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Question DetailsAsked on 3/9/2016

contractor went 30% over estimate on new home build. estimate was signed and given to bank for loan. No "contract"

Estimate was given to bank and was signed by the contractor. We live in WI and it was a late fall early winter build, which they knew upon estimate. Labor hours are over by 18k and material is over by 6k. They say labor is due to the "weather" and materials is unknown. We've asked for the breakdown a week ago. Yesterday they threatened a lien. We want to know what we are obligated to pay. The concrete was already 8k over, a mistake they made, but we paid it.

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I am shocked the bank gave you a loan without a WRITTEN CONTRACT and firm price, as opposed to just an estimate. You must have good credit so they figured you were good for the deal without a loan.

Note there is a BIG difference between an ESTIMATE (which implies that the cost will be within 10-20% of that amount barring unseen conditions and could end up being more or less than the estimate) and a firm BID, which is a firm contract price once you accept it in writing.

Obviously you don't need to be told that not having a written contract was a mistake - and before you go forward with more on this (if you do) you should get the scope of work and contract in writing.

It is possible you have a written contract and don't know it - did out a copuy of the "estimate" or "bid" and see if there is fine print on the back - it might be it converted to a contract with firm price once you accepted it (if you ever did sign it).

For the overrun amount he is asking for, and because you already paid for one of his mistakes (the concrete), sounds like he figures you are good for whatever he wants to bill. However, he cannot just crank up the cost without concurrence by you - normally through TIMELY change orders which he presents as soon as he knows there will be an overrun or that he cannot do the job (or a part thereof) for what he bid/estimated. Without your approval for the added costs the change order is NOT part of the contract - just a request by him. Then if you cannot agree on terms and amounts, his option is to walk off the job and cancel the remainder of the contract and possibly file a lien or sue; and yours is to refuse to pay or to sue for completion udner the terms (and price) of the contract. Then the court would decide what his fair compensation for work done is, and whether he has to comply with his bid amount and finish the work or if he gets increases for justified overruns - or if he has to pay you some of the money back and can quit the job, and you then get another contractor to finish the work.

To put it bluntly, you are in a fix, and you need an attorney (which Angies List does not have ratings or reviews for) who specializes in real estate and construction contracts to help you out here, especially as the contractor is threatening a lien.

One of the first things an attorney will probably do is issue a formal letter to the contractor demanding itemization and documentation of and justification for the overruns - not only to get it in detailed writing, but also that gives a little time for him to review the loan and estimate documents to determine if you are working under a firm price bid, or a cost-plus or time-and-materials open-ended estimate situation. Or if you even have a legal "contract" under law at all. Especially if this is new build - in some states real estate and homebuilding contracts have to be in writing to be valid. In a few lack of a written contract for a new build can result in you getting the work for FREE - the builder is prohibited by law from collecting a dime without a written contract, to prevent just the situation you are in.

Then the issue of the overrun justification would kick in - 30% overrun would NOT be considered "normal range" with regard to even an estimate (as opposed to a "bid" which he technically cannot bull any overruns on without a change order orcontract amendment approved by you), so without good justification you have cause to object to the overrun. Unfortunately, without a written contract your recourse might be to go through a lawsuit or arbitration, because lacking a firm contract price his Bond is unlikely to be any use unless his work is deficient or substandard.

It is also possible your lawyer could get the bank to help put some pressure on the contractor here, depending on type of loan. And with regard to the bank - if a lien is placed on the proerpty that might endanger your loan, so the attorney needs to pay attention to the loan terms too. A BIG risk is if this is a construction bridge loan rather than a mortgage (which it commonly is until the house is complete), because if the house is sitting incomplete due to dispute or has a lien for more money outstanding when the bridge loan conversion to a mortgage is due, you could end up with the bridge loan being due and be unable to roll it over to a mortgage. Might need an extension on the rollover date for the bridge loan, at a minimum.

And of course, after all is said and done, subject to your attorney's input to ensure you do not violate any terms of any settlement or suit, an appropriate Review on Angies List might be in order.

Answered 4 years ago by LCD

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