Whether refreshing for a sale or updating a new place, successful home renovation begins with a contract.
When you and a contractor agree to terms in writing, there’s less chance of disputes and greater likelihood that the work will be done within the price and time frame you expect.
“A contract is about managing expectations,” says David Jaffe, vice president of construction liability for the National Association of Home Builders.
Here are some key provisions in a remodeling contract:
Scope of work. The heart of the contract is a description of what type of renovation work will be performed, with details specified. Attach a drawing or architect’s plan that shows the location and size of each element of the renovation.
Time frame. Look for a start date and end date for the project. It’s fine for those to be tied to a milestone, such as a permit being granted. For instance, the contractor promises to start work within 30 days of acquiring a permit. You could ask for continuous work, weather permitting, to avoid a contractor starting work and then ghosting you.
Cost. Include an estimated total price for the work. Most home remodeling contracts are fixed cost, meaning the contractor bears the risk of performing all the work for that amount. The alternative is a materials-plus-labor or time-plus-materials contract, in which you bear the risk of paying more than you expected because you underestimated the price or difficulty of the project.
Given the current unpredictability of the supply chain, some fixed-cost contracts might provide for increases in materials costs to pass through the homeowner.
Payment schedule. Take a hard 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, with the percentage of money you’ve paid roughly keeping pace with the amount of work the contractor has performed and what they’ve spent on materials and labor. “If you’re 50% done and you’re 80% complete with the payments, that’s probably not right,” says Jaffe.
“Make sure you hang on to that final payment and don’t release it until you ensure all the work is done, including the cleanup and removal of the trash,” says Stacey Tutt of the Housing Law Project.
Materials and allowances. Another crucial provision in the contract: spelling out the specific materials to be used, the quantity and the products to be ordered. Include as much detail as possible.
Change order process. Even the best contract can’t anticipate every possible development in a renovation project. You might discover unexpected problems inside your walls once they’re opened up. You should specify how change orders will be handled.
Your obligations. The contract primarily addresses the remodeler’s obligations and how you will pay. But you should also be aware of your commitments and risks in signing the contract.
Some contracts require certain access to the site, valuables to be put away or a specified level of homeowners insurance. Make sure it’s clear who bears the responsibility for any damage to the property.
How disputes will be resolved. A contract may also require arbitration or mediation as an alternative to a lawsuit.
Contacts, license, warranty and bond information. Finally, your contract should include the remodeler’s contact person, address, license number and bond or insurance information.
Katherine Reynolds Lewis is a contributing writer at Kiplinger’s Retirement Report. For more on this and similar money topics, visit Kiplinger.com.
