The Contractor Agreement – 7 Tips for a Strong Contract

The CONTRACTOR AGREEMENT   –  Follow these seven tips to make sure your contractor agreement works in your favor – not your builder's.

Tip 1:  Hire a lawyer contact a lawyer

  • Contractors use their own forms, which are drafted for their benefit, not yours.  You'll benefit from hiring an attorney to review your contractor agreement or draft one that's you-friendly.  Even though this may cost around $250 to $500, it can save thousands of dollars later if there's a dispute.

Tip 2:  Take the home court advantage

  • Add a "choice of law" or "forum selection" provision, which says that disputes will be litigated on your turf. This provides protection against out-of-town contractors or suppliers – you don't want to have to drag yourself across multiple state lines for a lawsuit.

Tip 3:  Create an incentive to finish

  • Define when the contactor will deliver on his promises, and when he'll get his money. Within the contractor agreement, create a payment schedule in your favor by holding money back until the work is fully completed and you've verified the final payments to subcontractors.  Maintain control by holding the purse strings.

Tip 4:  Reeling in a runaway contractor

  • The most common problem you'll encounter is a general contractor who gets paid, but doesn't pay his subcontractors and suppliers-possibly leaving you on the hook, according to Craig Robelen, a home builder in Boca Raton, Fla.

    Robelen advises protecting yourself upfront by requesting the names of all professionals your builder will work with. Verify that your contractor has paid his subcontractors by requesting conditional partial lien releases during the construction term, and a final lien release at completion. (Have the general contractor collect them and present them to you.)  These are essentially formal acknowledgments from subcontractors that they are being paid for work done.

    Also, see if your contractor has a "payment bond" that guarantees subcontractors will be paid.

Tip 5:  Corral unauthorized costs

  • Your contract should state that any changes that will affect the price of construction should be in writing and countersigned by both you and your contractor.  This protects you from unauthorized charges.

Tip 6:  Avoid kickbacks

  • Protect yourself from kickbacks – where contractors gets bonuses from their subs for referring business-by requesting that builders sign affidavits that they're not getting any "fees" from subcontractors as a prerequisite for doing business with them. Keep costs well-defined by asking for a "bid summary," which should show a minimum of three quotes in every cost category of your budget.

Tip 7:  Binding words

  • If you'd like to avoid going to court in case of a dispute, add a clause in the contractor agreement for binding arbitration. If there's a problem, you and your contractor will plead your case in front of a non-biased arbitrator, whose decision will be final.

    If your contractor balks on any contract point you feel strongly about, do some more research. Maybe what you're asking isn't typical for that kind of job. Talk with neighbors who have had similar work done and sound out other contractors regarding their policies on the disputed issue before you sign anything.  This helps you determine what's customary for your particular area.

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Source: National Association of REALTORs® – HouseLogic.com – This is for information only and not the providing of legal or tax services. 

Harrison K. Long – solutions for real estate and business – REALTOR® and broker associate, GRI – Coldwell Banker Residential Brokerage – 949-854-7747 (phone) – ExploreProperties@gmail.com (email) – CA DRE 01410855 – SFR short sale and foreclosure resource certified by the National Association of REALTORs® – also now serving as a director at California Association of REALTORs® 

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We help people with their best decisions about real estate, listing and selling of homes and properties at Orange County, California. 

About Harrison K. Long

Professional real estate representative, Realtor, Broker associate, Evergreen Realty HomeSmart, Irvine and Orange County, CA.
Real estate broker, CALBRE #01410855.
Providing value and helping property owners, real estate investors, trustees, executors and administrators, fiduciaries, bankers, investor group managers, with listing and sale of properties and best decisions about homes and real estate – Orange County Association of REALTORs, member and prior service on board of directors from 2012-2014; California Association of Realtors, member and now serving on its board of directors; National Association of Realtors – Also an attorney member of the California State Bar Association #69137 – Contact by telephone or text at 949-701-2515.

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