When it comes to remodeling, one of the top considerations for Dallas homeowners is price. Cost is important, of course, but there’s another factor that’s equally important, as it will dictate the final project price. The remodeling contract serves as a guide for contractor and homeowner, not only for price, but for specifications and details for the project. Many homeowners (and even contractors) are confused about contract types, so it’s sensible to enter the process as informed as possible. Here’s an overview of contract types to help you decide which is best for your home.
Defining the Contract Terms
Although remodeling contractors are in the same line of work, they often have different names for contracts with their clients. Some even use the terms interchangeably, and this can cause confusion among Dallas homeowners.
Fixed Price Contracts
Fixed Price Contracts, also known as Fixed-Bid, Fixed-Sum, or a Contract with Dynamic Pricing outline a specific scope of work to be performed for a fixed sum of money. The homeowner pays the fixed sum in the contract, unless during the remodel there are changes or additions to the original specifications. Any such changes require a “change order” that the homeowner and contractor agree upon. Otherwise, the homeowner pays the same amount whether the contractor completes the work ahead of, on time, or behind schedule. This type of contract can be beneficial for both homeowner and contractor, as it contains the scope of work with details regarding materials, workmanship, fixtures, terms of payment, and so on.
Often called a Time and Materials Contract or an Estimate of Costs, this contract specifies that the homeowner pays what the project costs as well as an additional percentage for contractor overhead and profit. It gives the homeowner a good idea of general cost, can offer flexibility for homeowners and contractors, and works well when terms are specific and well communicated. A Cost-Plus Contract is often used for large residential or commercial projects where details all cannot or have not been refined due to various factors such as anticipated changes, possible unforeseen issues, or additional or open-ended work.
Bid with Allowance
The Bid with Allowance Contract is a hybrid of the Fixed Bid and Cost-Plus contracts. This contract contains the price for the overall scope of work as well as specific allowances for items that have not been completely nailed down when the contract is signed. Once these “allowance” items have been chosen, the contractor compares the allowance to the actual cost and the owner either pays the difference (if higher) or receives a refund or credit (if lower).
Remodeling Contract Pros and Cons
Each type of remodeling contract has its pros and cons, so it’s helpful to be aware of them before signing and committing to the project. As you proceed with your Dallas remodel, weigh your options, the project’s needs, and communicate well with a trusted contractor.
Benefits of the Fixed-Price Contract include a detailed scope of work, payment on a fixed schedule, and the security of knowing that the remodeling project price is locked in. This contract will not exceed the amount agreed upon unless additions or other changes are made through a “change order”. The “change order” specifies any alterations to work, materials, and cost and is agreed upon by the homeowner and contractor. When choosing which contractor to use, the Fixed-Price Contract can also offer easier comparisons, provided that the scope of work and other details noted within it are the same.
Fixed Price Cons
Some contractors might not offer proper scope of work or enough details in a Fixed-Price Contract. Another potential drawback can occur when changes or unexpected problems arise, such as previously undetected plumbing or electrical issues, work could be delayed or stopped until “change order” details are ironed out. To help avoid confusion and misunderstandings, homeowners and contractors must communicate well and be clear about expectations and details.
The Cost-Plus Contract offers homeowners a good idea of price with the flexibility to adjust options as the job progresses. Homeowners pay for materials and work that the contractor/subcontractors complete. When considering estimates between reputable contractors, this contract can offer easier comparisons, provided that all details are the same. With Cost-Plus, some contractors also offer “percent complete” updates, showing original estimate versus items billed to date, so that the homeowner is informed during the process.
Homeowners should enter this type of contract knowing that there is no absolute fixed cost. They are responsible to pay for any changes, variations, or overages to the original contract.
Some homeowners may find the numerous details of this contract overwhelming or confusing, particularly if communication with the contractor isn’t good, or the contractor keeps poor records for the project. Cost-Plus estimates from different contractors may be difficult to compare too, if specifications and details are spelled out differently.
