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Some Elements to Include in any Construction Contract
  • Names of parties involved, project locations, and starting and ending dates.
  • Detailed descriptions. Itemized accounts of products and materials to be used should be spelled out.
  • Payment schedule. Usually a payment is made after each phase of construction is complete.
  • Final payment clause. This should state that final payment is not due until a certain period after the work is completed and that the homeowner will not pay if defective work is not remedied. Final payment also depends on the contractor providing the homeowner with completed waivers of lien forms from suppliers and subcontractors that state they have been paid in full and have no legal claims against the homeowner.
  • Contractor warranty/guarantee. This area of the contract should state how long the guarantee lasts, what will be covered, and what service will be provided.
  • Permits and fees. All necessary permits, and how they should be paid, should be listed.
  • Insurance. Most often, the contractor will be self-insured to cover personal injury, property damage, and workers' compensation.
  • Change orders. The homeowner may decide to change something that has been decided, or choose to upgrade or downgrade a finish or material. These changes should be documented with new costs and should become part of the contract.
  • Cleanup. The contractor is responsible for disposing of all debris and unwanted material when the work is complete.
  • Notice of recision. By law, you have three days from the time you sign the contract to cancel it.
  • Conflict resolution clause. In the event of a dispute, state what actions both parties will take and in what priority.
  • Date and signatures. Both parties should sign the contract and include the date.

Contracts with Contractors

Brought to you by Better Homes and Gardens

YOU MAY BE ANXIOUS TO BREAK GROUND and turn your dream home into a reality, but taking time to construct a good contract comes first.

"When even a slight misunderstanding takes place, the contract is there to protect you both," says William Harrison, a real estate attorney in Niles, Illinois."

CLEAR LANGUAGE IS ESSENTIAL. A contract should explain each party's obligations, determine a completion schedule, itemize when payments are due, specify the materials and products to be used for construction, and validate the basis of the charges. It's important to ensure that the homeowner pays a fair price for the work, without too many financial surprises. Additionally, the builder wants to know that he or she can profit from the job.

Harris suggests a three-step course of action before placing your name on the dotted line. 1. TAKE YOUR TIME. Don't be too quick to sign a contract. Do a little research on the neighborhood, the surrounding homes' values, and how your new home will fit into the area. 2. CHECK OUT YOUR BUILDER. Contact previous clients-especially those clients not provided as references. You can find their names in public records by searching for permits the builder has filed. Check local resources, such as the Better Business Bureau, lenders, and the building department in your city, to learn more about a builder's reputation. 3. PROCEED WITH CREATING A CONTRACT. Once blueprints are in order and everything else checks out, the builder will likely have standard contractual forms. The American Institute of Architects and the National Association of Home Builders also sell a variety of detailed agreements that cover various contractor/consumer and architect/consumer relationships. >>

MUTUALLY AGREE UPON CONDITIONS PRIOR TO ANY MONEY CHANGING HANDS OR ANY WORK STARTING. Go into details. What one builder finds standard, another may consider an extra cost. When in doubt, spell it out. State more than "Paint the den red." Clearly express what is expected: "In the den, the walls are to be primed, then painted using Brand X latex holiday spice red in eggshell finish; two coats to cover wall uniformly."

MAKE CHANGES IN WRITING. Even if you have a close and trusting relationship with your builder, it makes good business sense to get changes in writing. Make sure your contract says you have the right to make changes in the home after the contract is signed. Whether you're changing the paint color, adjusting a date for starting work, or repositioning light fixtures, you should use a written change order. This is a legal document that becomes part of the original contract, and it should be signed and dated by everyone who signed the original contract.

THE LAST REVIEW Once the contract is completed to your satisfaction, Harrison suggests handing it over to your attorney to smooth any rough edges. "One of our most common problems is no start or ending date on the contract," says Brent Waddell, a lawyer with the division of consumer services in the Minnesota Attorney General's Office. Specify the latest acceptable date for completion and the penalties for missing deadlines.