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Renovating In A Recession: Why It Could Cost You More If You Don’t Protect Yourself With These 5 Key Clauses In Your Contract

Date: Monday, 28 September 2009

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. Believing that the economy is giving them this great opportunity to take advantage of – when in fact it’s the homeowner that’s getting taken advantage of!

Here’s what a less than ethical contractor hopes the homeowner doesn’t know:

> 1.) His bid does not 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 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.

These are just a few of the clauses folks should consider including depending on the scope of work top be performed.

There is so much more you need to learn about to protect yourself from unscrupulous business practices. Consumers can learn more about protecting themselves by visiting the ContractorsFromHell.com and enrolling in the Home Remodeling Bootcamp For Homeowners.

The Home Remodeling Boot Camp, an online member site I created is designed to teach consumers to be their own best advocate and in control of their project. Engaging homeowners to do the necessary homework, giving them the tools and information to help them choose their contractor wisely, will help mitigate the most common problems encountered when hiring and working with contractors.

Don’t become a statistic! Get the upper hand and stay in control of y our project. Join the Bootcamp now!

 

Jody Costello

Americas’ Home Renovation Planning Expert

Home Improvement Expert

eLocal.com

Home Improvement Expert

eHow.com

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