How to avoid a nightmare with your contractor
Generally, the biggest confrontations with contractors occur over money and scheduling
Compass vice president and former HGTV host Mike Aubrey discusses the declining price of houses in large coastal cities and the Millennial approach to homeownership.
You might be one of the fortunate people who had a flawless experience adding a room, building a second story or remodeling your kitchen. Thank goodness for your flawless experience, but there are lots of people, including myself, who have made some blundering errors with contractors and builds or just didn't do their homework in advance.
There are many types of construction contracts offered by general contractors. My advice is to read every word, and if you are not a lawyer, hire a lawyer to read the contract carefully.
A few areas to be most alert about are:
1. Is the contract a fixed, out-the-door contract, or is the amount your contractor is being paid a percentage of the building cost?
2. Is every cost specified and tied to your architectural drawings and your designer's selections? Alternatively, you may have only specified allowance amounts, but how do you know they are realistic? Allowances can be dangerous.
3. Is the builder fee also a percentage of your allowance amounts and your change order upgrade amounts?
4. Is there an absolute cap on the total project cost? Who pays any overages?
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5. Is there a realistic contingency amount for unforeseen issues? What happens if costs come up beyond the contingency amount?
6. What happens, and who pays, if the city and building departments suddenly ask for a haul route, more engineering, more soil reinforcement, more grading, more structural enforcement, additional safety, erosion control, handicap considerations, inspection and re-inspection?
There are many types of construction contracts offered by general contractors. My advice is to read every word, and if you are not a lawyer, hire a lawyer to read the contract carefully.
7. Are there penalties for delays? Are there escape clauses that allow the contractor to blame the city, weather conditions, acts of God, material delays, material defects or back orders?
8. What obligations do you have to the project, and how does your involvement to order and pay for items void a builder's obligation or warranty moving forward? Can you personally be blamed for delays?
9. The payment schedule is a huge consideration. Be very cautious not to overpay on work in production and on phases not 100 percent complete.
Contractors are notorious for blaming misunderstandings and additional costs on incomplete or ambiguous notations on the architectural plans and shifting the responsibility onto other people. Generally, the biggest confrontations occur over money and scheduling.
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Builders often provide a pay schedule to be given portions of their fee upon the completion of work milestones. Examples include completion of the foundation, framing, rough electrical and plumbing, drywall, rough carpentry and carpeting. Hold back an amount in each phase so there is plenty of money to keep your contractor's feet to the fire. The biggest mistake is leaving only a small amount to be paid with a huge list of items incomplete.
Most contracts read that either party may terminate anytime with 72 hours' notice. Imagine that you only have $100,000 left and your contractor walks off the job. You now have a new contractor assess the remaining work needed to finish the job. The contractor sends you a written proposal for $280,000. Ouch. You are $180,000 short because you followed a pay schedule that was overloaded at the top and underweighted toward the bottom. Contractors are notorious for asking to be paid as much and as often as agreed, because if there is a falling out, they want the risk to be more on you. This is not to say they are dishonest. Contracts are mutually agreed upon, so just speak up and don't be shy.
Delays can be caused by materials not coming in on time (sometimes because they were not ordered in time, sometimes because of a backorder), bad weather or because a contractor is not showing up as needed. Be careful of contractors with too many projects going at one time, vacations, illness or a short staff. Does your contract include a project supervisor? Who pays for that? How much delegation will there be? How often will your contractor be at the project, and how hands-on will he or she be?
I could go on and on. Ask to see sample contracts from several contractors to compare, and have a lawyer read any contract before signing. Please know that there will be bumps in the road no matter what.
Ron Wynn has been among the top 100 agents in America for over 10 years, as noted on REAL Trends/Wall Street Journal. Ron has represented over 2,200 sales totaling over $1.5 billion in sales volume in his 30-plus-year career as a real estate broker in California.
He is a noted speaker, trainer, advisor and writer affiliated with Compass, and previously affiliated with Coldwell Banker for 20 years. He also provides weekly coaching articles for over 3,000 real estate agents worldwide and online.