16 Important Things to Know about Home Improvement Contracts

As a homeowner, you know that home improvements can increase the usability and enjoyment of your home, often with the benefit of increasing your property value.

Some minor improvements are inexpensive and suitable for DIYers, even beginners: painting a room or adding a decorative element like a kitchen backsplash, for example.

For bigger projects, though—or if your idea of DIY is driving to the pizza place rather than springing for delivery—you’ll want to pay for the services of an expert.

If you’re only changing one element of your home, you may work directly with a specialist in a particular area. For instance, you might hire a flooring company to replace your carpet with hardwood.

But if you’re remodeling a whole room or building an addition, you’ll likely be working with a general contractor. The one you choose will be the lead on your project and will coordinate with other specialists to get the job done.

Here are a few things you should be aware of before signing a home improvement contract.

What is a home improvement contract?

The home improvement contract is a legally binding document that is signed by you (the homeowner) and the contractor. It should contain all relevant agreements between the parties. On a basic level, it provides a roadmap for what you can expect from your contractor and what they, in turn, can expect from you.

If all goes well, the contract will be filed away once the work is completed and you won’t need to look at it again. But if there are problems or disagreements, the contract represents the rulebook for the project. If any disputes cannot be worked out between you and your contractor, either side may use the contract when bringing a lawsuit.

A well-written contract can prevent the need to take legal action.

Following are some standard sections that should be included in most home improvement contracts:

1. Parties to the Agreement

Because it’s a legal document, the contract must specify who is making this agreement. That means it will include your name and contact information as the homeowner as well as the contractor’s, along with the address where the work will be completed.

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2. Scope of Work

The heart and soul of a home improvement contract is the Scope of Work section. Here the contract will outline exactly what is included in the project.

Sometimes the Scope of Work (sometimes referred to as the SOW) will be a separate document attached to the end of the contract as an exhibit.

Some of the items specified in the Scope of Work include which products will be used (including design choices like color and size), who will perform what work (including subcontractors hired by the contractor for particular parts of the job), material quantities and any identifiers for the specific products and appliances, such as the manufacturer’s model number.

If there is anything you expect to have done that is not in the Scope of Work, ask your contractor to add it. This is not the place to fall back on “I trust them” or “I’m sure we can work it out.”

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3. Change Orders

Once you sign the contract, any changes to the plan must be documented and agreed to by both parties. Your contract should explain the process for Change Orders, which are add-ons to the contract at a later date.

Even small changes must be documented; if you want to change the color of the trim from beige to ecru, for example. This protects both parties if any disagreements come up later.

4. Licensing and Registration

Most trades involved in home improvement project have legal requirements for licensing and registration, and these can vary by state and locality. This part of the contract is where the contractor states that they have all proper licenses and registrations, as do any subcontractors they will bring in. Those licenses may be attached at the end of the contract.

Any work done by improperly licensed contractors can lead to problems down the road—at final inspection, or even by future owners after you’ve sold the home.

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5. Permits, Approvals and Inspections

Your contractor should be well informed about any permits required for the type of work that will be performed on your home. Typically, the contractor will obtain any necessary permits from local government offices. This section should state who is responsible for getting and paying for the permits and ensuring that all necessary approval is received.

Depending on the work to be done and local regulations, inspections may be required—usually at the end and sometimes during the construction work. The contract should specify who will set up the inspections.

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6. Insurance—Loss Coverage and Liability

Anyone you hire to work on your home needs to have proper insurance to cover any unintentional damage to your property as well as injury to its employees. Insurance may include workers’ compensation, liability insurance and surety bonds.

Certificates of insurance may be attached to the end of the contract.

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7. Property Access

This section simply promises that you will provide the contractors and their employees with appropriate access to your home and property so that their work can be completed.

They should also agree to take reasonable steps to prevent excessive disturbance and damage to the area surrounding the job.

8. Site Conditions

Your contract, as written, assumes that things are as they appear to be. But if you’ve watched any home improvement shows, you know that this is not always a fair assumption.

This section explains what will happen in case of unforeseen conditions—insect damage, improper wiring, or the dreaded mold, for example. Generally, the contractor should stop and work with you to make a plan, which should be documented in a change order.

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9. Timing

With so many factors at work—approvals over which you and the contractor have no control, availability and delays in supplies, weather—timing of home improvement projects is notoriously variable.

Your contract should, however, give a reasonable estimated starting and completion date. It may also list dates for different steps of the project.

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10. Project Costs

In addition to the Scope of Work, the Project Costs section may be one of the most important to both parties. This section should be detailed; you should be able to see how much you’re being charged for materials as well as how many person hours are expected and the labor rates.

Other cost factors might include cleanup, deliveries and equipment rental. Any costs that might change based on the actual use or amount of work should be noted as estimates.

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11. Payment Schedule

How much is the down payment, and when is it due? When must other payments be made? Your contract may include portions of the total due upon ordering of materials, breaking ground, substantial completion or final completion.

The payment schedule is a way to hold both parties accountable; you should not make a payment for work that was supposed to be done but has not been completed, and the contractor should not have to continue work if you’re not paying as promised.

12. Final Inspection

Your contract may specify that you and the contractor will do a final inspection once the project is complete. If you find issues at that point, they may be included on a “Punch List” which the contractor will complete before you make your final payment.

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13. Warranties

Your contractor may guarantee the quality of the work done on your project, and there may also be manufacturers’ warranties for products used. This protects you if problems arise or are discovered after the final inspection.

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14. Dispute Resolution

The contract might include details about how you and the contractor agree to proceed if you are unable to resolve problems that arise. If you have a well-written contract, you are both less likely to need outside dispute resolution and more likely to have that arbitration go smoothly if it is needed.

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15. Termination

What happens if you want to get out of the contract? Some contracts may include provisions for canceling without penalty within a few days. There may be fees or nonrefundable deposits if you cancel without good reason, and the contract might specify what situations (e.g., not being able to reach the contractor, or significant personal changes) may allow for the cancellation of the agreement. Terminating a contract must typically be done in writing.

16. Acceptance

This is where you sign! Even if you’ve become accustomed to click-through agreements and fine print, make sure you take your time to read this contract line by line and bring up anything you don’t understand or don’t agree with. Your home improvement project can be one of the biggest expenses you’ll have in your life, and it’s worth it to make sure everything is in order, including any attachments or drawings.

Congratulations! Home improvement projects can be intimidating, but they’re usually exciting because you’re improving the one place where you spend most of your time.

Make sure you save a signed copy of the contract in your files, then relax and watch your much-anticipated improvements come to life.