Building agreements have been written on many types of paper and in many types of formats. First and foremost take your time with this process. When I say that I mean read every line of the agreement. This one can be the hardest to do but it can help you avoid mistakes. Do not be afraid to ask questions. Don't sign the agreement at the time you are first presented with it. Take a complete copy of the agreement home to read over. Check it for all the changes you desire and any options you are adding. You may desire to hire an attorney to review the agreement and make changes before you sign. (click here for The Florida Bar find a lawyer service)
There are several sections of the agreement you should pay extra attention to:
Completion time period? - Click here for more details
Draw schedule? - Unless you are getting a bank loan you should not put more then 20% down for the first draw with other draws being not more then 10-20%.
Site Access requirement? - Click here for more details
Site development allowance? - Click here for more details
Change Orders? - Click here for more details
Home's construction specifications? - Review the specifications list carefully. DO NOT assume that what you see in a model or from another builder is standard. Do not take anyone's word that something is "code" (building); it may not be. (Example: 3/4" plywood is believed to be code by the owner, when 1/2" composite may be.)
Allowances - This can get more owners into trouble later on in the building process. You think the allowance would get you something "like the model." However, you get a $500 allowance for lighting fixtures while the model's fixtures cost $3,500. This happens all the time.
This part of the building process many times sets in motion the events to come. Do your homework before sitting down at the negotiation table. Make sure you have already asked for every option price and/or every credit back price before you get to the table. Before you get to the meeting, make your own price worksheet. On your worksheet include your wish list items. This is the best time to find out if they will fit into your budget.
Start your worksheet by putting the base price of the home at the top, followed by a list of any options you are purchasing, listing the builder's price next to the item. Under the options list the items you are omitting from the home, listing the builder's credit next to the item. Lastly, list any other type of changes to the home and if there is a charge or credit put that next to each item. Then total up the prices for a grand total.
Generally the best way to negotiate price on your home is on a total percentage off your complete package including all your options, credits and changes. Some builders prefer to give you items rather than a cash discount. That can be fine if the total value of the items you are given are equal to the cash discount you desired. A 3% to 5% discount is not unreasonable to target for and in some competitive markets large discounts are not unusual. I will warn you that if you find that the builder is willing to give you deep discounts be careful. Florida has seen many builders over the years go out of business without warning, some the day after they were taking deposits on building agreements. Remember the old rule "If it seems too good to be true, it probably is!"
Over the years I have watched many builders build homes for owners at less than the cost of the materials for the home. Other professionals get frustrated watching as those builders continue to sell their homes to owners who think all the other builders are overpriced. If you find that one or two builders are significantly less than other builders in the same market you may want to look for another builder. Those are the builders that keep building until one day without warning to the consumer they close their doors and the consumers are left trying to finish their homes themselves. In many cases they have already paid the builder for the work. It is always hard to predict when this will happen.
Before you nail down your next home improvement project, learn the lingo. These common terms and definitions may help you avoid miscommunications with your contractor.
Allowance A specific dollar amount allocated by a contractor for specified items in a contract for which brand, model number, color, size or other detail is not yet known.
Bid A proposal to work for a certain amount of money, based on plans and specifications for the project.
Building Permit A document issued by a governing authority, such as a building department, granting permission to undertake a construction project.
Call-back An informal term for a return visit made by a contractor to repair or replace items the home owner has found to be unsatisfactory or that require service under the warranty.
CGR (Certified Graduate Remodelor) A professional certified program offered through the National Association of Home Builders (NAHB) Remodelor's Council. To attain the CGR designation, a remodelor must take a specified number of continuing education courses and must comply with a strict code of ethics.
Change Order Written authorization to the contractor to make a change or addition to the work described in the original contract. The change order should reflect any changes in cost.
Cost-plus Contract A contract between a contractor and homeowner based on the accrued cost of labor and materials plus a percentage for profit and overhead. Also known as a time-and-materials contract.
Draw A designated payment that is "drawn" from the total project budget to pay for services completed to date. A draw schedule typically is established in the contract. A designated payment that is "drawn" from the total project budget to pay for services completed to date. A draw schedule typically is established in the contract.
Lien Release A document that voids the legal right of a contractor, subcontractor or supplier to place a lien against your property. A lien release assures you that the remodelor has paid subcontractors and suppliers in full for labor and materials.
Mechanic’s Lien A lien obtained by an unpaid subcontractor or supplier through the courts. When enforced, real property—such as your home—can be sold to pay the subcontractor or supplier.
Plans and Specifications Drawings for the project, and a detailed list or description of the known products, materials, quantities and finishes to be used in the project.
Punch List A list of items of work to be completed or corrected by the contractor, typically near or at the end of a project.
Subcontractor A person or company hired directly by the contractor to perform specialized work at the job site. Sometimes referred to as a trade contractor.
(Source: Florida Builders Association)
Last Updated: March 14, 2005 10:44 PM
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