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All new home features or home remodeling projects are not equal. Which projects are the best ones for those looking for a solid return on their investment? Click on the bold text items below to view some top ways to add value to your home.
Remodel Your Kitchen
Remodel or Add a Bathroom
Home Office Remodel
Renovate or Add a Family Room
Replace the Roof
Landscape Your Yard
Replace Old Windows
Remodel Your Basement
Paint, Paint, Paint
An educated shopper is a smart shopper. This especially hold true in the world of hiring and working with contractors to build or make improvements to your home. As you interview potential builders or remodelers, being able to understand the terminology they use can help you avoid miscommunication and ensure a smoother experience so you and your family can enjoy your new home or updated kitchen, bathroom or room addition even sooner. Here's a glossary of some of the common terms used by builders and remodelers to help you understand the language of your remodeling project:
Allowance: A specific dollar amount allocated by a builder or remodeler for specified items in a contract for which the brand, model number, color, size or other details are not yet known.
Bid: A proposal to work for a certain amount of money, based on plans and specifications for the project.
Building Permit: A document issued by a governing authority, such as a city or county building department, granting permission to undertake a construction project.
Call-back: The informal term for a return visit by the builder or remodeler to repair or replace items the home owner has found to be unsatisfactory or that require service under the warranty.
Change Order: Written authorization to the contractor to make a change or addition to the work described in the original contract. The change order should reflect any changes in cost.
Contracts: Before proceeding with construction of your new home or remodeling project, you should carefully review and sign a contract with your builder or remodeler. The purpose of the contract is to protect both you and your builder or remodeler by carefully identifying the: scope of work, terms and conditions of construction, payment schedules and post-project expectations such as related warranty work.
Draw: A designated payment that is "drawn" from the total project budget to pay for services completed to date. A draw schedule typically is established in the contract.
Lien Release: A document that voids the legal right of a contractor, subcontractor or supplier to place a lien against your property. A lien release assures you that the builder or remodeler has paid subcontractors and suppliers in full for labor and materials.
Mechanic's Lien: A lien obtained by an unpaid subcontractor or supplier through the courts. When enforced, real property - such as your home - can be sold to pay the subcontractor or supplier. If a subcontractor or supplier signed a lien release, then this lien cannot be enforced.
Plans and Specifications: Drawings for the project, and a detailed list or description of the known products, materials, quantities and finishes to be used.
Professional Certifications: Home owners and potential home owners in southeastern Michigan have access to professionals who've invested time and money to improve their skills, advance their careers and be recognized for commitment to professional growth by earning designations from the National Association of Home Builders (NAHB).NAHB has the most targeted curriculum, accomplished teachers and widely respected education opportunities in the business. Finding a builder or remodeler who has completed one or more of these certification programs is your first step to a successful project.
Punch List: A list of work items to be completed or corrected by the contractor, typically near or at the end of a project.
Subcontractor: A person or company hired directly by the contractor to perform specialized work at the job site - sometimes referred to as a trade contractor.
Learn more from the National Association of Home Builders about building or remodeling your home, including a checklist for selecting and hiring a builder or remodeler and advice on financing and designing your project.
Before proceeding with construction of your new home or remodeling project, you should carefully review and sign a contract with your builder or remodeler. The purpose of the contract is to protect both you and your builder or remodeler by carefully identifying the: scope of work, terms and conditions of construction, payment schedules and post-project expectations such as related warranty work.
A variety of problems can arise during the course of construction and and a contract can help address their resolution. Just ask yourself "what could go wrong in terms of the builder's or remodeler's performance or financial stability?" Then, make appropriate provisions in the contract.
There is no standard form of contract agreement, although many professional builders and remodelers likely already have a contract that they use, with appropriate modifications made for each specific project. Regardless, plan to have the contract reviewed by your own legal counsel to ensure that you are protected.
Many home owners or potential home owners fail to realize the difference between a contract and project drawings and specifications. Contracts are legally binding documents while project drawings and specifications are simply documents upon which the builder or remodeler has based their price and commitment to perform the work. Your contract should incorporate the drawings and specifications by reference, thereby obligating the contractor to proceed with the work accordingly.
Commonly, contracts are financially constructed either on a "fixed price" or "cost plus" basis. Both methods have pros and cons. In general, the better defined the project is at the outset, the more likely the "fixed price" option is the best solution. For projects where you as the home buyer or home owner expect to be making decisions and/or changes as the project progresses may decide to take the "cost plus" approach to avoid potentially high change order charges to a "fixed price" contract. Sometimes "cost plus" contracts have a guaranteed maximum price associated with them as a means for constraining overall project costs.
Methods for paying a builder or remodeler should also be defined in your contract. On projects taking less than thirty days, the builder or remodeler is typically paid a down payment, with the balance due upon completion and acceptance by the owner. On projects taking more than thirty days, payment to the builder or remodeler generally involves progress payments (e.g., monthly, by phase, etc.) based upon the progress and value of the builder's or remodeler's work, with the final payment being madeÂ following completion of the work and the owner's acceptance. If the owner is financing the project through a commercial lendingÂ institution, the lender will likely visit the site each month, certify the progress of the work, calculate the loan disbursement payable to the owner, and issue a check to the owner which will then be signed over to the builder or remodeler.
