Construction Resource Guide
Step 6: The Contract
Contracts, written or verbal, are binding, although verbal contracts are more difficult to prove. For this reason we require a written contract between you and your contractor or builder, covering every detail you have agreed upon. The two most common contracts are Fixed Price and Cost Plus.
A Fixed Plus contract states the total cost you are charged to build your home. The contract often includes "allowance" items such as appliances or floor coverings you will select later and which you may pay extra should you exceed your allowance.
In a Cost Plus contract the builder quotes you a fee to build the house. The fee will either be a flat amount or a percentage of the cost. You are responsible for any amount over this estimate and will benefit from any cost savings. We accept both types of contracts; however, with Cost Plus you are required to have 10% to 15% of the estimated costs in reserve to cover any cost overruns.
Regardless of which type of contract you choose, we recommend that you include the following items:
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Legal name of all parties and contract date |
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Contractor's license number (where applicable) |
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Project location (legal description & street address) and project price |
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Estimated commencement and completion dates |
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Insurance information (homeowners, theft, builder's risk, etc.) |
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Detailed schedule of work to be completed |
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Listing of all materials where possible, including brand names, model numbers, grades, colors etc. |
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Allowance items |
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Builder warranty |
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Signature of all parties to the contract |
Please note that charges for any changes to the agreed upon contracts are not covered by the loan and are your responsibility.
There are several types of draw schedules that allow payments to your builder. The "five draw system" provides for 20% of the contract price, less the deposit, to be paid to the builder at five pre-determined stages. The "percent complete" system or "line item" schedule requires the contactor to submit a payment request for work completed since the last draw. We can be flexible with draw schedules. If your contractor has special requirements or his own draw schedule, check with your loan representative before finalizing your agreement.
During construction we will contact progress inspectors and your community's building inspector will typically check for compliance with local codes. However, you should be aware these inspectors don't check for workmanship or compliance with your contract specifications. These matters remain your responsibility.
