A contract is a written legal agreement between two or more parties. A home improvement contract must be in writing and signed by all parties to the contract. Any changes to the contract must also be in writing and signed

by the parties to the contract. A copy of the dated contract that is signed by both the contractor and buyer must be given to the buyer.

The contract should clearly identify the work to be done, the time at which the work will be performed, the materials to be used and the cost. Each state stipulates the dollar amount that serves as the baseline in determining the requirement for a written contract for the home improvement project. Some states require a written contract for any project with a dollar value of $500 or more.

No payment of any amount other than a down payment can be demanded or accepted by the contractor until the work is performed and the materials delivered. Each state determines the maximum down payment that can be required. In some states, the down payment cannot exceed $1,000 or 10 percent of the total contract amount whichever is less.

Any sales commission included in the contract price will be paid on a pro rata basis in proportion to the schedule of payments made to the contractor. The name and registration number of the salesperson is to be included in the contract.

Contractor Information. The name, business, address, and license number of the contractor as well as the name and registration number of the home improvement salesperson that solicited the contract should be stated.

Type of Contract. The terms "Home Improvement" should be stated on the contract.

Consumer Notification. The phrase "You are entitled to a completely filled in copy of this agreement, signed by both you and the contractor, before any work may be started." Should be stated on the contract.

Description of Work. The description of the project and a description of the significant materials to be used and equipment to be installed should appear on the contract. The description of the materials should include the quality, quantity, weight, color, size, or brand name.

The contract should include everything that is agreed to including complete cleanup and removal of any debris and materials and special requests. Any work to be performed by the home owner should also be noted on the contract.

Price. The price should be clearing identified by the phrase 'Contract Price' and entered as dollars and cents. Any associated finance charge should be separately stated as 'Finance Charge' and entered as dollars and cents. The contract price must be all inclusive of profit, labor, and materials but exclusive of finance charges. The contract price can also include a specific dollar amount to be set aside for certain materials, fixtures, and other items that have not been selected by the Owner. These allowances will include all overhead and profit plus applicable taxes. If the final cost of any item addressed by this set aside value that costs more or less than the dollar value listed will result in an increase or decrease in the contract by means of a written change order.

Down Payment. A statement of the specific amount of the down payment will appear as well as the statement: "The down payment may not exceed $1000 or 10 percent of the contract price, whichever is less."

Progress Payments. Any payments that will be required in addition to the down payment prior to the completion of the contract must be specified by a schedule of the progress payments, a heading "Schedule of Progress Payments", a statement pertaining to each progress payment that includes both the dollars and cents of the payment and the amount of work or services to be performed and materials and equipment to be supplied, and a statement to the effect "The schedule of progress payments must specifically describe each phase of work, including the type and amount of work or services scheduled to be supplied in each phase, along with the amount of each proposed progress payment. It is against the law for a contractor to collect payment for work not yet completed, or for materials not yet delivered. However, a contractor may require a down payment."

Time Frame. The contract must describe the work schedule by means of a statement that describes what the 'start of work' consists of, the approximate start date, and the approximate date the work will be completed. 

Consumer Notices. A statement "List of Documents to be incorporated into the Contract' should be followed by the list of papers that will accompany the contract. These notices may include notes about extra work and change orders, commercial general liability insurance, workers' compensation insurance, performance of extra or change-order work notice, mechanics' lien warning, contractors board notice and cancellation notice.

Bottom line. This area is used to record the signatures of the contractor, salesperson and consumer in addition to the date. 

Warranties by Contractor. Any warranty made by the contractor should be clearly stated in the contract.

Warnings and Exceptions. The contractor must give the consumer a 'Notice to Owner' warning about property liens. Any subcontractor or supplier or worker who is not paid may place a mechanics' lien on the property.

Cancellation. This element of the contract refers to the buyer's right to cancel the contract within 3 days. The buyer must notify the contractor in writing and the contractor must return all moneys to the buyer and return the property to the state that existed before the contract.

 

A Checklist for the Home Improvement Project

• Contact the Contractors State License Board to determine the contractor's standing with the state
• Obtain at least 3 references for each contractor you are considering for the project
• View the completed work of each contractor you are considering for the project
• Identify the permits that will be required to complete the project
• Read and understand the contract
• Determine if the 3-day cancellation right pertains to the proposed project
• Determine the exact start and end date of the project
• Ensure that the contract makes specific statements regarding the work to be done, the material to be used, and the equipment to be installed
• Ensure your down payment is $1000 or 10% or less of the total contract value.
• Review and understand the schedule of payments
• Review the 'Notice to Owner' that pertains to liens