Are contingency agreements enforceable?
I’ve been getting this question A LOT — and I’m going to open up this can of worms and talk about contingency agreements.
Welcome or welcome back, by the way. My name is Adam Bensman, The Roof Strategist.
Everything I do here (and on my YouTube channel, Instagram, and my podcast on Apple and Spotify) is designed to give you actionable strategies you can use in the field to smash your income goals and give every customer an amazing experience.
Now, let’s get to it.
What Is the Contingency Agreement?
Whether or not contingency agreements are enforceable can depend on who you ask. And before we get to that, I want to break down:
- What a contingency agreement is: The contingency agreement is essentially a glorified handshake that says we’re going to get your roof approved or help you get it approved by the insurance company. If it is approved, we get to do the work. That’s the contingency agreement.
- Why the contingency agreement is used: The contingency agreement is first a closing tool. It’s a way to lock in the deal, make that handshake more official, and get it all in writing. The contingency essentially says that we’re going to do this work for the homeowner and we’re going to be the contractor of choice to do the roof. And, again, it’s all contingent upon approval by the insurance company. If the insurance company says “no,” we’re not replacing it, and they don’t owe you anything. So, the contingency agreement removes that risk for the homeowner.
If you’d like a deeper dive into contingency agreements, check out my FREE Pitch Like a Pro roofing sales training video library. It has an entire playlist on contingency agreements and closing, along with over 300 videos and playlists on retail, pitching, canvassing, objections, closing — you name it, and there’s a playlist in there for you.
Also, I’ve done a video on Risk Reversal and how to remove the fear of signing the contingency agreement.
But the bottom line is that when we use risk reversal and leverage the contingency agreement as a closing tool, we end up earning more business.
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Is the Contingency Agreement a Contract?
NO — the contingency agreement is NOT yet is a contract by law.
Again, every state has different laws, so check the laws in your state (or talk to legal counsel).
Still, my understanding is the contingency agreement is NOT a contract until money changes.
And even if you do the work, it’s not billable, and they cancel on you, it’s still not a contract yet because money hasn’t yet changed hands.
Contingency Agreements & Cancellation Fees
Here’s where it gets interesting.
On most contingency agreements, there are terms that include a 10 to 20% cancellation fee.
That means that homeowner owes us $2,000 IF:
- The homeowner backs out or goes with another roofing company.
- The insurance company approved a $10,000 roof.
- We have a 20% cancellation fee in the contingency agreement.
So, Are Contingency Agreements Enforceable?
Now, let’s loop back to the title question of this blog — are contingency agreements enforceable?
Well, it depends on who you ask.
In my opinion, the number one reason to use a contingency agreement is as a closing tool.
When we were putting together the contingency agreement at my company, our attorney wanted it to be 9 pages long. At the time, I thought:
Homeowners are going to see 9 pages, and they’re going to think they’re signing their entire life away or giving up their firstborn.
We’re NEVER going to get a deal signed with this.
So, as a company, we decided that:
- We were more interested in the contingency agreement acting as a closing tool and being able to lock in deals on good faith than we were in having the agreement be bulletproof.
- We wanted a one-page contingency agreement. It was double-sided, with terms and all the fine print on the back.
This allowed us to get more people excited to sign the contingency agreement because of how we positioned it.
By the way, I teach in that in my FREE video library, my Pitch Like a Pro roofing sales video library. And if you want to learn like my whole in-home sales system, check out my program called the Roofing Sales Success Formula, which is an all-in-one sales training, sales strategy, and sales system. It’s being used by thousands as we speak, from the smallest companies that started yesterday to some of the top roofing companies in America.
There are plans for individual reps and owners with a team. And in my Closing Strategy, which I cover for storm and retail, I share more on:
- How to position the contingency agreement as the closing tool
- The entire sales and closing process
- A sample contingency agreement — Just to be crystal clear, this is just a sample because every state has different laws. For example, some states require a certain type of font size on the first page. You just have to make sure that you’re compliant with your local laws.
So, a brief recap up to this point:
- The main mission of the contingency agreement is to act as a closing tool.
- Whether the contingency agreement is enforcement depends on the specific agreement you’re using.
Even When Enforceable, Do You Really Want to Enforce Contingency Agreements?
If you have everything listed out in the contingency, could it be enforceable?
But do you know what an attorney is going to cost you?
If you have a cancellation and you’re going to collect 20%, most people I work with will send an invoice for that 20%.
I’ve done that on a commercial project when the property owner decided at last minute to not do the work because he needed the money. So, we collected that 20% cancellation fee.
And if you see people with shaky feet, you can communicate this to them.
Now, what happens when you send the invoice?
Some people will pay it. And others won’t.
And let’s say you have a $15,000 roof and a 20% cancellation fee. That means you’re going to collect $3,000 if they cancel on you. By the time you invest all of your time, energy, resources, and effort to collect your job file, submit it to the attorney, pay your attorney’s fees, and have them chase down the homeowner, you may end up with $1,500 if you’re lucky.
And that time and those resources could just go into finding a customer who you actually want to serve. So, let bygones be bygones because principle can be expensive.
Plus, the other threat is that you have to have your contract totally buttoned up from a legal standpoint. I ended up in arbitration with a customer and his attorney once because they claimed we damaged the gutters (even though we didn’t, and we had before-and-after pictures that the homeowner signed off on).
The attorney accused me of doctoring the photos and then started to poke holes in our contract. And it was all over $800. So, I kicked the attorneys out of the room and had a man-to-man discussion with the gentleman sitting across the table from me. And we solved it right there.
Did I get what was due and right?
No, but principle is expensive, and he was ready to take this thing to court.
Recap: How to Use the Contingency Agreement
I want to wrap this up with a simple, 2-step action plan:
- Position your contingency agreement as a closing tool: It should be advantageous for the homeowner to sign the contingency agreement. If it is, you’ll sign more deals. I’d rather sign 20% more deals because the contingency agreement is positioned and communicated the right way than lose a couple of deal with bulletproofs agreement. In fact, with those longer, bulletproofs agreement, you’re going to sign less deals because they’re going to scare off homeowners.
- Invoice that cancellation fee: Send the invoice in compliance with the cancellation details in your contingency agreement. You can review these details with the homeowner upfront, so they’re aware of that penalty. Many people will pay it. Some won’t. You can always follow up with a phone call. And it’s up to you if you want to go the legal route. I’d only do that for monster commercial projects we’ve invested an exorbitant amount of time, energy, and resources into already. Otherwise, remember, principle is expensive. Send that invoice, move on, and go sign a customer who you’re meant to serve.
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Thanks for joining me, and I look forward to sharing more with you in the next blog.