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Home Construction Contracts
What to Watch out for in Home Construction
Contracts
By: Mark J. Donovan
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Though not a lawyer I have had my
share of experiences with home construction contracts. As a homeowner and as an
occasional general contractor, I have negotiated and signed numerous home
construction contracts with building contractors and subcontractors for building
new homes and home additions. Some of the home construction contracts that I
signed were quite comprehensive, and others were short and sweet. Both can be
acceptable depending upon the size and scope of the project.
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Summarized below are a few things
to pay attention to when reviewing, negotiating and signing home
construction contracts.
First, always have a complete set
of blueprints or drawings, as well as a separate list of unique
specifications for the particular new home construction project. By having
this type of documentation the home construction contract can be simplified
as it can simply reference the drawings and specifications. |
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Second, it is important that the home construction contract contain start and
completion dates. Having a home construction contract that is open ended on
either the start or finish date is a recipe for disaster, both in time and
money. If the home construction project is large, or involves multiple
disciplines make sure that each start and finish date is listed for each phase
of the project.
Third, do not over pay when it comes
to a deposit. It is common for home construction contracts to require a deposit
from you, however it should not be for bank rolling the home construction
project.
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Instead it is to show consideration,
or earnest interest, in the home construction project. Consequently a home
construction contract should not require you to pay more than a 10-15% deposit,
and the money should be put into an interest bearing bank account for your
benefit.
| Forth, if the home construction contract specifies
incremental payment milestones as construction work is completed, make sure
the incremental payments are commensurate with the work being completed. For
example, when the home addition has been rough framed in, then an additional
payment to the contractor for this completed milestone is reasonable. If,
however, the home construction contract calls out for a much higher
incremental payment than the cost of the completed phase of the project,
challenge the contractor. |
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You already made an earnest commitment with an initial
deposit, and again you should not be bank rolling the project. Incremental
payments should be sized for the work completed, not for the work to be
completed.
From personal experience, if you find
yourself paying in advance for work to be performed, you may wind up staring at
a non-completed home construction project.
Ideally you should have the
construction contract written in such a way that as much money as possible is
held back for the final payment. By doing so, you will help to incentivize the
home construction contractor to complete the work to your satisfaction.
Finally, if you feel uncomfortable
with the home construction contract language, seek a lawyer to review the
contract before signing it. Though it may cost you a few dollars, you will save
yourself some worry, and potentially a lot of money.
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