Contracts can be confusing to homeowners. It is important that you feel that you can take your time reviewing a contract before you sign it. You should also feel comfortable asking your attorney to review it before you sign.
A good contract will protect both the homeowner and the contractor when a remodeling project starts. A good contract will help to produce a successful outcome in which expectations are met, obligations are fulfilled, and everyone is happy.
It is always important to understand the terminology in any contract. Here are ten key terms in remodeling contracts that you will want to understand before it is time to sign on the dotted line.
Assignment Clause – a statement in a contract that prevents a contractor from transferring the project to another contractor without permission from the homeowner
Binding Arbitration Clause – a statement in a contract that in the event of a dispute, both parties to the contract agree to abide by the decision of a mutually acceptable mediator or the determination of the laws of the State.
Change Order – a written document that modifies the terms, specifications, materials, price, or any other terms of a contract. The change order should be signed and dated by both the contractor and the homeowner.
Contractor – a company or individual licensed by the state or other government to perform construction and remodeling projects. There are various types of contractors: General contractor – a contractor who takes responsibility to organize and coordinate all the trades-people necessary to complete a remodeling project; Subcontractor – a contractor who specializes in a particular type of work and works for a general contractor.
Fixed-price Contract — a detailed work contract that states the cost for specific materials and labor necessary to complete a project to stated specifications and includes a fixed total cost to do the complete job.
Indemnification Clause – A statement in a contract that the homeowner will be held harmless for all damages, costs and attorney’s fees arising from harm caused to the contractor, subcontractors and other third parties by the contractor’s performance of the specified work.
Independent Contractor Clause – a statement in a contract specifying that the contractor is being hired for the project as an independent contractor and is not an employee of the homeowner.
Liability Waiver – a statement in a contract exempting the homeowner from liability if the contractor is injured while performing the work outlined in the contract.
Setback – the distance a building must be set back from the property lines in accordance with local zoning ordinances or deed restrictions, often specified in a home addition contract.
Time and Material Contract – an agreement with contractors in which they are paid both an hourly rate and for the cost of the materials they buy to complete the work.