More and more home buyers are entering into remodeling contracts for improving and adding onto their personal residences. Selecting a legitimate, licensed contractor is often a difficult task and word-of-mouth doesn't always work.

Once you find a contractor, ask for references. It's even a good idea to inspect prior jobs of the contractor, to assure yourself that this is the person you want to improve your house.

Once you have selected a contractor, it is extremely important to enter into a contract spelling out, in detail, all of the terms and conditions under which the remodeling job will be done.

Here are a few suggestions for mandatory provisions in any contract that you sign:

Do no sign the typical one-page proposal submitted by your contractor. This will act as a contract if you do sign it, and it provides very little, if any, real protection for you. The American Institute of Architects (AIA) sells standard contract forms, which you should use in your dealings with the prospective contractor. Try to get the AIA-A107 Form, available for 70 cents from AIA, 1735 New York Ave. NW, Washington 20006.

The contract should specifically state that "time is of the essence." One common problem in remodeling contracts occurs when the contractor is unable to complete the job within the estimated time.

It is also desirable to provide a daily penalty (liquidated damages) to the contractor for each day the work is not completed after the time specified in the contract for the completion date. This procedure will give the contractor a real incentive to complete the work within the promised time.

If you do not provide a "time of the essence" clause, or a liquidated damages provision, you may find that the work drags on too long.

A payment schedule should be carefully worked out with the contractor, regardless of whether you or your bank will be making the actual payments. It is advisable to provide that at least 10 to 15 percent of the final payment is to be "retained" until final completion of the job to your satisfaction.

Your contractor should provide a bond from a reliable bonding company guaranteeing the performance. Thus, if the contractor does not complete the job, the bonding company will take over to insure completion of the contract.

What kind of warranty is the contractor willing to provide? This should be discussed in detail with the contractor before you sign a contract, and the exact terms of the warranty should be spelled out in writing.

Are you properly insured against possible claims by workers who may be injured on the job? You should inquire of the contractor whether he is adequately insured, and if not, check with your own insurance company to determine the limits of your liability. Again, your insurance agent or your lawyer should be able to provide you valuable assistance.

Arbitration must be provided for in the contract. You should not have to go to court to resolve the disputes that may arise. Legal fees, court costs, and the waiting time are a deterrent to an inexpensive and prompt resolution of disputes.