Remodel and Reimbursement Nightmare Please Help!

Brea421September 12, 2013

Hello everyone! I need some help. I am currently in the middle of a major remodel (Kitchen, Bathrooms, Living Room). I signed a lump sum contract with my contractor. I have never done any of this before so I really was naive about what to expect. I thought it was going to be an HGTV experience and I would be on my way. After telling the contractor my expectations, I signed the contract. When it came time to picking out materials in his "showroom", I realized that all of the materials he was using were cheap, outdated and outrageously overpriced. I am 25 years old and I am a little on the contemporary/modern side of style. I decided that I would pick out my own materials and the contractor agreed to reimburse me. I saved a ton of money and got nicer things compared to what he was going to give me. After receiving a budget list from the contractor and buying my items, I sent him a list of the money I should be getting back. My allowed budget for tile was $4.00 a square foot. I paid $3.75 a square foot with a sales tax rate of .0725% and 5% loss tile. I also bought my granite slabs and the granite supplier added some scrap loss to my order. My contractor is refusing to pay for any scrap loss material floor or granite and he is also refusing to pay for sales tax on the tile. I am completely frustrated because this man also tried saying that our bathroom fixtures were not provided after he had told and sent me an email with the allowance saying that they were provided. I am assuming that in North Carolina he would pay a sales tax just as I did and his employees have said loss tile is definitely needed which I already know. Should I be getting reimbursed for the amounts I paid (sales tax and scrap loss material included), or is there something I don't know?

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Another one bites the dust.

Where were you before hand and if you had been, why didn't heed the the advise so prevalent.

You need to have a supplemental agreement in a written form for it to be enforceable.

If not, the original document stands.

What ever possessed you "his showroom" and, sight unseen.

    Bookmark   September 12, 2013 at 7:26PM
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There is written documentation stating that I will get reimbursed for the things I purchased and the contract is being amended. The contractor is willing to pay back all of the costs for fixtures and etc. He is trying to fight me on the sales tax and scrap loss. I appreciate your response, but it doesn't really answer my question. I know I got in over my head. I am young, I have lost both of my parents, I have had to do things this last year that people twice my age don't have to deal with. I have never done anything remotely close to a reno. I know I didn't go about this properly but I am trying to make the best of the situation without being taken advantage of. I already know what I did wrong. I just need some good nonjudgmental advice.

    Bookmark   September 12, 2013 at 8:02PM
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I'm going to suppose that he buys product at wholesale, under a resale agreement.
Well, someone has to pay those sales taxes, and he's telling the state that he charges those too you, in the estimate and sends the state a check when he collects monies for those Items.
His accountant then charges those and other costs of doing business off as a business expenses, lowering his state and federal income tax liability.

Thats the simple version, but generally how it works.

So, if hasn't collected monies for which taxes would have been due, how does he generate a refund from an empty account.

    Bookmark   September 12, 2013 at 9:44PM
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Thank you for your help.

    Bookmark   September 12, 2013 at 11:01PM
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Sophie Wheeler

In many locations, home improvement merchandise that is installed into the home (and you pay the installer) does not have sales tax paid on it. I live in an area where 2 out of the 3 states work it that way. So, he may not pay sales tax at all on merchandise that he purchases and installs. However, you are not purchasing installed merchandise from the installer, so you would pay the tax that he wouldn't. So, that wouldn't be eligible for reimbursement from him as he would never pay it.

As far as the granite goes, if he purchases it from a fabricator that only charges him for the exact square footage used, and you are buying it from a fabricator that requires that you purchase whole slabs, the difference in "scrap" wouldn't have been purchased by him and wouldn't have been in his contract. The average kitchen uses 60 square feet of granite, but a slab of granite is only around 45. That means that if you purchase 90 square feet of a granite that costs $30 a foot (plus $30-$40 fabrication), you get to keep the scraps, but the contractor shouldn't have to pay for that if that's not how his fabricator structures the fabrication. He will only reimburse you for the 60 square feet of the $10 (plus fabrication) a square foot granite that was in the allowance.

I think some of your issue is not understanding how allowances work, and it's exacerbated by having a contractor who is poor at explaining them to you.

    Bookmark   September 12, 2013 at 11:05PM
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So, lets see how you are doing.
When you were presented with this "lump sum" contract, whatever that is. Was there a sheet attached that contained estimated costs, including profit and overhead?

Did you simply believe him, that when he afforded you the allowances, it included profit and overhead?

Was the allowance for the tile for just the tile itself and excluded the labor and installation as well as grout and thinset?

As a business model a contractor needs to maintain 35%
gross profit to acheive 5.5% net,net, to keep the doors open.

    Bookmark   September 12, 2013 at 11:45PM
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The contract included a large down payment and subsequent pay schedules for different jobs such as drywall, electrical, tile installation,etc. When I asked what the allowance for my tile was I was told $4.00 a square foot. It was never stated that that should included taxes or anything else. The contract is very vague which should have been my first clue. I have recently found out that the company is more than six months behind on numerous projects and 5 employees have left/been let go in a matter of weeks. Our contract states that the job should be finished by next week and it is weeks behind from no work being done.

    Bookmark   September 13, 2013 at 12:22AM
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What was the consequence of him not being finished with your project by the deadline?

Does his contract have sales tax added at the bottom on the lump sum?

In what state are you?

(In my state, we are taxed on nearly everything for sales tax... nearly everything. Just not (whole) food).

