Home Building Contract

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Home Building Contract

A Brief Introduction of Home Building Contract

When a licensed contractor is hired for construction work by property owners, this contract is required. The responsibilities of both the contractor and the home or property owner are included in the contract.

Sometimes it is difficult to estimate the final cost of the project. In such cases, a cost-plus home building contract is required. The contractor charges a percentage over the total cost of the project. In order to protect the interest of both parties, provisions should be made for delays in the contract, along with disputes relating to price and liabilities arising from work-related accidents.

Before the contractor is appointed, the credentials of the contractor are checked, including their license and references. The contract has to be prepared in accordance with the applicable laws of the state. The details of the project and the deadline, as well as the quality parameters, are defined in the statement of work. Sometimes, there are provisions for extension of deadlines and a detailed construction schedule, including stagewise cost. The disputes in such contracts are resolved through arbitration.

Who Takes the Home Building Contract

When a property needs to be renovated, a licensed contractor must be appointed. The contractor will provide estimates for the total project, and payment will either be paid in a lump sum or in installments, depending on the stage of completion of the project. When a homeowner or an organization decides to appoint a licensed contractor, a custom contract is drafted.

Purpose of the Home Building Contract

This contract is a legally binding document between both the contractor and the homeowner or the organization. The contractor has a contractual obligation to complete the project within the deadlines and delivery schedule given in the contract. The quality standards laid down by the homeowner also need to be met.

On agreement of both the parties, certain exceptions may be made in case of delays in the delivery of the project. The homeowner has to make payments to the contractor on satisfactory completion of the project at every stage. If there is a delay in payment, there will be a penalty, unless there is a provision for allowing delays up to a certain date.

Without a contract, neither the contractor nor the homeowner can take legal action arising from the nonperformance of the other party.

Contents of the Home Building Contract

You can understand the contents of such contracts by going through a free home building contracts online.

A standard contract would contain the following information:

  • The names of the parties to the agreement
  • The main and supplementary documents like the building or apartment floor plan
  • A statement of work detailing the quality parameters, deadlines, and sourcing of raw materials
  • Amendments: To designs, materials or the order
  • Construction schedule: The step-by-step completion of the project
  • Compliance: The contract must comply with the applicable laws of the state relating to such contracts
  • Dispute resolution through arbitration
  • Signatures of both parties with date

How to Draft the Home Building Contract

A home building contract template may be used as a reference for drafting such contracts.

The following points should be considered while drafting these contracts:

  • Eligibility to participate: You need to determine whether the homeowner and contractor are competent to contract. They should be over 18, of sound mind, and shouldn’t be coerced to enter the contract. 
  • The consideration is payable: By the homeowner or organization to the contractor, including the mode and frequency of payment. 
  • Contract terms: Both parties should have provisions for extension in case of delays; the contract should not favor one party. If it does, the contract terms should be changed
  • Performance and delivery requirements: The homeowner needs to specify these as payments are made accordingly
  • Method of dispute resolution: In the case of such contracts, arbitration is followed. The sharing of legal expenses should be mentioned

Negotiation Strategy

In home building contracts, the homeowner should prepare a draft contract and share it with the contractor, providing detailed information about the scope of the services. The contractor may either reject the offer or make a counteroffer. Both parties should agree on the clauses before the agreement is signed.

Benefits & Drawbacks of the Home Building Contract

The benefits are:

  • Protection of interest of both parties: The buyer knows that the project will be completed in time, and the contractor is aware that he will get paid on time provided the project has been completed satisfactorily.
  • Penalty for delays: The contractor will be penalized if there are time and cost overruns, over and above the limits allowed under the contract.

Here are the drawbacks: 

  • Losses by both parties: Both parties will suffer losses without a contract. The contractor might deliver the project after the deadline, ultimately causing inconvenience to the homeowner. 
  • No legal remedy: In case of breach of contract by either party, no legal action can be taken

What Happens in Case of Violation

In case of a violation of home building contracts, both parties can reach an amicable settlement. Otherwise, a notice will be sent by the injured party, followed by legal action.

The injured party can claim monetary damages, including lost profits for a total breach. For a partial breach, the cost of replacing the current contractor or loss of income by the contractor is claimed. If there is any fraud involved, then the contract could either be canceled or a fresh contract drawn. If the contract is at an advanced stage, then the contract has to be fulfilled.

In a home building contract, it is very important to have a dispute resolution clause(1), a termination clause, construction, and payment schedule, along with provisions for extensions to protect the interests of both parties. Both parties should read all the clauses before signing the contract(2).