Meadville Tribune

Letter of the Law

March 13, 2006

Contracting To Build Your Own Home

(Continued)





Most often, the homeowner will be obtaining financing through a lender. The lender will request a copy of the construction contract. In fact, the lender will typically require the owner to execute a construction loan agreement which sets forth the payment terms, or draws, to be paid during the course of the project. These payment terms should be restated or incorporated into the construction contract executed with the builder.



Once the construction contract has been executed and the funds obtained, if necessary, the project is ready to commence. Now the question becomes: what role does the owner play in the construction of the home? If you are like most of the Swick family, the closest we come to lumber or building materials is an occasional trip past the Home Depot or 84 Lumber. If you fall into this category, do not let your lack of experience intimidate you into refraining from injecting yourself into the construction process. You should visit the site often and engage your contractor on a regular bases. Again, education is the key.



The homeowner should closely monitor each draw payment to the contractor to ensure that the items that are to be completed prior to payment have, in fact, been satisfactorily completed. If third party financing is involved, the owner should insist that the bank issue the draw checks to the owner and the contractor as dual payees. This insures the owner's continual involvement in the payment process.



Throughout the course of the construction project, numerous decisions will need to be made collectively by the owner and contractor. No matter how detailed the construction contract is drafted, certain situations not contemplated will arise, necessitating changes. The owner and contractor should try to document any additions or deletions to the contract as thoroughly as possible. The effect of the changes on the total contract price and the length of the construction period should be documented. This is the area, more than any other, that results in disputes between the owner and contractor.

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Letter of the Law
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