Tracy Stolz, a 60-year-old technology sales executive, hired a contractor to renovate her kitchen, laundry room and first-floor bathroom in Potomac, Md. Before long, the contractor didn’t show up and subcontractors either did shoddy work. work or seemed directionless. She had expected to go by without a kitchen or laundry room for three months. But it stretched over four months, then five. Eventually, Stolz hired an attorney to negotiate an end to the home renovation contract.
“I was warned that if the contract was not properly terminated, the contractor could place a mechanic’s lien on my property,” she says. Stolz ended up hiring a new remodeling company to finish the job — and paying about $20,000 more than she had planned. In the process, she found out that the first contractor had not paid some subcontractors and had ordered some wrong items – on her dime.
Stolz says she could have avoided some of the problems by providing home renovation The contract included a detailed timeline of project stages, clear consequences for delays, detailed specifications for the materials and appliances to be ordered, and a more favorable payment schedule.
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If you are planning a home update, addition or another project, make sure you and the contractor agree on some key terms and put them in writing in a contract. Don’t just sign the contract your remodel gives you without carefully reading and understanding every provision. Ask a knowledgeable friend or hire an attorney to review it if you’re confused.
“It’s a real struggle for consumers who are out there trying to renovate their home. This is a complicated transaction,” said Stacey Tutt, a senior attorney at the National Housing Law Project. “Unfortunately, many homeowners can be taken advantage of. It’s a lot easier to enforce a contract when there are very fixed provisions about what must be done, what products must be installed and when.”
Even the most airtight contract can’t stop an unscrupulous contractor from ripping you off. But understanding and negotiating a handful of key concepts can go a long way toward preventing the most common problems. “A contract is about managing expectations,” says David Jaffe, vice president of construction liability for the National Association of Home Builders (NAHB). “There is no substitute for ongoing and effective communication between the homeowner and the remodeling throughout the process.”
Scope of work
The heart of the contract is a description of the type of renovation work to be done, with details specified such as 2×4 or 2×6 framing and how many windows or appliances will be installed. The more complex your project, the more steps the job will include and the longer this section will be. Attach a drawing or architectural plan showing the location and size of each element of the renovation.
The more details, the greater chance the home owner has of getting the desired end product, says Chris Egner, chairman of the National Association of the Remodeling Industry. “If there are items that will not be part of that project, it would be best if that were spelled out clearly so there is an understanding between the homeowner and the contractor.”
Time frame
Look for a start date and an end date for the project. It’s fine for them to be tied to a milestone, such as a permit being granted. For example, the contractor promises to begin work within 30 days of obtaining a permit. You can ask for continuous work, weather permitting, to avoid a contractor starting work and then ghosting you. “We don’t want to sign a contract and all of a sudden the contractor isn’t going to show up for two years because they’re busy,” says Egner.
That said, work can be delayed for reasons beyond the contractor’s control, such as a delay in the supply chain. Therefore, your contract must specify what constitutes an excusable delay and under what conditions it is likely, says NAHB’s Jaffe.
Costs should be understood by everyone
Your contract should include an estimated total price for the work. Most home remodeling contracts are fixed cost, meaning the contractor bears the risk of doing all the work for that amount. The alternative is a materials-plus-labor, or time-plus-materials, contract, where you bear the risk of having to pay more than you expected because you underestimated the cost or difficulty of the project. “They have to be careful that they monitor costs,” warns Jaffe.
Given the current unpredictability of the supply chain, some fixed cost contracts may allow material cost increases to pass through the homeowner. “In this environment, it is not uncommon for a contract to include an escalation clause to ensure that the remodeler receives compensation for inflated costs such as lumber and building materials,” says Jaffe.
If so, make sure the contract specifies how the remodeler will provide proof of the increased costs, such as using a trade publication such as Random lengths, which tracks the price of timber. You can try to negotiate a guaranteed maximum cost clause to make sure you don’t end up in a hole financially because prices have gone up.
Egner says he has never seen such a dramatic escalation in material costs as he has seen recently. “We have always had fluctuations in prices, but nothing like the last year and a half. We have seen the products increase by 30% in one year,” he says.
