The majority of home improvement projects go as planned but the ones that go wrong can reach a level of drama right out of an HGTV horror episode. An important element to the success of most remodeling projects begins with proper planning and clear expectations for the homeowner and contractor. A detailed contract which outlines and governs the relationship between you and your contractor is significant evidence you have considered all the important details of the project and provides protection in the event something goes wrong.
The process of executing the contract shines light on the quality of your project plan because organizing the agreement on paper exemplifies a great deal about the underlying elements of the project.
Most established remodeling contractors have a standard document saved as a word processing file which they modify with specifics of each project. You can also obtain a digital contract from a consumer legal document publisher such as: uslegalforms.com.
Just remember the larger and more complicated the job, the greater the risk of problems arising in the process. Most homeowners should consider requiring a contract for any job over the small claims court threshold of $2500.00.
The following paragraphs list some of the more important clauses of home improvement contracts and describes my reasoning for recommending their inclusion into your agreement. This is not a complete list of all clauses needed in a contract and the information should be used for evaluation and educational purposes.
Start Date- Completion Date- All remodeling contracts should include an expected start and completion date. It is important to specify the agreed upon completion date and any remedies/consequences for failure to perform. Some language should be included describing what constitutes reasonable delay such as weather, shortage of materials, etc…
Description of Work to be Performed– It is imperative to accurately and thoroughly describe the project. Items should be specific in detail to prevent and or eliminate future misrepresentations or claims from either party. Copies of drawings, pictures, and other supplemental descriptions should be referenced in this section.
Materials List- A detailed materials list is imperative. It is your right as the home owner to specify the quality of materials for the job. The list should be as specific as possible listing item description, time number and likely supplier. Copies of supplier quotes detailing material descriptions, model numbers etc, are also recommended to list. There is a great variety in material quality and cost. One of the most frequently used tactics in cheating an unsuspecting homeowner is to substitute quality materials with inferior less costly impostors. Protect yourself from this fraud with a detailed material list.
Project Price- the Final agreed upon project price should be detailed in the contract. The most secure agreements are those which have a cost plus arrangement requiring the contractor to provide copies of all invoices related to the project.
Progress Payment Schedule- All home improvement projects should be paid for under an agreed upon payment schedule which is detailed in the contract. Some standard formulas are 30% upfront, 30% at half completion, 30% at near completion, and final 10% held as retention. I also recommend requiring the protection of a construction escrow service in this clause of the contract.
Retention Agreement- The best contracts include a provision for the home owner to release the final 5-15% of the project balance upon satisfactory completion of the project. The final funds are then released at final sign off of the punch list by all parties.
Provision for Contract Modifications- There are regularly occasions in a project where a homeowner decides to make changes to something related to the project such as adding a new feature or upgrading the quality of material used on the job. It is highly recommended that all agreed upon changes be documented as modifications to the contract. A modification is a simple addendum to document but it can be a big mistake to proceed with any project without documenting the change. There are also some legal risks to modifying a project plan without amending the contract.
Lien Waiver/Release- The contractor should be responsible for collecting properly signed lien releases for all subcontractors who have performed work on the subject property. These signed releases prevent future claims arising out of any disputes that arise after payment. The contract should specify this responsibility and also provide the homeowner the right to withhold payment until the releases are obtained.
Permits- It is fundamental that your contractor apply for and obtain applicable permits for the project with the proper governing entity. Be extra cautious of any contractor who does not want to secure permits and suggests you obtain them or for go them all together..
Termination and Dispute Resolution- This is a clearly specified method for communicating and resolving disputes between both parties. Basically this is the documented steps the homeowner is required to take when he has decided to fire the contractor. The termination clause will protect the homeowner from frivolous future claims from the contractor for improper termination.
Warranty- Most projects will not include a provision for lengthy warranties however it is beneficial to establish an agreed upon time frame the contractor will be responsible to resolve any workmanship or material quality issues. Manufacturers routinely provide some warranty against material defect so your contract should detail any remedy for replacement of defective material such as light fixtures, hardware etc…
The best home improvement project is the one which comes off as close to planned as possible. Unfortunately, there are many occasions where problems arise when home improvement projects go off track. During my career as a banker, I encountered every issue described in the paragraphs above and many more. An accurately documented contract between you and you contractor with be pivotal in resolving any discrepancies in the project and will by your best recourse in protecting you from any legal disputes that could arise from a project and or contractor gone bad.
Ryan Johnston has served many homeowners home improvement financing needs over the past 10 years. In his position as a commercial lender with a community bank in the southeast he was responsible for originating and overseeing the funding process of residential construction and home improvement loans. He has hands on experience dealing with the challenges and joys homeowners experience in the construction and home improvement process.