What is a home improvement bond?
Home improvement contractors in some states are required to post a license and permit surety bond. This bond offers protection for clients by ensuring a home improvement business complies with state laws and regulations and local building codes. If a contractor acts unethically or violates licensing guidelines, the harmed party may file a claim to receive compensation for their losses.
Some states require contractors to obtain surety bonds to operate legally. Other times, bonds may be required at the local level. Often, larger contracting businesses must post bonds. Smaller contractors may not have to (depending on the state).
This bond sometimes goes by other names, including “home improvement contractor bonds” and “ home services contractor bonds.”
Get Your Home Improvement Bond:
- Home improvement contractors in some states are required to post a surety bond.
- The bond protects clients by ensuring a business complies with state laws and regulations and local building codes.
- Bond requirements vary by state but may range anywhere from around $10,000 to $100,000.
- To avoid claims against your bond, avoid contract violations, performing substandard work, and failing to pay subcontractors and suppliers as promised.
How do home improvement bonds work?
Home improvement bonds are contracts between three parties:
- Principal: The home improvement contractor who must purchase and post the bond
- Obligee: The state or local authority requiring the bond
- Surety: The company that underwrites, issues, and backs the bond
The contract guarantees that the principal will follow the requirements set by the obligee. If the principal – in this case, the contractor – violates the agreement or behaves unethically, someone can file a claim on the bond.
Let’s say a homeowner who hired a home improvement contractor files a claim because the contractor violated applicable building codes. The contractor fails to remedy the issue, so the surety steps in to cover the costs involved by paying the claimant for their losses. The contractor must then repay the surety in full.
A claim can have devastating effects on your business and reputation. You may also have trouble getting bonded again.
To avoid claims against your bond, avoid the following:
- Building code and contract violations
- Violating applicable local regulations
- Committing any ethical or legal violations
How much do home improvement contractor bonds cost?
The penal sum is the total amount that a surety may award a claimant. The required amount varies by state but may range anywhere from around $10,000 to $100,000.
As a home improvement or remodeling contractor, you will pay a small percentage of this amount to obtain your bond. If you have excellent credit, you might pay as little as 1-3%. So if your bond is worth $10,000 and you have to pay 2%, it’d cost you $200.
Requirements vary by state, but here’s the basic process you may follow to obtain a license for your home improvement contracting business.
- Fill out an application for your license.
- Submit a surety bond for the correct amount.
- Provide proof of insurance.
- Pass a contractor license exam.
- Pass a criminal background check.
- Pay a fee.
If someone files a claim on your bond, your surety may investigate to ensure it’s valid. If it’s not, you won’t have to take any action. If it is, you will have the opportunity to make it right before the surety gets involved. If you don’t remedy the issue, the surety may pay the damages for you via your surety bond. Your bond value is the maximum amount your surety will pay to settle a claim for you. In the end, you must repay the surety in full.
How to Get a Home Improvement Bond
We can help you find the right surety bond for your home improvement business. ZipBonds offers the fastest and most secure option for getting bonded. Our all-digital platform is intuitive and straightforward. Apply online or call us at 888-435-4191 to speak with an agent directly.
Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”
Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.