Residential Building Contracts: Everything You Need to Know
Residential building contracts places all parties in a binding agreement in regards to a construction project that needs to be completed. 3 min read
Residential building contracts are an essential component of residential building. A construction contract places all parties in a binding agreement, the owner and builder, in regards to a construction project that needs to be completed. In return, the contractor responsible for the project receives compensation as outlined in the contract.
Regardless of the contract type, it should contain certain universal provisions:
- Specific terms
- Project quality
In essence, the contract should ensure that you get the house as promised, and the contractor should get paid for building the house. The agreement ensures no disagreement arises between both parties before the project begins, and to offer a guide in a case any problems occur.
Contractors will give you an agreement that’s ready to be signed. Also, you or an attorney may draft an agreement. The contract itself varies depending on the project. For instance, the contract may have a few details or may be filled with pages of complicated terms that may be harder to comprehend. To safeguard your rights, ensure that the contract terms are concise and simple to understand.
You should be aware of the several construction contracts that typical in the industry, but many professionals tend to prefer certain contracts above others:
- Lump Sum Contracts: This type of contract is used when risk should be transferred to the builder, and in cases where the owner wishes to avoid unapproved work and change orders. With that, the contract needs to include a certain cost percentage associated with carrying the risk. Lump sum contracts are ideal in cases where a set schedule and clear scope has been determined.
- Cost Plus Contracts: This agreement involves payments to the purchases, costs, and other expenses stemming from the construction project. The agreement must mention specific factors about a pre-negotiated sum (labor cost and material percentages) that covers the contractor’s profit and overhead. Other name variations of cost plus contracts include fixed fee, fixed percentage, with guaranteed maximum price and bonus contract, and guaranteed maximum price contract. Cost plus contracts are prominent in cases where scope has not been fully assessed, and the responsibility falls on the owner to create parameters on the amount a contractor can bill to the owner.
In addition, material and tie contracts are ideal if the project itself is unclear. Further, such contracts are a good fit for smaller projects, or when you make guesses on the time it may take to finish the scope.
Scope of Work
Scope of work includes the following attributes:
- Obtaining permits
- Labor and furnishing
- Other services to finish the house
In addition, the scope of work mandates the contract adhere to the house plans and other specifications to complete the project, and all plans and blueprints should be included with the agreement. With that, the contract and other documents may contain conflicting information, which is why it’s important to get a full understanding of the project scope.
You may assume parts of an agreement is implied, but you should also ensure the contract includes statements mentioning that a contractor should complete the work in a quality fashion and in accordance with relevant laws to prevent issues with contractor performance. Also, you may refer to such a provision in court if the contractor breaches the contract.
In regards to work timing, ensure that the agreement notes the following:
- When the project should start
- Work schedule
- End date
You may also grant rooms for extensions in the event of holidays or poor weather. In addition, be aware of other delays in the form of worker strikes, delayed inspections, or any changes in the scope of work. Such considerations should be based on factors that are beyond a contractor’s control. Further, add a provision for any liquidated damages and if the contractor continues to work beyond the deadline.
For instance, you may charge a contractor for reach day the work extends beyond the cut-off date. A provision for liquidated damages will safeguard the owner from any undue delays while incentivizing contractors to finish the project on time.
To find out more about residential building contracts, submit your legal inquiry to our UpCounsel marketplace. UpCounel’s lawyers have graduated from some of the best law schools in the country and will help you in the event of a legal dispute, regardless of whether you’re a client or contractor. Further, our attorneys will help you draft a solid residential building contract that reflects your homeownership goals or desired compensation amount.