What Your Remodeling Contract Should Say

HomeBuyer Toolbox → What Your Remodeling Contract Should Say

Review your remodeling contract carefully and adjust it to make sure it protects you in terms of payments, work schedules, and project specifications.

Even if you never intend to pick up a hammer for your remodeling project, there’s one tool that’s absolutely essential—a solid contract. But just having one often isn’t enough. That’s because the document a contractor gives you is designed to protect him. It’s up to you to add in some basic protections for yourself. Here’s what you need to know to make sure the remodeling contract you sign includes solid legal protection for you and your home.

Hiring a lawyer to review and make changes to a contract is a safe bet, especially since each state has its own construction-contract statutes. But not many homeowners are willing to shell out $500 for an attorney review, plus $1,000 to $1,500 additional fees to make wholesale revisions to a flawed contract. However, you can hand-write changes and additions in plain English and make sure both you and the contractor initial each change to the document, says Tampa, Fla., attorney George Meyer, who is chair-elect of the American Bar Association’s Forum on the Construction Industry. Here’s what you want to add (and subtract).

Project specs

Start by reviewing your contract, a process that should take several hours. The most important element of a contract is a thorough and complete description of the project, and the materials and the products that will be used. “It should say that the contractor will secure all necessary permits and approvals as well as what walls are being moved where, what type of counter-tops are going in, what type of sink, what type of faucet, and so forth,” says Meyer. “You can’t rely on everyone’s memory because if there’s a problem later, people may remember different things.” The contract needn’t contain these specs on its pages, it can simply refer to the contractor’s attached itemized bid. Avoid allowances, which are pools of money set aside for work to be determined later, and which often lead to cost overruns.

Payment schedule

The contract should also state the total price for the job, and that it’s a fixed price—not an estimate. It should provide a schedule of how the payments will be made by linking them to milestones in the work—such as when the foundation, rough plumbing, and electricity will be completed—so you’re paying for work only after it’s done. “You should always have enough money left to hire someone else to finish the work if need be,” says Meyer. In general, the first payment should be no more than 10% of the total job and the final payment should be at least a few thousand dollars to ensure that it’s a big enough incentive to get the contractor back for the final niggling details. If you’re unsure whether the payment schedule is proportional to the milestones your contractor suggests, ask a friend who’s familiar with construction process or consult a construction attorney.

Start and end dates

A contractor’s boilerplate contract rarely includes dates for when he will begin work and when he will complete the job, so make sure those details are included. It’s not that he’ll be penalized if it runs late, only that if you ever have a major problem and need to sue him—or defend yourself from a suit he brings—showing that the contractor is, say, two months behind schedule will help you make your case. The dates needn’t be too exacting. If he says it’s a six to eight week job, eight or even nine weeks is fine for the contract, says Meyer.

Statement about change orders

Make sure the contract contains a line stating that any changes that will affect the cost of the job must be priced in writing and countersigned by both the contractor and homeowner before that work commences. That ensures that an offhand discussion about a possible change to the project won’t result in a huge unforeseen additional cost. It also helps you, as the homeowner, keep track of exactly how much you’ve added to the bottom line, so you can avoid the very common urge to keep expanding the job.

Binding arbitration

Many contractors include a line that says that rather than going through the courts, disputes will be resolved by an arbitrator. Some legal experts feel that this is a quicker and lower-cost solution to problems, so a binding arbitration clause isn’t necessarily a problem. What can be trouble is if the contract requires a specific arbitrator. “There are some big, national, well-respected arbitrators, like the American Arbitration Association,” says Meyer. “And there are other questionable arbitrators that always side with the contractor. If a particular arbitrator is specified, I’d do some internet research about the agency to make sure it’s legit.”

Warranty

Having the contractor’s warranty in the contract seems like a good thing, right? Well including it is often actually a technique for limiting how much liability the contractor has. “It’s usually loaded up with exclusions and time limits,” says Meyer, “and you’re actually better off with no mention of warranty at all because then the only limits on his warranty are what’s in the state statutes.” In other words, keeping the contractor’s warranty language in the contract will likely mean you’re agreeing to less than what state law provides. For example, state law may specify a longer warranty term than what the contractor’s warranty offers. So, unless you’re having a lawyer review the contract, strike the warranty clause.

Technicalities

There are numerous state-by-state requirements for construction contracts. He may have to include his contractor’s license number, for example, and he may have to include a clause saying you have the right to rescind the contract within a certain time period after signing. And unless you and the contractor sign the document, it doesn’t matter what it says—it’s not a valid contract.

Source: HouseLogic.com