It only takes one.
One project where the contractor stops showing up, and you’ve paid him a large deposit.
One project where someone gets hurt and you realize his or her employer was not insured.
One project where the change orders and extra costs start from day 1.
It only takes one project like this, and you will never deny the power and importance of a proper remodel contract.
Before we jump right into the world of remodel contracts, I’d like to dispel a few common myths about proper contracting.
The following four myths represent common perspectives I’ve heard over the last decade in the business.
Myth #1: If you trust your contractor you don’t really need a formal contract.
First off, trusting your contractor is a critical first element of any good remodel project. In fact, it’s vital.
However, no matter how much you trust him or her, you must prepare for the worst case scenario. Really, isn’t that what contracts are for? If something terrible or litigious occurs?
I recommend having a contract in place for any work on your home exceeding a few hundred dollars. Why such a low threshold? Because even a small project can lead to major damage. And major damage could lead to insurance companies getting involved. And insurance companies getting involved will lead to them requesting a copy of the contract between you and your contractor. And not having said contract makes it real tough for your insurance company to successfully litigate. And making it hard on your insurance company is never good for you, believe me. They begin to view you as a liability.
Myth #2: If you sign the contractors proposal that’s good enough.
Most contractors provide estimates with a signature block at the bottom. This is a handy way for them to get approval on the project immediately after presenting the number to you.
And most savvy contractors have wording, sometimes in 2-point font, on this proposal that says in essence “by signing this proposal you agree to all terms on this page.” And when you read further on the page, you realize there is some pretty clever wording protecting the contractor from everything and exposing you to most, or all of the risk.
I recommend writing your own contract (we will cover how to do this quickly and easily in the last post of this series). In your contract, simply state that your contract trumps any and all other agreements. Then sign the proposal. This way the contractor is happy and you have the law, and your contract, on your side.
Myth #3: Its really hard to create a contract and I probably need a lawyer to do so.
Nope. Not at all.
There are some great standard contracts already in existence.
My favorite are produced by the AIA, American Institute of Architects. The AIA is a hugely reputable entity that’s been around for more than 150 years. Their contracts are well written, easily accessed and objective. We will talk much more about these forms in the last post in this series.
When filled in correctly, these contract don’t need to be reviewed by legal council unless you personally want this done.
Myth #4: A contract means my project won’t go over budget.
A contract simply lays the framework for the job. It is not a magic scroll that protects an Owner from cost inflation.
It does, however, protect an Owner from unjust cost inflation, and also requires the Owner be notified before the contractor incurs additional costs.
When edited in an advanced fashion, a contract can even cap certain unit costs, like labor rate per hour for overtime work or cost per lineal foot for baseboard, for example.
In our next post, we will look at the first of three common contract types: the Lump Sum aka Stipulated Sum Contract.
PS: Before getting too far into this series, download my free e-book Remodel with Confidence. It’ll act as a good foundation for this material. And I also make fun of a lot of things in it.
Image credit: http://www.flickr.com/photos/tnboriqua/
