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Construction Contract Basics Every Homeowner Should Know

Jonathan April 26, 2026 10 min read
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Before you sign a contract for a kitchen remodel, room addition, or structural landscaping project, you must realize that standard builder-provided templates are written to minimize contractor risk and maximize owner responsibility.

Reviewing the agreement with a professional who understands both construction codes and contracting laws is the single most important step you can take. Here are the crucial contract terms you must review.

1. CSLB-Regulated Down Payment Limits

In California, it is illegal for a home improvement contractor to request a down payment exceeding 10% of the contract price or $1,000, whichever is less. If a builder asks for a $10,000 down payment on a $50,000 bathroom renovation, they are committing a direct code violation.

2. The Draw Schedule (Milestone Payments)

Never agree to a schedule based on calendar dates. Payment draws must be tied directly to completed, inspected milestones. For example:

  • 10% ($1,000 max) upon contract signing.
  • 20% upon completion of framing.
  • 20% upon drywall inspection sign-off.
  • 20% upon finish trim installation.
  • 30% (withheld retention) upon final building inspection sign-off and mechanics lien release exchanges.
"Never pay for materials that have not been delivered to your site, or for labor draws that have not passed local building inspections."

3. The Change Order Clause

The most common way renovation budgets spiral out of control is through verbal change orders. Insist that the contract explicitly requires **written, dated, and signed change orders** describing:

  • The exact scope of the modification.
  • The specific cost change (or credit) to the contract.
  • The specific delay impact on the completion schedule.

4. Indemnity & Liability Limits

Review the indemnity clause carefully. Builders often insert terms that require homeowners to indemnify the contractor for site accidents, even those caused by contractor negligence. Insist on mutual indemnity and clear general liability minimum requirements (e.g. $1M/$2M policy limits).