Retainage is a holdback from the progress payment and/or the final payment in an amount, generally about 5 percent of the contract price. The purpose of the retainage is to leave enough money in the contract for the owner to complete any uncorrected or uncompleted work in the event that the contractor fails to do so within a reasonable time.
Once construction has begun, owners generally do request changesÂ in the work. That's just human nature. The handling of these change orders needs to be addressed in the contract, and is typically addressed with a provision that change orders need to be agreed upon in writing before the builder or remodeler proceeds with the work. The written change order should address issues of price increases or decreases and impacts on the construction schedule.
An allowance constitutes a dollar value of the contract price which has been set aside for the purpose of financing a distinct portion of the work, such as light fixtures, floor coverings, etc. For example, if the owner has not quite made up their mind about selection of floor covering, bathroom fixtures, or kitchen countertops, the contractor will plug a figure (i.e. an allowance)Â into the contract to allow for the labor and materials associated with installation. If it turns out that the owner selects bathroomÂ fixtures costing more than the allowance, the owner is obligated to pay the builder or remodeler for the excess. And, of course, your contract should also work vice versa.
The owner should request a warranty from the contractor that states all work will be performed in a commercially reasonable manner and there will be no defects in the labor or materials furnished to the project by the builder or remodeler. The warranty should be for a period from one to six years, depending upon how much the owner is willing to pay for the warranty. Typically, builders or remodelers will provide a one-year warranty. The owner should request the builder or remodeler to provide to the owner all written warranties for all manufactured or consumer products which are installed during the course of construction such as roofing materials, appliances, windows, heating and mechanical systems, etc.
Deciding how much to spend on your home and which type of mortgage will work best for you -- as well as understanding the settlement process -- can be confusing. However, there are many sources that can help you get prepared well before you step foot into a sales office, model home or open house.
- Get familiar with the lingo. The National Association of Home Builders Home Buyer's Dictionary can help you.
- Figure out what you can actually afford to pay on a monthly basis.Â When determining the monthly payment you can afford, remember that, in addition to the monthly principal and interest, you will also be paying into escrows for property taxes, hazard insurance and possibly a homeowners or condominium association assessment. You have more knowledge about your living expenses than a lender. Hold firm with that number and don't be tempted to agree to an amount higher than what you are comfortable spending. Mortgage calculators are a great way to figure out what your monthly payments would be based on interest rates and down payment amounts. Calculators can be found on most real-estate-focused websites.
- Pay down your debts. Debt that you carry on your credit cards will limit what you qualify for from a lender. Lenders want to see a total debt service ratio that is less than 40 percent of your monthly income.
- Attend a first-time home buying seminar or talk to a credit counselor who does not work for a lender. You can research your options without being influenced by someone who has a financial interest in the home or loan you choose. The U.S. Department of Housing and Urban Development (HUD) offers free housing counseling and seminars.
- HUD also has a handy booklet on its site called "Buying Your Home: Settlement Costs and Helpful Information." It describes the home buying and settlement process and explains most of the expenses you will encounter. It is free and most lenders are required to provide their loan applicants with a copy of this document under the Real Estate Settlement Procedures Act (RESPA). However, you will be able to shop more wisely for settlement services if you have read the pamphlet before you visit a lender.
- When you have done your research and are ready to move on to the next step, visit a lender, understand the loan choices that would be available to you, and, once you've determined the most suitable loan, get pre-approved for that loan. Since you will already know how much money you can borrow, you will know what price range you should be looking at and can move quickly if you are bidding on a house that has several interested buyers. A lender's pre-approval would still be subject to a final verification of your credit and a satisfactory appraisal, but it's a big step toward becoming a home owner.
Over the long-term, home ownership is still a great individual investment.
"Why?" you may ask. "Isn't, the housing market is down and out?"
Realizing that housing, like all markets, inevitably has its ups and downs, home ownership has a proven track record for creating and maintaining wealth.
If you have good credit and a steady job, you will find plenty of mortgage credit available at good rates. For well-qualified buyers, rates are near all-time lows.
Home Ownership's Real Value...Dollar for dollar, home ownership is a solid stepping stone to a future of financial security and the single largest creator of wealth for many Americans.
Don't miss out on the benefits of home ownership.
* - The information on this Website is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security or any financial instrument or to provide any investment advice in any jurisdiction. BIA of Southeastern Michigan is not providing specific investment advice to any individual viewing the content of this Website and does not represent that the securities or investments described herein are suitable for any specific investor. Investors are advised not to rely on any information contained on this Website in the process of making a fully informed investment decision. BIA of Southeastern Michigan expressly disclaims all liability in respect to actions taken based on any or all of the information on this Website.