What You Need to Know About Residential Construction Contracts
If you’re building a new construction home it’s absolutely vital you understand the finer details of your project. There are many different kinds of contracts your builder could potentially use, so going into the process with a basic understanding of home building contracts will pay off in the long run.
As a homeowner, here’s what you need to know about signing a builder contract to have a builder build your next home.
Why contracts are so important
A contract between you and your builder isn’t optional — you absolutely need to have a signed contract before construction begins and payments are made. Essentially, a contract ensures that you’ll get the home you’re paying for and that the builder will get paid for the work completed.
Your builder will likely already have a contract for you to sign. You can also hire a lawyer to draft a contract. Either way, there are several things you want the contract to include:
Scope of work
Every building contract should explain what work will be completed. This typically includes details about permitting, labor, materials, and everything else that’s needed to finish the home.
The work to be completed will be based off a blueprint, which should also be mentioned.
This portion of the contract should also state that the work must maintain certain quality standards in accordance with relevant laws.
Changes to the scope of work
It’s not uncommon for the scope of work to change, so the contract should state exactly how those changes will be handled. Many contracts specify that Change Orders signed by both parties are required.
You need to know when your new home will be move-in ready. Your contract should state when the work will begin, the general schedule to be followed, and when the work will be complete. Factors like weather can influence the schedule, so you may also want to decide how those delays will be handled.
When will invoices be delivered and when will payment be required? What specific method of payment will be used?
This section might also contain information about mechanic’s liens, which give you peace of mind that the builder’s subcontractors have been paid. To learn more about avoiding mechanic’s liens on your home, review this helpful article.
Some states explicitly require warranties, though most contracts contain express warranties. These detail the defects that your builder will fix at a later date, how those defects will be fixed, the length of the warranty, and your responsibilities around maintenance.
Contractor default provision
What happens if your builder breaches the contract? This piece details what will happen if your builder defaults, including what exactly constitutes a breach of contract. It also sets a timeline for you to stop the construction or hire a new builder if needed.
Dispute resolution procedures
Disputes aren’t uncommon in construction, so you want to make sure your contract states exactly how disputes will be handled. Many construction contracts require arbitration (which means you can’t sue in court), where someone familiar with home construction will listen to both sides. Then, they’ll issue a binding decision on how the problem will be fixed.
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