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Change order

Change order is a money term you need to understand. Here’s what it means.

What is a change order?

A change order is a document that states and defines alterations to a construction plan. The change order acts as an amendment to the original construction agreement.

Deeper definition

Either of the parties to a contract can initiate a change order, but both parties must agree to the terms for the change order to be valid. For example, you can’t decide that the original materials for the job are too expensive and change them on your own. The contractor you are working with also must agree to the switch.

All of the parties to the contract should receive consideration (something of value) by signing the change order. If not, the change order may not be legally enforceable. Generally, each party has to agree to do something it usually wouldn’t do or not participate in an activity that it has the legal right to do.

Some of the items that you might alter using a change order are:

  • The construction schedule.
  • Pricing for the project.
  • Materials for the project.

To make the change order as clear as possible, include new design plans with the document.

Change order example

Both individuals and business owners may deal with change orders during projects that involve construction. For example, you may decide to build a home to make sure that it has all of your desired characteristics.

You enter into a contract with a builder to construct the home according to your specifications. However, after more research, you decide that you want the builder to construct an additional closet.

A change order amends the original contract to include the extra closet. Both parties receive something for making the change. You are getting an additional closet, and your builder receives more money.

Ready to get started on the construction for your new home? Check out Bankrate’s mortgage rate comparison tool to get the best terms for your home loan.

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