SPECIAL SECTION: TRANSFORMATION
CONTRACTS FOR FLIPS
extra flat payment (i.e. $50) for each day early the project is completed. Why it matters: You now have placed a slight “cush- ion” between your returns and a potentially overdue project and, at the same time, offered your contractor a tangible reward for getting done early.
and you must leverage financial penalties. Without clear dates and expectations, you will have trouble enforcing those penalties. (See #4) #4 LIQUIDATED DAMAGES/ INCENTIVES CLAUSE This clause places a penalty on the contractor if work is not completed and in- centivizes on-time (or ahead-of-schedule) delivery. It basically states that if the work is not completed within a certain number of days of the day of commencement (start date), the contractor will either be obligat- ed to repay monies to the owner or forfeit a certain amount of money for each day they are late. This item also details monetary incentives for early delivery, such as an
#3 "TIME IS OF THE ESSENCE" Identify not just how long you expect the work to take, but specify a start date, a date of completion, and intermediate milestones for structural work that may be affected by the changing seasons. For example, a contract for a new roof installation should specify the project be completed before the local rainy season and firmly establish a date. This clause also specifies the size of the crew the contractor is expected to bring and how all requirements will be met. Why it matters: This type of information gets every- one on the same page in terms of timeline. It also will be of service if, during the project, things get behind
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Tom Olson is the CEO of The Olson Group and Good Success. He is not a lawyer and has provided this training for educational purposes only. Consult your
Howa ContractWill Make or BreakYour Real Estate Transformation FORGET THESE 4 ITEMS, AND YOU COULD BE OPEN TO LAWSUITS, LOSS, AND LIABILITY.
own trusted legal professional before implementing any legal strategy. Learn more from Tom about contracts, active turnkey, and community transformations at goodsuccess.com.
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by Tom Olson
A
ny successful property transfor- mation will rely on a successful
profitable, productive, successful real estate transaction once the repairs, renovations, and upgrades are complete: #1 THE BASICS Don’t forget to put in important items like property address, date the con- tract was created and agreed upon, and names and addresses of the customer (you or your business) and the contrac- tor. Furthermore, specify at the outset who has each title, meaning identi- fy yourself as the customer and the contractor as (usually) the contractor, although some investors refer to them more generically as service providers.
#2 BACKGROUND AND SCOPE OF WORK
relationship with your contractor. While many investors still pride themselves on “handshake agreements” within their local professional community, a solid, written agreement will not only protect you. It also shows professional courtesy to your team members (contractors) and indicates that you want to both pro- tect them in the event of a disagreement and reward them if a project goes even better than expected. While there are dozens of important items to be included in your contractor agreement, four stand out as imperative. Some of them may seem too obvious to be included, but I have seen legal battles lost and won when they were left out. Here are four crucial things to include in a contract in order to optimize your chances for a
Your contract should describe the job in detail and indicate why you believe the contractor has the tools, experience, and qualifications for the job. Identify not just what is going to be done (i.e. plumb the bathroom), but also what brand will be used for the fixtures. Furthermore, scope of work should also include what will not be done (i.e. if you do not need a waterproofing membrane between the top and structural concrete slabs in a home, that membrane should be men- tioned as not being part of the job). Why it matters: This greatly minimizes future discrepancies regarding duties and obligations of both parties.
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Why it matters: Most agreements will not stand in court if these items are not specifically in the contract.
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