This is an article I wrote 3 years ago at the height of our nations’ recession and is still a good reminder for homeowners’ today who are planning on remodeling this year.
Renovating In a Recession: Why It Could Cost You More If You Don’t Include These 7 Key Clauses In Your Çontract
With demand for residential construction still in a slump and contractors holding on for the tides to turn, folks are being told that this a great time to strike up a deal on that home renovation project. After all, materials costs are down and contractors are willing to pass on those savings and even perhaps cut back on their own profit to compete for your business. But at what cost to the consumer is that great deal really costing? And is it safe to assume that the contractor will actually cut back on his own earnings just for the work?
In a nutshell – no it’s not and here’s why. Times like these are prime breeding ground for less than ethical contractors to take advantage of unassuming homeowners looking for that great deal who will only look at the bottom line, give a quick once-over to what’s in the contract and “trust” that they are getting that great deal – what with the economy giving them this great opportunity to take advantage of – when in fact it’s THEM that’s getting taken advantage of!
Here’s what a less than ethical contractor hopes the homeowner DOESN’T know:
1.) His bid doesn’t include everything your specifications sheet calls for, but rather makes vague references to specific items. The homeowner doesn’t know how critical it is to cover in detail every single item expected to be included and performed in the spec sheet and “trusts” that what he said he’d do, he’ll do.
Result: The homeowner gets hit with “extra work” invoices for items they thought were in the contract.
Lesson: Get educated on creating thorough spec sheets, reading bids carefully by line items and expect change orders but on your terms. Which brings us to:
2.) Change Orders: Write into the contract that any “extra work” must be approved in the form of written Change Orders, which are agreed to and signed by both the homeowner and contractor before work is performed and added to the total contract price if the contractor expects to be paid for it.
3.) Lien Release Waivers: You pay the contractor who in turn pays his subs and suppliers, but at the end of the project the homeowner discovers the contractor didn’t pay one or more subs or suppliers
Result: The homeowner gets slapped with Mechanics Liens where they will end up paying twice for work they thought had been paid for by the contractor. It’s either pay up or hire an attorney to try and reason with the contractor – or sue.
Lesson: Write into the contract that Lien Release Waivers are required upon each payment made to the contractor, and must include releases from the subs and suppliers as well.
4.) The contractor agrees to pull the permits and takes payments that cover those costs. A couple of months later problems start to crop up, communication with the contractor becomes strained and in an attempt to get to the truth the homeowner contacts the city only to find out he never pulled the permits!
Result: The homeowner ends up paying fines to the city, has to pull and pay for the necessary permits, may have to tear out work for inspections that should have been performed and will never get the money back from the contractor for the initial permits paid for, but never pulled. The homeowner ASSUMED the contractor would pull the permits but never saw the permits or thought to ask for them.
Lesson: Have it written into the contract that the contractor is to obtain all necessary permits, provide you with the permit documents to post and provide you with the receipts paid to the city for your records.
5.) The contractor’s work is substandard but you can’t get him to correct much less acknowledge that there are problems.
Result: You’re stuck with poor workmanship, and an unpleasant even contentious relationship with the contractor. At your wits end you fire him but then get sued for breach of contract.
Lesson: Have a Cancellation or Termination Clause written into the contract that allows the homeowner to fire for substandard work, deviation from the contract and scope of work or illegal activity.
6.) The contractor asks for a large upfront payment with 2 more payments at specific milestones.
Unbeknownst to the homeowner, the contractor is getting more money than work is being performed, right from the start. Eventually over time, he and his crew stops coming regularly or not at all. You suspect – and rightly so –that your money is being used on someone else’s project.
Result: When the homeowner realizes he/she has paid for work that has not been performed and when finally tracking down the contractor, he/she makes excuses or asks for more money. Very often the contractor has moved on to another project with your money in hand. The homeowner gets put off by the contractor and is forced to hire an attorney.
Lesson: Put together a more frequent payment schedule that requires invoices that details work that has been performed, supplies and materials used with costs to date and showing those cost deducted from the total contract price. Research your State’s law regarding down payment limits or consult with a construction law attorney to verify a reasonable down payment.
7.) During demolition, the contractor discovers an unforeseen problem, i.e., termite damage on existing wood members and immediately recommends a solution, which is costly, but needs to be done immediately in order to move forward. (Or, goes ahead and makes the fix then presents you with the reason and the bill after the fact.)
Result: The homeowner has no idea that there may be a more cost effective solution but this is an opportunity for a contractor to legitimately add extra costs that are more profitable for him.
Lesson: Include an Unforeseeable Work Clause in the contract that states that the owner must be given prior notice before any “unforeseen” work is performed. Include the right to obtain other bids for the work to ensure you are not paying a higher than normal cost.
Consumers can learn more about protecting themselves by visiting The Home Remodeling Bootcamp For Women.