Home Renovations – Your Agreement, Your Budget and "Out Front Money" In a Nutshell

Home Renovations Your Agreement, Your Budget and "Out Front Money" In a Nutshell

No doubt you have heard this before but it bears repeating:

Get it in Writing! Here's why:

1. The day of the "handshake and a smile" agreement between two parties and everything works out just fine is long, long gone.

2. In the same context if a contractor or subcontractor smiles and says (sometimes repeatedly) "My word is my bond", run like your hair is on fire. Unfortunately that concept also went out a good while before the horse and buggy was replaced by the motor car.

Your Budget: It is usually wise to withhold your actual budget until you are given a price by the contractor. If you give it to him early and the pricing process shows that it could cost a good bit less than your budget there is a chance that the contractor will increase the price to be close to your number. If, on the other hand, your budget is too low it may turn a good contractor away before you have an opportunity to try to negotiate with him and find a compromise that will get you most of what you want within your actual budget.

"Out Front Money":

You will find that a lot of smaller contractors, especially in the residential and renovation markets, will want you to pay them some amount of money "out front" (i.e., before they start).

This is typically a sign that the contractor has little to no credit or bad credit in the market place (subcontractors, suppliers, etc.). Frankly there have been numerous cases where a homeowner paid a contractor "out front" and the contractor never showed up again.

Obviously you will have to make the decision if and when the subject arises but our very strong recommendation is that you find a contractor who can "carry" the job's expenses for the first thirty days (or for whatever time frame you and he agree will pass between billing cycles) and you should only pay for work completed and materials stored on site. (Please see "retainage", discussed in other articles).This process offers two benefits to you:

Doing this ensures that you will stay somewhat ahead of the contractor economically so he will have incentive to perform. In essence he spends or commits to moneys on behalf of your project by performing work and supplying materials before he can get paid. This is an excellent incentive. It also more or less ensures that the contractor is operating as a legitimate business and is not a "fly by night" entity in which he might not be able to finish your job because he has no financial stability or discipline. There are exceptions, of course, as in all things.

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