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What Are Residential Construction Contracts?

Residential construction contracts can be extremely complex.
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  • Written By: Christopher John
  • Edited By: R. Halprin
  • Last Modified Date: 13 August 2014
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Residential construction contracts are documents that define the duties and rights between a builder and an owner. A typical agreement identifies the parties to the contract, the scope of work, contract price, dispute resolution procedures, and several other provisions. A builder and the owner negotiate the terms of residential construction contracts. A builder is usually a general contractor responsible for construction. An owner may be a person or company that is paying for the project on the property.

Typical provisions in residential construction contracts include a section identifying the parties. This section includes the name and address of each party. If a dispute arises, the parties use the information in this section to provide each other with legal or contractual notices. Providing notice means that the parties have agreed to inform one another in writing about any disputes concerning a project.

The scope of work describes the services that a builder is agreeing to perform. In residential construction contracts, a builder usually agrees to furnish the labor, equipment, materials, and other services necessary to complete a project. This section also requires the builder to construct a home in accordance with the designs, plans, or drawings provided by or agreed upon by the owner and in compliance with the local building code.

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The contract price in residential construction contracts sets the total amount that the owner must pay to the builder. This section usually sets the payment procedure or payment schedule between the parties. For example, an owner may agree to pay a specified percentage to the builder to commence the work. Thereafter, the owner pays additional sums to the builder upon completion of specified phases in a project. 

Another key section of residential construction contracts is the dispute resolution procedure. The parties usually agree on a process of resolving any disagreements that may arise. For instance, the parties may agree to submitting disputes to mediation before filing a lawsuit. A mediator listens to each side of a dispute and tries to help the parties resolve their conflict outside of court. This type of provision can help each side avoid litigation and save money.

Residential construction contracts have several other provisions and can be complex. Additionally, several other documents called exhibits or addenda are added to a residential construction contract. These documents may include warranties, insurance, designs, or any other paperwork that the parties have agreed should be part of the contract. 

A builder and an owner are free to negotiate the terms of residential construction contracts. The construction industry usually has standard contracts that a builder may use as a model and that comply with appropriate provisions of the law in the jurisdiction. Professionals such as lawyers and building contractors design such contracts.  

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