What Your Remodeling Contract Should Say
By: Oliver Marks
Published: September 30, 2009
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 countertops 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.
A former carpenter and newspaper reporter, Oliver Marks has been
writing about home improvements for 16 years. He’s currently restoring
his second fixer-upper with a mix of big hired projects and small
do-it-himself jobs.
Reprinted from HouseLogic (houselogic.com) with permission of the
NATIONAL ASSOCIATION OF REALTORS® Copyright 2009. All rights reserved.
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