    Bookmark   September 13, 2013 at 1:38AM
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"The contract included a large down payment and subsequent pay schedules for different jobs such as drywall, electrical, tile installation,etc."

That can be fairly typical, but can also be negotiated and depending upon how your state board that governs contractor operations the % of the contract amount, initial or down payment may be restricted.

If there is a state sales tax, someone in the chain pays it.

Lets continue with the tile as an example, and we'll assume that the total tile project is subcontracted.
Let say the sub has given the contractor a flat rat of $5.50sq.ft. labor and material, for that grade of tile, and valued that at $12sq.ft. on his cost estimate sheet.
Of the subs $5.50, $2.25 is tile, $1.25 is grout, etc. and $2 is labor.

This is just an example to broaden your horizons.

Could you have gotten the tile work done on your own for $8 or $10? Food for thought.

"I have recently found out"

Began keeping scrupulous records of the name times and dates of all visits.
Are there permits posted on the job site?
Become cognizant of your states lien laws.
If there a state contractors licensing or dept. of consumer affairs agency, ask the status of his license, his bond and procedures for a declaration of abandonment.

Disburse no funds unless the invoice presented has all the names on your list of visitors.
Individual trades will have their own separate invoice and releases.

    Bookmark   September 13, 2013 at 1:49AM
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Thank you everyone for your comments and help. My fiance and I went to see the contractor this morning (unannounced). After some discussion we worked everything out. We are getting most of the money back for all the materials and it is in writing. There is only a slight price difference. The company decided to buy 4 of the extra 8 feet of granite for us and eat that loss. They are also reimbursing us for all of the flooring cost and buying/installing a new sliding glass door at no cost to us. We explained that we were new to this and that all we wanted was communication about what we should be doing instead of getting half answers and feeling taken advantage of. The contractor assured us that the project would be done by October 13th (unless something unforeseen on the project happens) and we also have that in writing. Again, I appreciate your guys help and suggestions. I have learned a lot from this experience and will be more diligent in displaying that knowledge if I ever have to go through this God awful process again.

    Bookmark   September 13, 2013 at 1:44PM
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Glad it worked out well for you (or appears to be headed in that direction).

This is why we DIY. :-)

    Bookmark   September 13, 2013 at 2:07PM
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" HGTV "

Not all it's cracked-up to be.

    Bookmark   September 13, 2013 at 7:06PM
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I have to disagree. I think going from HGTV to reality is not all it is cracked up to be. :)

    Bookmark   September 13, 2013 at 7:09PM
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You have been exposed to the reality that exists behind HGTV.
Hopefully you have learned that it is your responsibility, not someone else's, to put the "pretty face"on.

    Bookmark   September 13, 2013 at 7:40PM
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so now Brea you know @ 25 what it took some of us
an addtional 10, 15, 20 years to learn.
consiter it a learning experinece.

hope it all turns out well & is done by 13th of next month.
(barring unforseen delays)
existing homes IMO are a crapshoot...there is always
going to be something unexpected, unanticipated that
will delay the job.
for example...changing a window...seems straightforward
doesn't it...but sill is rotted..why...condensation from window. once rotted sill is removed, damage continues
down cripples to sole plate which is also rotted.
so wall is opened, new lumber installed, new sill,
and finally window installed. just how existing homes
can be sometimes.

best of luck.

    Bookmark   September 14, 2013 at 10:54AM
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I will add congratulations to doing this at 25. That's an accomplishment. I am 29 and we are redoing our home. It's a big project but we are (mostly) enjoying it.

    Bookmark   September 14, 2013 at 11:05AM
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Me 54, and my DH 63, we too are renovating a 57 year old house! Gutting everything, plumbing, electrical and putting in gas ( previously was oil tank and radiant heated floors!) New kitchen, floors, doors, insulation, everything!! We had no idea what we were in for!! Thank goodness we have a wonderful contractor that renovated my husbands store and so we knew we could trust him with a job this big!! And I am using a decorator to help me put things together! We are living in an apartment ( because we sold our house in 4 days and had to be out) and it is exciting to go over everyday and see the progress !! But we said, if we did not know how good our contractor was, we would be very nervous!! Our house looks like a bomb went off!!Good luck to you!! Try to enjoy the ride!!

    Bookmark   October 6, 2013 at 3:24PM
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Hello and sorry to hear that things have gotten a bit messy however you can get this mess straightened out easily.

Regarding the tile.... I provide my customers with an allowance on only the tile installed. Yes you could argue about the sales tax and waste but there is waste all over the job site that he doesn't charge you for. You are paying for the tile that is on the walls and the floor and that is what the allowance is covering.

If you have an email stating that your fixtures were covered, than you should discuss the fact

Good Luck

Here is a link that might be useful: Bergen County Contractors

    Bookmark   October 15, 2013 at 9:27PM
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Hey, pangione: Read the forum rules. Advertising (e.g., linking to your business site) is forbidden here. You need to delete your links or you'll quickly be banned and your posts deleted.

    Bookmark   October 16, 2013 at 6:38PM
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If you supply the materials, why would you not get the entire allowance amount back? Why would the amount you actually paid for the materials be of any concern to anyone?

The normal procedure would be for a Change Order to be written for the entire allowance amounts and when signed that Change Order would reduce the Lump Sum contract amount.

A reimbursement would only be necessary if you had already paid him for the materials and that wouldn't have happened if he hasn't delivered the materials to the site and installed them.

Am I missing something?

    Bookmark   October 22, 2013 at 8:07PM
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