Payment plan
Take a close look at the size and timing of the proposed draws in your contract. The checks you write to your contractor should be tied to milestones in the project, where the percentage of money you’ve paid roughly keeps pace with the amount of work the contractor has done: what they’ve spent on materials and labor . It could be, for example, that you pay a certain amount as a deposit, another piece when the existing structure is demolished, and a subsequent raffle with framing, drywall, paint, white goods installations and the like. “If you’re 50% done and you’re 80% done with the payments, it’s probably not right,” says Jaffe.
Use common sense when looking at the size of the down payment or deposit required in the contract. A one day gutter repair should not require an 80% deposit. However, some jobs require prior material orders that may justify a larger upfront payment. Check with your state agency that regulates home renovators to see if they set a maximum payout or enforce other consumer protections. “You don’t want to pay everything up front because you lose your leverage,” says Sally Greenberg, executive director of the National Consumers League.
The contract will likely specify that the final payment is delivered after the project is completed to the satisfaction of both parties. It can help designate an industry standard for potential complaints, such as the NAHB’s Residential Building Performance Guidelines. For example, it states that if there is a crack in the foundation less than 1/4 inch, it is not a defect that needs to be corrected.
The final payment should be large enough to give you leverage if something is not completed to your satisfaction. “Make sure you hang on to the last payment and don’t release it until you make sure all the work is done, including cleanup and trash removal,” says Stacey Tutt of the Housing Law Project.
Materials and supplements
Another crucial provision of the contract: specifying the specific materials to be used, the quantity and the products to be ordered. Include as many details as possible, such as brands, model numbers and acceptable alternatives. “Put all materials on a different list than the job list so you know what you’re paying for,” says Greenberg.
Check the prices of items for which the contract provides allowances, such as appliances, materials and doors, because if the costs exceed the allowances, you will have to pay the difference. (Surcharge means the maximum price for the given product before you have to pay the difference.) So make sure you start with realistic price estimates. Do not make the prices in the contract with e.g. $2,500 for 10 windows when the cheapest window at Home Depot is $750. You must pay profits.
Change order process
Even the best contract cannot anticipate every possible development in a renovation project. You may discover unexpected problems inside your walls when they are opened. Or maybe you have a late inspiration for a design tweak. You should specify how change orders will be handled so that the homeowner and contractor are on the same page. Keep lines of communication open.
“The problems are going to show up,” says NAHB’s Jaffe. “Disputes between the homeowner and the remodeler are often about different expectations.”
Your obligations
The contract primarily deals with the builder’s obligations and how you will pay. But you should also be aware of your obligations and risks by signing the contract. Some contracts require certain site access, valuables to be put away, or a certain level of homeowner’s insurance. Make sure it is clear who is responsible for any damage to the property and what the consequences are.
Warning: look for a clause that a mortgage or lien on your home if you do not comply with the payment plan. It can be a serious financial burden in the event of a dispute – and a provision you can ask to have waived.
How disputes will be resolved
A contract may also require arbitration or mediation as an alternative to litigation. Experts disagree on which is best, but everyone says prevention is the best solution. There is no guarantee that you will be made whole in the event of a dispute, even if the contractor is clearly at fault, especially if the contractor has financial problems “You can be absolutely right, sue the contractor and still be left with nothing.” says Tutt, from the Housing Act project.
Finally, your contract must contain the remodeler’s contact person, address, license number and bond or insurance information. But it is not enough to see a license number on the contract. Check with your state to make sure the contractor’s license is in good standing and covers the type of work to be done. Ask for a copy of the proof of insurance to make sure it’s valid, and check both the Better Business Bureau and several references from previous customers.
Remember that any provision of the contract is negotiable. Cross out and initial all provisions that you and the contractor agree to remove. And be sure to receive a countersigned copy of the final contract before work begins.
“Lesson learned, if I did a renovation like that again, I would have a lot more protection in my contract and include what the consequences are for not meeting deadlines,” says Stolz. “Also, you should always plan for 10% to 15% higher cost when it comes in because you want scope creep.”
