Written Contracts Prevent Home Improvement Nightmares

By: AARP Education & Outreach | Source: AARP.org | April 5, 2006

Before starting major home improvements or modifications, you need to build a solid foundation with a good written contract. A thoroughly detailed contract goes a long way in making sure that you and your contractor understand what work is to be done and what it will cost.

Your well-written and detailed contract should specify:

• All the work you expect the contractor to complete and all the materials the contractor will use, including the quality, grade and brand of each material.
• When the work will start and end.
• Who is in charge of getting any necessary permits from the city or county. (Most people prefer the contractor to do this.)
• How and when you will pay for the work.

Be sure that everything you’ve agreed to is written down, including any guarantees on the quality of work. If you don’t understand any sections, ask a knowledgeable friend, relative or lawyer to go over the contract.

Also, before you sign any home improvement contract, it’s smart to find out what legal protections you have if things go wrong.

Both you and the contractor must sign the contract. Be sure to get a copy of everything you sign.

What You Don’t Want

• Don’t approve any plans or blueprints unless you understand them.
• Never sign a contract with any blanks.

More Points to Consider

Financing
Be cautious if the contractor offers to arrange financing for the project. Check instead with your bank or credit union where you may get a better loan. If you have any doubts, ask a knowledgeable person to look over the loan documents before signing anything. You need to understand all the risks in any financing agreement you sign. Also, make sure you can afford the monthly payments.

Payments
Arrange to pay in installments as the work goes along, perhaps in thirds—at the start, in the middle and the final third after you sign off on all work. This gives you more control over the contractor’s job performance. While most contractors are honorable, some may be slow to finish your work, if they were paid in advance.

Keeping Track
Be sure you write down how you can change the work plan and how much each change will cost you. It helps to keep a daily journal of work done, materials delivered, changes or additions to your plans, and any problems you encountered.

Canceling a bad deal
What happens if you sign a contract and then decide that you’ve made a mistake? While most contracts and loans can’t be canceled, under certain circumstances you can get out of a bad deal. Different laws apply to canceling the contract and canceling the loan. All loan agreements must comply with the federal Truth-in-Lending Act. This law requires the lender to give you a written accurate account of credit terms and your right to cancel. Other lending laws protect you if you use your home as security for the loan or if your loan has outrageously high interest rates and fees.

Another law allows you to cancel any contracts made in your home or any place other than the contractor’s office if you give written notice (usually within three business days).

When the job is done
Sign the certificate that the work is complete and pay the contractor the final payment only after you, and any necessary local building authorities, inspect the work and find everything is complete the way you want it.

The contractor should put in writing that the contractor paid all subcontractors and suppliers. This is important because suppliers or subcontractors may be able to file a lien against your property if they weren’t paid. A lien is a document filed in the county land records that prevents you from selling your home until the lien balance is paid. If you want to know more about liens, talk with a knowledgeable friend, relative or your lawyer about your state’s lien laws and what you can do to protect yourself.

What if the job’s not done right?
Sometimes in spite of your best efforts, the job turns out badly. If this happens, first try to work out the problem with the contractor. Contractors often consider it a matter of pride to settle differences with their clients. After all, they want you to recommend them to other possible clients.

If the problem can’t be fixed to your satisfaction, report your concerns to your state consumer protection office, building contractors licensing board, Attorney General’s office, or the Better Business Bureau. Speed is essential if you hope to get back any money. Fly-by-night contractors know to get out of sight quickly.

Your contract will be invaluable if you have to sue the contractor. Depending on the amount involved, you may want to sue in Small Claims Court. If the judge rules in your favor and the contractor still doesn’t pay up, a few states have special funds to reimburse you at least partially for unpaid judgments against licensed home improvement contractors.

Take Action

• Make some changes to your home can make it a “user-friendly” for people of all ages.
• Certified Aging In Place Specialists have been trained to know the housing needs of older consumers.
• Be sure you carefully chose your contractor.
• Use this worksheet to make sure you have the necessary terms in your contract.
• Use this worksheet to help you compare bids from several contractors.
• Use this worksheet to compare the cost and terms of various home improvement loans.