Building a new home is one of the most important investments a family will make. In many cases it represents the single largest financial investment. The home is designed and built to provide years of pleasure, comfort, and security. It is the physical manifestation of “family” and the place where celebration and joy are expressed and experienced.
No wonder that when it comes to building a home, no one likes surprises. The document that spells out the detail and helps sets expectations for both builder and client is the contract. The contract is the roadmap that defines the destination, describes the detail of how the project will proceed, and steers everyone clear of obstructions and delays.
The contract is crafted so that it protects both builder and client, and clarifies everything about the job. It is organized into a number of sections, including information about the project location (address, lot number, etc.), permits, contractor insurance and licensing, project timetables, and payment schedules.
While all of these details are important, most builders find that if conflicts arise during construction, they’re usually caused by misunderstanding over the “who, what, and how” of the job, and an effective contract works to clarify these issues.
Who makes the decisions?
One very short but important section names the owners’ representative. This should be one person — for instance the husband or wife, but not both — who will act as the builder’s main contact for approvals, changes, and questions. Having one owner as the representative helps eliminate confusion and makes communication more efficient. Similarly, the language should define who on the builder’s team can sign off on changes — whether it’s the company owner or the owner plus the site manager or superintendent.
What, exactly, is the client buying?
The project description defines exactly what the homeowners will be getting for their investment. The more detail the better. Most contracts accomplish this by referencing the project plans and specifications.
The plans are the visual description of the new home, and include floor plans, elevation drawings, and all electrical and mechanical systems. They should note who prepared them and when they were signed. The plans should include all necessary changes — for instance, from the building department and the zoning board.
The specifications, or “specs,” are the written description of what will be done. They list all items that will be installed in the home: the carpet, flooring, door hardware and light fixtures in each room; the model numbers of kitchen appliances, furnaces, and water heaters; the brands and colors of paint and roof shingles. The project price is based in part on the specs, so clients should study these carefully to confirm that they understand what they are getting before signing the contract.
How will discretionary funds be allocated?
Discretionary funds include allowances and change orders. It’s important both be crystal clear. Allowances cover parts of the job that haven’t been fully specified yet, such as when the homeowner has yet to decide on types of flooring or faucet fixtures. The allowance should specify when the decision is needed.
The contract should also clearly explain the builder’s change-order policy, including what types of changes can be made at each stage of the project, who can sign off on changes (the owner and builder reps), and the administrative cost for preparing change orders. It’s in everyone’s interest for even small changes to be documented in writing.
A contract that clearly defines the who, what, and how of the job steers the project clear of the most common minefields. This will help ensure that the homeowners get the home they want, on the timetable and for the price they were expecting.