Bid with Allowance Pros
This type of contract can be a good “middle ground” for the homeowner and contractor, as the allowances provide flexibility for additions and changes. Allowance prices and quality options for materials such as cabinets, fixtures, flooring, and so on are discussed up front, offering the homeowner a better overview of cost. Homeowners find that the Bid with Allowance Contract offers more concrete parameters in comparison to potential unknown factors and extra costs of the Cost-Plus Contract. With the built in allowances in this contract, contractors can often supply a quicker, more accurate cost estimate.
Bid with Allowance Cons
Unfortunately, a small number of less reputable contractors will use lower allowance numbers with this contract, providing a low overall price. While this lower price may seem like a great deal, it doesn’t accurately reflect the true costs, and homeowners are left paying much more than expected.
Homeowners should also know that allowances can fall short of actual cost of items like fixtures, countertops, and cabinets. If, for example, during the process, a homeowner decides on a higher end jetted bathtub instead of a traditional tub, the cost will exceed the original allowance. Additionally, unexpected circumstances can arise, such as previously undetected water damage, so the cost may surpass the allowance as more work and materials are required.
Homeowners Take Note
No matter what type of contract homeowners use, the potential exists for unpredictable circumstances. So, throughout your Dallas remodel process, aim to communicate well with your contractor and make any necessary compromises through changes, hiccups, or unforeseen issues.
The Difference Between Requesting a Budget and a Bid
A budget is used for renovation projects that encompass a blend of upgrades, such as remodeling a bathroom. The scope of work involved could include flooring, tile, new shower/tub, cabinets, mirrors, fixtures, and so on. To form the overall plan, homeowners and contractor discuss each facet of the work and decide on a budget. The entire project’s components and budget are discussed, with consideration given to materials, design options, and other issues, such as water damage repair.
Contractors will often bid on a job, or provide a bid to homeowners for specific projects, such as window replacement, new roof, or an HVAC system. This remodeling bid generally includes all aspects of the project, such as windows and installation costs, shingles and related labor, or the HVAC equipment and tech install price. A bid is not always customized to the specific project, however, instead it may offer all-inclusive options that don’t necessarily consider potential problems and solutions. This can result in unexpected upcharges or features the homeowner may not want.
When considering remodeling budgets versus remodeling bids for your projects, do your homework to find the right fit for your home. Research your options, consider all the details, ask questions, and maintain good communication with potential contractors.
Advantages of the Design-Build Remodeling Approach
A design-build remodeler is a contractor that designs and completes the homeowner’s entire remodel project. This contractor is invested from start to finish, overseeing every facet of the work, from consultation and design to managing materials, labor, subcontractors, and all the details along the way.
Since the design-build remodeler is involved in the entire process, the experienced and reputable design-build contractor is known for more accurate work estimates. Regarding contract choices, a design-build company often uses the Fixed Cost Contract, as they believe it best suits the homeowner’s needs and budget. A good design-build contractor is the homeowner’s ally, working closely with them and streamlining the process as seamlessly as possible.
Choosing the Best Type of Contract for Your Dallas Remodel Project
Our best advice for choosing the right contract – don’t be afraid to ask questions. Good communication with your contractor is essential. Before you sign, make sure you’re on the same page regarding contract type, terms, and all related details. Signing a contract is like embarking on a journey, where dialog, trust, clarity, and cooperation are the keys to success.
As a dynamic Dallas design build contractor, Blackline Renovations is knowledgeable about every aspect of the remodeling process, from first consultation to completion. Our experience and expertise are illustrated in our portfolio and includes kitchens, bed/bathrooms, living/utility rooms, ADUs/garages, and home additions.
Since 2002, our goal as a Dallas remodeler has been to guide homeowners through the process, exceeding their expectations with our customized plan for their remodeling projects.
Call us at 214-827-3747 or schedule a consultation with our team. We’re here to answer all your questions about your home remodeling needs and plans.
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