The advantage of this style of contract is that you can shift the responsibility for meeting the costs and budget onto the contractor. For instance, if it is determined that dry-rot is discovered in your support structure, leading to additional work and materials needed to complete the project, the contractor will be legally responsible for assessing this beforehand — not when your project is on the line. Also, this helps offset the cost of materials, which may rise over the duration of the project. The change-order policy is also important, as you have a right to change the project if you feel that alterations need to be made after the contract is signed. This is a way that contractors protect themselves, but it also gives you a firm idea of what costs will occur should you change your mind during the completion of your home addition. Also, don’t forget that if you secure a loan for some or all of the addition’s costs, you’ll have to pay loan origination fees and processing fees, which can amount to 1-2% of the total loan amount. Lenders typically require appraisal and inspection fees to determine the viability of your home’s addition as well, so expect to pay these fees. TAXES AND INSURANCE With an addition to your house, you can expect your insurance premiums to go up. Depending on the replacement cost for the new addition, your premiums may increase significantly. This depends on your insurance provider, but a good way to ballpark your new premium is to take your home’s value and add in a replacement cost of 125% of the new addition’s price. For a home that was originally valued at $200,000, adding a $100,000 addition raises the value to $325,000 in total, so you can expect your premiums to jump a good 50%. Taxes follow a similar logic, but are also dependent on many other factors. A value will be stated for the new addition on your building permit application. This amount will be added to your home’s valuation for the following tax year, which typically increases your annual property taxes. However, taxes change year-by-year based on the housing market — for a home’s value that’s skyrocketed based on a real estate bubble,
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