The Real Insight is a must-read consumer newsletter that delivers important news about the real estate market right to your inbox every week. The Real Insight will benefit readers with hand-picked articles and curated content that puts our expertise in the real estate industry to work for you. Learn about the best time to buy or sell, when to start (or stop) that pesky remodeling project and how the larger real estate market could impact your decision on whether to invest in real estate—and when. You’ll also receive reliable seasonal articles during tax time and DIY decorating tips for the holidays. Subscribe to The Real Insight today and get informed!
The contract your general contractor offers is a good starting point -- for the contractor. You'll need to review the document so it also shields you.
You could hire a lawyer to review and make changes to the contract, since each state has its own construction contract statutes. But an attorney review will cost at least $500, plus $1,000 to $1,500 in additional fees to make wholesale revisions to a flawed contract.
If you’d rather invest your money in Italian tile and other goodies, learn how to read and rejigger construction contracts yourself, so you can get the best work from a contractor. Here's how.
The basic job of a contractor agreement is to spell out the scope of the project's work. This is the document you and your contractor will consult throughout the job, so make sure it’s as clear and detailed as possible.
A thorough contract is filled with numbers and stipulations that will probably take several hours to review, so leave enough time to go through it before signing. The contract should state:
That the contractor will secure all necessary permits and approvals.
What the payment schedule will be.
Start and end dates for the project.
The contract needn’t contain product specs on its pages. Instead, it may refer to the contractor’s attached, itemized bid.
Some states require the contractor to write his license number on the document and to include a clause that allows you to rescind within a certain time period after signing, usually one to three days. Check your state laws to learn what your construction contract should contain.
The contract is your summary of how much and when you should pay for completed work. Payments should be linked to work milestones, such as when the foundation, rough plumbing, and electricity are completed.
Here are some general guidelines:
First payment should be no more than 10% of the total job.
Final payment should be enough money -- up to one-third of the total cost of the project -- to make sure the contractor returns to correct unfinished details.
Keep back enough money to hire someone else to finish the work if things go south with your contractor.
A boilerplate contract won't say when the job will begin and end, so make sure you add those details to the document.
Look at these dates as a time frame, not a minute-by-minute promise. Delays happen and an eight-week job wraps up in nine. But if the project drags on for months, written start and end dates will help make -- or defend -- your case in the event of a legal dispute.
Make sure the contract states that any changes affecting the cost of the job must be priced in writing and countersigned by both the contractor and homeowner before that work commences. This line ensures that offhand discussions don’t result in unforeseen additional costs.
Written change orders also help you update your budget and resist the frequent urge to expand the job.
Many remodeling contracts contain a clause that stipulates that an arbitrator, rather than a judge, will resolve disputes. This clause can save you time and money because a court fight is expensive, even if you win.
Problems arise, however, when the contractor names a specific arbitrator.
“There are some big, national, well-respected arbitrators, like the American Arbitration Association,” says Tampa, Fla., attorney George Meyer, past chair of the American Bar Association’s Forum on the Construction Industry. “And there are other questionable arbitrators that always side with the contractor.”
Before you sign the contract, research the arbitrator named. If you don’t like what you find out, insist on another.
Agreeing to a warranty may limit your contractor’s liability, and may limit your options if there's a dispute.
Warranties often are loaded with exclusions and time limits that favor the contractor, not you. Frequently, state statues provide better protection, which you forfeit if you accept less from the contractor.
Unless a lawyer reviews the contract, strike the warranty clause.