeah start asking him i want him to think about it but now i want you to think about it now is it the price very nice don't push just if he says yeah you know 60 000 is way too much to finish the basement i was not thinking about that well as i stated there is a price range based on the material one thing i told you for sure i would not over charge you what you're paying for is top quality material top quality workmanship the work will look gorgeous your home will be worth more money and you will not hardly have to call me back to do any warranty work and that is why i priced it this way i could make it less but then now we're talking different specs different quality now the homeowner might look at you and nod his head and say i see i see that's it you're ready to get a signature you've answered his uh he thought about it he was going to think about it he just thought about it and you explained it if you go ahead and authorize me close you have to keep closing you have to keep asking for the signature you go ahead and authorize me i can get started you'll see things happening if you said no it's not the price you explained that part to me i understand is it maybe my qualifications are you still thinking about the other company that advertise on tv maybe you're thinking you know it's okay i won't get offended if you think they can do a better job what if he said yes as i stated to you we are hands-on i'm the contractor and i'm the one doing the work and i'm not afraid to get my hands dirty you see i did not send you a salesman i came myself there is no middleman i will not just be subcontracting the work while i watch it i'm here myself i make sure everything is done correctly and when you call you're dealing with me not with just some corporate office if the guy nods his head and say it makes sense because if he said no no i'm still not convinced you need to address the issue if he says i see i understand at that point i want to close you go ahead and authorize this contract let's get going you follow me what is it i want to know this is an extremely effective way of getting people to think right then right there and then once they accept your explanation i would like to see them sign don't be afraid to use names and telephone numbers of people that you've dealt with that referred you to them of course in your presentation i'm going to not only show pictures i'm showing letters of recommendation and thank you notes and i'm showing them samples of the work and i'm showing them different specs and different choices all that is important talk about the follow-up i did what i could i provided an estimate i educated them i explained to them by that time a good portion of the customers would hire you if you're doing the things i'm telling you to do but he may have some objections you know my partner has to also give me an input into this we're not sure he's out of town i'm waiting for him to come back you know he owns 50 percent with me things like that okay or i'm waiting on the bank to give me the money so i have to leave because this decision cannot be made okay i need to keep calling these people nine out of ten contractors will not call the guy back isn't that beautiful that's the kind of competition you have make an arrangement to get back tell them i'm going to be getting back with you let me call you next week sure plan on getting back with the guy call him back until something happens a he tells you don't call me again i hired someone else b he tells you we're not gonna do the job my partner refuses to spend the money i'm sorry or i couldn't get the money from the bank you follow me a we're not going to do it anymore or we hired someone else you follow me a and b that's it so either this way or that way don't be scared to call if you have a sales person or if your spouse helps you or somebody helps you instruct them to call once a week why call listen people feel good when you call them they feel important contrary to what a lot of contractors think i'm bothering them no you're not bothering them you're showing them that they are important have you decided was there any questions i need to answer for you what if you said yeah i went online i found the same product 30 cheaper oh that's not a problem if you show me how to buy it cheaper i'll pass the savings along to you well what are you gonna do what are you gonna do he found it cheaper that's it then then sacrifice that portion of the job don't make a profit on it or there might still be a small profit to be made because you might buy it from the source and get another discount whatever but uh get back with them nobody one percent maybe will be bothered 99 would love the fact that you're calling them back and ask them see how you're going to get the job eventually and then tell them tell them i kept calling you i called you two three four times they'll say i appreciate that thank you thank you yeah i know i know you called me and i was thinking about it and and you know you answered a couple questions and i was ready after that trust me all right we've done all this before you and we've trained builders and we've trained other agents including real estate agents it's kind of similar and when you get back with people people like it they appreciate it measures taken after starting the job so they gave you the job now what do i do shouldn't i stop marketing i'm done i mean what marketing is there i got the job i understand reassure the customer that they made the right choice they hired you you didn't just get a signature and that's it i'm taken off no i got the signature and i'd like you to know that i will be taking care of this job as if though i'm doing it for my own family you did the right thing and thank you for giving me your