Friday, January 30, 2009

BAGB Economic Forecast Dinner

Last night I attended the Builders Association of Greater Boston economic forecast dinner. The speakers were excellent, and they provided some encouraging news for Massachusetts and the nation. To summarize, their view is that the first quarter of 2009 is going to be the worst, and then things are going to gradually get better. In their opinion, we all need to try to funnel money into the economy. Those who want to buy homes should start doing it now. Mortgage rates are low, and housing prices have dropped. Those waiting for prices to drop even lower are part of the reason that we are in such a bad situation right now. There are efforts being made to help protect buyers by reimbursing them if prices were to drop even lower.

So, that supports my contention that it is a good time to renovate. You will be helping the economy and availing yourself of the good deals out there. To my last comment: There will still be bad contractors out there, but I do believe that those who are riding through this storm do tend to be the better one. It is not a guarantee, but I was in a room full of all kinds of players in the industry last night. Most of them are smart, hard-working people. Just like you.

Thursday, January 29, 2009

A Good Time to Start a Home Renovation

I imagine that some of you will say it's crazy to start a home renovation project in this economy. However, there are many reasons to consider doing one now, and here are a few:

1. Contractors are no longer busy. The days are gone when contractors could afford to disappear from your project because they were working on others. It is in their best interest to do a good job and keep the homeowner happy. Now, more than ever.

2. The bad contractors are closing shop. I know so many contractors who are going out of business. This is very sad, but it is also serving to retain the good ones who have treated their clients well and maintained a good reputation. It is more likely that someone who has stayed in business is a "good" contractor. In my mind, that means there is a greater likelihood of a successful renovation project.

3. You will get a fair price. See #1 above.

4. The homeowner might have more time to devote to the project. My work is not as busy, and most people I know have more time for other things. It is better if the homeowners can pay attention (not micro-manage!) their project.

5. Mortgage rates are low. I am looking into refinancing. It might be a good time to refinance and take some money out to do a renovation.

6. There are sales on everything. You can probably negotiate for better pricing for materials since everything is on sale these days and everyone is hurting.

7. Think green. The options for green building just keep increasing. Educate yourself and choose construction methods and materials that will help the environment and reduce costs down the road.

8. Do your bit for the economy. If you can afford it, why not try to give people work?

9. Increase the value of your real estate. This is always a good reason to renovate, as long as you do not greatly exceed comparable values on your street. Speak to a real estate broker about how to add value to your home.

6. There is no time like the present. I know people who have put off renovations for so long that they lost out on the opportunity to enjoy them. If you can afford it, why not do it know? Kids grow up pretty quickly and then leave home, so give your family the benefit of that family room now.

Sunday, January 25, 2009

Budgeting for a Home Renovation Project

Like most construction lawyers, I am spending a lot of time thinking about the economy and how to safeguard my practice in these tough times. It occurred to me that now, more than ever, homeowners need to be realistic when planning a home improvement project. I have been absolutely astounded by the projects undertaken by homeowners that are well beyond their means, or cause them to live so close to the bone that there is no room for extra expense. By the time they come to see me, their situation is truly disastrous. Even in home renovations that run smoothly, it is not unreasonable to allow a cushion of ten percent for unexpected change orders. This is not the contractor's fault. One never knows what one will find once excavation begins or walls are demolished. Any sensible contractor will include a clause in his contract that allows for a change order when unexpected conditions are encountered. I jokingly tell people that I will not even change a lightbulb in my house for fear that this will steamroll into a series of additional repairs, but how many people do you know who start out changing the bathroom sink and end up doing a complete remodel? So, first ask yourself: do I really need to undertake this project? If so, which parts are needs, and which are "wants?" Will this add to the value of my home? Perhaps this sounds crazy, but if your budget is $80,000.00, I would plan on a renovation that costs no more than $50,000.00. Then, if something goes wrong, you will have a reserve for repairs and possibly replacement of materials. I am not exaggerating when I say that I have had clients on the verge of losing their homes because they overextended themselves. I should also add that this includes clients who have spent $26,000.00 on an addition where the repairs forced them to dig into retirement funds, to clients who have budgeted for one million and ended up spending two million. Although this may come off as a bit "preachy," there is enough to worry about when remodeling that you should not put yourself in the position where you cannot sleep at night because of the expense. Speak honestly with your contractor about your budget and look for reasonable ways to cut costs. It's better to have the highest quality windows and cut back on the size of your addition than to use cheap materials. Then, if you do have to address unforseen issues or end up bringing a claim, it will not be a disaster.

Friday, January 23, 2009

Insurance and Construction Projects

I have been wanting to post about insurance policies and construction projects for quite some time, as there is a great deal of confusion about what kinds of policies are necessary and which items are covered.

Mark Tarpey of Tarpey Insurance Group provided me with this guest posting:

For New Construction, the Purchase and Sales Agreement must be reviewed to determine who is providing the insurance during the course of construction. I have seen contracts that require the builder to carry it and some other contracts require the homeowner to provide the coverage.

The builder will provide the coverage under a Builder’s Risk Policy. The homeowner can purchase a standard homeowner’s policy with an endorsement to cover the theft of materials( this is excluded under a regular homeowner’s policy). If the homeowner owns the lot during the construction phase, they should require the builder to list them as an additional insured under the Builder’s general liability policy.

During a remodeling project, there are two scenarios that need to be addressed. If the homeowner is staying in the house during construction, then they will need to increase their current homeowner’s policy to adequately reflect the new replacement cost of the home. If the homeowner is moving out during the renovation period, they will need to contact their agent to discuss the options available. Typically, the homeowner’s policy is cancelled and a new policy is written to cover the property during the renovation phase and the homeowner’s policy is re-written when they move back in.

In regard to what kind of insurance a contractor should have, the homeowner should require the following:

General Liability - $1,000,000 each occurrence, $2,000,000 general aggregate and $2,000,000 products/completed operations aggregate

Workers’ Compensation- $100,000/500,000/100,000 and they should require all subcontractors to have coverage as well

If a contractor does not carry worker’s compensation coverage, the injured employee could sue the homeowner/property owner for failing to provide a safe work place. I have seen claims against the property owner that can be very significant and could exceed insurance limits and the owner could be responsible for the difference.

General Liability covers bodily injury and property damage arising out of the negligence of the contractor. Each policy is different and can have several endorsements that exclude specific types of claims. The general liability is not suppose to cover the poor workmanship of the contractor but it is suppose to cover the resulting bodily injury or property damage( this is very basic information and can be very misleading).

The homeowner’s policy covers the dwelling, any detached structures( up to a sublimit), personal property, additional living expense( a hotel room if you have a fire and can’t stay in the house) and personal liability. There are so many different types of enhancement endorsements that can broaden the coverage( sewer or drains backup, earthquake, jewelry coverage).

Tarpey Insurance Group is a family owned and operated independent insurance agency with 4 locations throughout Greater Boston. The agency consists of 25 employees with 6 Tarpey family members actively managing the business. We represent 15 insurance companies to place your business. The agency has two divisions – Personal Insurance which handles auto, home, watercraft and personal umbrella and Commercial which insures all types of businesses including contractors, professional offices, manufacturers, distributors and building owners.

Please visit for additional information or contact us at 1-888-827-7397.