How to Read a Pay Application: A Plain Guide for Homeowners

On every project we manage, we review each pay application before it ever reaches the owner. That's part of the job, and our clients rarely have to open one themselves. Still, I think every owner should understand what they're approving. It makes the monthly money conversation a lot clearer.

Here's how to read one, page by page and line by line, and what I look for when I review it.

What a pay application is

A pay application, often called a pay app, is the builder's formal request for payment for work completed during a billing period, usually monthly. On most custom homes it isn't a simple invoice. It's a running account of the whole contract: what the work is worth, how much has been done, what has been paid, what is being held back, and what is due now.

Many builders use G702 and G703 style forms, a layout widely used in the industry, or their own versions of it. The first is a one page summary. The second is a continuation sheet, the detailed table that supports the summary. Your builder's form may look different, but the logic is almost always the same.

The figures below are a simple, hypothetical example, chosen only to show the arithmetic, and none comes from a real project. In this example the contract calls for 10 percent retainage. The graphics are annotated teaching examples, not official forms.

The summary page, line by line

The summary page tells the whole story of the contract in nine lines. Read it top to bottom.

Line 1, original contract sum. The price in the signed contract before any changes. In the example, $950,736.

Line 2, net change by change orders. The total of all executed change orders, added and deducted. In the example, one approved change order adds $51,847. This number should match the change orders you have actually signed. Pending or disputed changes don't belong here.

Line 3, contract sum to date. Line 1 plus line 2: $1,002,583. This is the current value of the whole job, and it should equal the total of the scheduled values on the continuation sheet.

Line 4, total completed and stored to date. The value of all work in place plus materials stored, from the first application through this one. It carries over from the continuation sheet total: $602,245.

Line 5, retainage. The amount withheld so far. Many forms show retainage on completed work and on stored materials separately, then a total. In the example, 10 percent of $550,871 of completed work is $55,087, and 10 percent of $51,374 of stored materials is $5,137, for $60,224.

Line 6, total earned less retainage. Line 4 minus line 5: $542,021. This is what the builder has earned to date, net of what is being held.

Line 7, less previous certificates for payment. The total already approved on earlier applications. In the example, $427,572 of work was billed before, less its 10 percent retainage of $42,757, so $384,815.

Line 8, current payment due. Line 6 minus line 7: $157,206. This is the figure you are being asked to pay this period.

Line 9, balance to finish, including retainage. Line 3 minus line 6: $460,562. It is the work still to be done, $400,338, plus the retainage held, $60,224. It answers a useful question: how much of the contract is left to pay?

The continuation sheet, column by column

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The continuation sheet breaks the contract into line items, usually by trade or phase. Together those line items are the schedule of values. The letters below match the callouts in Figure 2. Printed forms may letter their columns a little differently, but the content is the same. We will follow one line, cabinetry, across the page.

Column A, item number and description of work. Each line of the schedule of values, such as site work, framing, windows, cabinetry and finishes. Approved change orders are often added as their own lines, as Change Order 1 is in the example.

Column B, scheduled value. The agreed value of each line. The column adds up to the contract sum to date on line 3. Cabinetry is $98,764. The schedule of values gets set near the start of the project, and it matters more than most people realize. If the early lines are valued too heavily, money goes out the door before the matching work is in place.

Column C, work completed from previous applications. What was billed on this line before. Cabinetry: $29,417.

Column D, work completed this period. New work in place since the last application. Cabinetry: $19,965.

Column E, materials presently stored. Materials bought for the project but not yet installed. In the example, $51,374 of windows are stored and protected; cabinetry has none.

Column F, total completed and stored to date. Columns C, D and E added together. Cabinetry: $49,382. The column total, $602,245, carries to line 4.

Column G, percent complete. Column F divided by column B. Cabinetry is 50 percent. Across the job, $602,245 of $1,002,583 is 60.1 percent.

Column H, balance to finish. Column B minus column F. Cabinetry: $49,382. The column total, $400,338, is the work remaining.

Column I, retainage. The amount held on each line, where the form tracks it by line. Cabinetry: $4,938. The column total, $60,224, matches line 5.

When the columns and the summary page agree, the pay application is internally consistent. That's the first check, not the last.

Percent complete is the number to question

Column G should reflect the work actually in place, not the time elapsed or what the builder has spent. This is why walking the site matters. If the application says the cabinetry is half installed, half of it should be on the walls. Small differences are normal. Billing ahead of the work month after month is worth a conversation.

Stored materials and retainage

Billing for stored materials can be entirely reasonable, especially for long lead time items such as windows, stone or custom fixtures. Contracts often set conditions: where the materials are stored, invoices or bills of sale, insurance, and how ownership transfers. Before you pay for materials that aren't on the house yet, make sure they exist, they're protected, and your contract covers them.

Retainage gives everyone a shared reason to finish the punch list and closeout properly. The rate, and when it is reduced or released, are set by the contract and in some places limited by state law, so check your contract and local rules. The 10 percent in this article is only for the example.

Lien waivers

Lien waivers confirm that the builder, and often its subcontractors and suppliers, have been paid and are giving up lien rights for that payment. There are generally two kinds, conditional and unconditional, and two stages, progress and final. A conditional waiver takes effect only once payment is received. An unconditional waiver is effective when signed, so it is normally exchanged after funds clear. Several states prescribe their own statutory forms, so the exact documents vary by location. Collect waivers each month for the previous payment, from the builder and the key trades.

What a careful review looks for

The questions are simple. Do the columns add up, and do they tie to the summary page? Does the percent complete match the site? Are stored materials documented? Is retainage calculated as the contract requires? Do the change orders match what was signed? Are the right lien waivers attached? Is the balance on each line enough to finish that work?

None of this is about distrust. Builders are our partners. Good builders keep careful pay applications, and a clear review helps them get paid on time and keeps everyone working from the same numbers. You can see how this fits into our wider role on our construction management and how we work pages.

If you have a pay application in front of you and would like a second look, or you are planning a home and want this handled from the start, write to octopus@spectre8.com or call 415.683.1019, or reach us through our contact page. Based in Sausalito, we work in Florida, the Mountain West, Texas, and anywhere the right project is.