trust you know and give the customer plenty of notice before you get started especially remodeling because you're disturbing their peace right not just a landscape job where it's outside and you're not bothering anybody maybe instruct them as to what type of work what does the work involve what precautions we need to take in the event that the work is delayed always communicate with them tell them why is it delayed what happened i'd rather face their anger for a minute or two than to have them getting upset with me permanently you ask for a draw you justify the draw why do you think they make sworn statements even the bank says prove it what did you do tell me which subcontractors you paid and what suppliers you paid you could not just say give me 50 000 what did you do so even if they don't ask for a sworn statement that's fine i will try to establish something myself between me and the customer you know i did this i did that i bought this material for you all that came up to about 25 000 i had work laborers this and that so it's coming up to about 35 000 i would appreciate you know i i need to get at least 35 000. um if the customer tries to say how about i give you 25 you tell them well like i told you you know and i did explain to you it cost me that much money like that justify it so you can get the draw a lot of people have the money but they say what am i paying him for he gave me ten thousand dollars worth of work you tell them no let me show you let me justify it see that that's always a good thing to do said earlier if you build good rapport with people and you realize you made a mistake or underestimated it's okay to mention that to them some people would if they like you and they think you're very honest with them uh and you take pride in your work and they can afford to pay you they might go ahead and pay you the difference or meet you halfway yeah it's okay but don't go to them every two hours and tell them i need more money you follow if they could not afford to pay you extra money and you finish the job they will appreciate that and they will send you lots of referrals because even when you got hurt and you made less money on the job you still finish the job and you are a man of your word so to speak or a woman of your word okay ask people for testimonials if they're happy with your work when the job is finished ask them for testimonials this is extremely important look how products are sold on television through the infomercials what's an infomercial people come out and say i tried the product i'm very pleased with it they bring a lot of those people not only they explain the product but they show you people that said it is a good product a lot of them are actors and you still believe them so how about if they're really customers right the customer said this the customer said that if people don't mind getting a phone call tell them you can call these people i got their telephone numbers we're not related i just know them from the work i've done for them and if you're more than welcome to call and check on me extremely effective and ask permission to call your customer back when the job is finished i'd like to call to see if you need anything they love it especially if you call and he says you know what that that faucet you did one of them dripping oh my god why didn't you tell me i don't know i got busy and i didn't know where your phone number was oh i'll be happy to come and look at it for you people love that they brag about you to their friends and relatives and cuss other even if he had if he's in the business and he's got people he knows customers whatever he's gonna say oh i got this contractor he'll come and ask me if there is anything he could do for me wow that's big while you're at it you go there they're going to turn around and say we wanted to paint the family room can you handle it yes i can why do you think these big department stores let you return merchandise yeah while you're there you buy something else and you have confidence you deal with them i'm not just gonna take the money and run i'm the one calling why i need referrals and they'll say you know what everything is fine here i like the work uh and uh yeah you're right you know what a friend of mine was thinking of something can you handle it of course i can handle it yeah but it's not a brick paving job he wants to build the house yeah of course i can handle building a house yeah i wasn't going to tell you because i thought you only do brick paving no no no we do everything additions we build houses oh i'd love to um let me stop by or give me his number is it okay to mention that you referred me you follow me you always get back with your people if they need something done go do it let's move on we are done with the five chapters so in order to be certified you need to have spent 1800 minutes on the course and pass the quiz we have a quiz all right at the end of this uh chapter in addition to that there is review questions but the quiz is court therefore you have to pass it and study the material that we sent to you we sent you uh the book the pdf you need to look at that review everything go back and forth there'll be obviously a lot of questions on the state exam about the material make sure you know everything and then also you need to do another 30 hours which is builder two about the building techniques the uh of course the code and the miosha as i said at the beginning of the course you need to go to the state website michigan.gov builders and establish an excela account as i showed you okay so you could register for a license and for the exam this is namir george of the michigan institute of real estate i wish you the best of luck and hopefully one day we will meet in class thank you so much