Handshakes work fine for friendly bets, but they're not enough to seal a remodeling deal. Remodeling is complicated work, and both contractor and owner need to make sure they understand what's being agreed to.
To head off disputes that can become nasty and even legal nightmares, remodeling contracts need to be very specific, says Patrick Hurst, vice president at Hurst Construction Inc., a remodeling contractor based in Middleburg Heights, Ohio, and the National Association of the Remodeling Industry's 2004 Contractor of the Year.
In writing upwards of 70 contracts a year, Hurst has few misunderstandings with clients, if any, because his contracts spell out the details. A recent contract, for example, took 15 pages to describe a $155,000 room addition and partial basement.
"We just did a project for a judge," he says. "One of the reasons he chose us is that our contract was so thorough. The judge sees these things every day. If a contract is not thorough, it leaves both parties open for a lawsuit or a dispute."
Hurst consulted with his attorneys in writing his standard contract, and he recommends that other remodelers do the same. And he insists that clients read his contracts. "Our practice is to go through the contract and read it with them. It can take up to three hours, but we prevent any misunderstandings," he says.
That way, a contract does double duty. In addition to spelling out the scope of the work, the contract helps to educate the client about the project ahead. For example, clients need to understand that their projects will involve a certain amount of dust in the home, and remodelers can use contracts to point out that reality.
Or take the case of normal settling that occurs in the backfill soil for a new foundation. The contract should specifically state that such settling will occur. Hurst's contract does that and makes clear that the owner is responsible for filling in such settlement.
Contracts should set other reasonable expectations as well. For example, if new drywall is to match an existing wall finish, a Hurst contract will use the term match through reasonable efforts. Promising a finish that matches exactly is trouble. Over just such issues, a client can raise a fuss, decline payment or insist on rework. These disputes can cost a remodeler money and headaches that a well-written contract could have prevented.
While a good contract should spell out the exact timing and amounts of progress payments, not all contracts are that specific. "Some contractors say they want one-third at signing, one-third when they start, and one-third when they complete the job," Hurst says. "That is really not the way to do it. Our contracts outline clearly the amount to be paid and the specific stage of the job at which it is to be paid. Payments should follow the natural progression of the job."
Exclusions, or items not included in the contract, should be spelled out, too. Hurst usually excludes the cost of zoning variances from his contracts or includes a fixed amount to attend, say, one village board meeting to obtain the variance. And, of course, "When I put in for a variance fee, I include in the contract that all variance fees are to be paid by the owner."
A good contract helps set client expectations, covers any foreseeable problems (and unforeseeable problems, too) and ensures that everyone is on the same page. An extra three hours spent reading the contract with clients upfront can save weeks of legal wrangling and your profit margin later.
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