How much can I expect to pay for general contractors?
Real Estate Investor · Sandy, UT · Member since 2014 · 58 posts · 13 votes
How much can I expect to pay for general contractors?
Let's say that prior to making an offer to buy a rehab, I hire contractor A to do an initial walk-through with me and come up with a detailed improvement plan (cost and time schedule).
Next, I send out bid requests to both contractor A and other contractors for that job. Contractor B wins the bid and his responsibilities will be pretty much everything because I have a different full-time job. My understanding is that I should expect to pay contractor A roughly $250 for the walk-through, but how much do I pay the bid winner, contractor B? Is it a certain percentage of the total improvement cost or something else?
Thank you for your input!
Josiah,
For a contractor, showing a good familiarity with the investor’s processes and perspective is important. Private clients certainly have budgets, and visions. But their jobs tend to morph as they get ideas and one can expect change orders. It requires a well written contract (to cover changes and deadlines), and reasonable willingness to make adjustments as the job plays out. But I communicate my openness to that in contract wording and personal interactions and it makes them very happy.
Investors, on the other hand, generally have tight financial formulas, a better handle on the job itself, and tighter deadlines. They are typically more objective and experienced. So I want to show them that I understand those formulas and their priorities, and that I’m on the same page regarding their job. They need to know that I’m used to meeting a hard budget and getting in and out on time with minimal changes or bumps.
The purpose of the work is different too. The investor isn’t looking for something they can enjoy. And while usually knowledgeable, most aren’t into shopping. They need a finished job (materials and workmanship) that is suitable for the purpose. They expect the contractor to have reliable detail, costs and specifications.
A lot of investors aren’t available to be on the job much, if at all. The contractor needs to be able to communicate and keep them informed with pictures of progress, updates, sign-offs on permits & paper-work, etc. via digital means. The contractor should address this with the investor up-front. (If an investor can’t assure me that they have the capacity to do this, it’s a red flag.)
And since so many investors can’t always be present, the contractor needs to assure them that he/she will protect their interests, anticipate their needs, and perform professionally and ethically.
These are things that, as an investor, you really need to spend some time with a contractor to find. That’s the reason getting referrals from others in the business and using licensed/bonded contractors is really important.
I’m not clear on your plan with the contractors. If you have to get a quote in order to make an offer and the contractor understands that he may not get the job, then a fee is reasonable. But I’m not sure that having two different contractors walking through at the same time is smart. I would want to spend time with each one individually – no influences or distractions.
Once you dive in, you should start to get a feel for it. Be diligent and honest.
My contractors don't charge me a walkthrough. But you might have a different agreement with your contractors. $250 seems high for a contractor walk-through. Is Contractor A asking for the walk-through fee or is it something you have offered or feel you should pay for his time?
I don't understand your questions about paying Contractor B, the winning bid contractor. You would just pay him the agreed upon price. You can pay a certain percentage upfront as deposit and remaining balance upon completion and final walkthrough.
Are you talking about paying Contractor B a walkthrough fee? If yes, then I wouldn't pay anything for the walkthrough. He won the bid and is getting the project.
I do this type of thing for a living and I would build and arsenal of contractors or better yet one contractor to do it all. If your shopping around and getting into a bidding war your going to cut your own throat... Just my opinion..
Hi Josiah,
There are all kinds of contractors with varying abilities and experience. More important than, or just as important as, the bid is the relationship you have. Anyone can work up a price but you have to decide who communicates with you, explains things well, and has the experience doing the types of work you'll need.
Ask experienced investors, mortgage people, realtors or suppliers for names of contractors who have a good track record and experience in this type of work.
As a contractor, I might work up a proposal differently on an investor's rehab than on a private remodel. But a contractor with no experience in investment rehabs wouldn't necessarily provide you that benefit.
That walk through fee is a little bothersome. I know it's more time consuming, but walking through with each contractor who bids would give you a lot of insight into the contractor and how they approach it, and that shouldn't cost anything. It would give you that opportnity to ask questions and probe a little, and also learn some things. Prepare ahead of time by identifying issues and questions you have, and see how they perform. Is this a person I can talk to? Are they positive, motivated, professional? My investor clients don't even bother with other bids after the first job, but only because of the trust we have established.
Good Luck!
Contractor B isn't going to give you a real quote without doing a walk through with you.
@Sharad M. $250 paid by myself may be high if it is for a GC I've worked with before and is likely to get future work. But my feeling is that I should be willing to pay more for something that has such a huge impact for the rest of the project. I will be using contractor A's estimated costs and schedule to come up with my maximum offer amount. Once an improvement plan is made, I bid that out to several general contractors (including contractor A). I pick the one I feel is best to complete the project. That would be contractor B. So I think you've helped me answer part of my own question. Contractor B's expenses are already included in the total cost of the project.
@Tom Brunell It's a double edged sword I guess. You make a good point. With bidding wars, maybe there's less sense of loyalty between investor and GC, but I don't know any GC's well enough to be loyal to any of them yet. One huge advantage to bidding is that it keeps everyone competitive through checks and balances. I've seen problems with sole sourcing in my industry when we as a utility hire many contractors. Fees creep up for the ones that get sole sourced.
@Patrick T. Thanks for the advice. I will definitely ask those with experience for GC referrals. You said that you as a GC would make a proposal for an investor differently than a private remodel. How do you mean? As for your last few points, I agree that each bidder should get a walk through with me (and the initial contractor, contractor A) so that they can get a full understanding of the project. Does that seem like a good idea? Any other suggestions? My predicament is that I can't rely on myself for accurate estimates and I have a separate full-time job so I really need to rely on general contractors.
Yes its wise to pay the contractor for your walk through when you plan on placing a bid.
I recently had a failed "investor" call me to give them a proposal when it was clear they had no intention of hiring me on a project house they were trying to sell uncompleted. I spent maybe an hour on this 350k proposal.
The bad part for them is they were too cheap too offer me $250 dollars when they have 100s of thousands riding on the deal. Lol!
Josiah,
For a contractor, showing a good familiarity with the investor’s processes and perspective is important. Private clients certainly have budgets, and visions. But their jobs tend to morph as they get ideas and one can expect change orders. It requires a well written contract (to cover changes and deadlines), and reasonable willingness to make adjustments as the job plays out. But I communicate my openness to that in contract wording and personal interactions and it makes them very happy.
Investors, on the other hand, generally have tight financial formulas, a better handle on the job itself, and tighter deadlines. They are typically more objective and experienced. So I want to show them that I understand those formulas and their priorities, and that I’m on the same page regarding their job. They need to know that I’m used to meeting a hard budget and getting in and out on time with minimal changes or bumps.
The purpose of the work is different too. The investor isn’t looking for something they can enjoy. And while usually knowledgeable, most aren’t into shopping. They need a finished job (materials and workmanship) that is suitable for the purpose. They expect the contractor to have reliable detail, costs and specifications.
A lot of investors aren’t available to be on the job much, if at all. The contractor needs to be able to communicate and keep them informed with pictures of progress, updates, sign-offs on permits & paper-work, etc. via digital means. The contractor should address this with the investor up-front. (If an investor can’t assure me that they have the capacity to do this, it’s a red flag.)
And since so many investors can’t always be present, the contractor needs to assure them that he/she will protect their interests, anticipate their needs, and perform professionally and ethically.
These are things that, as an investor, you really need to spend some time with a contractor to find. That’s the reason getting referrals from others in the business and using licensed/bonded contractors is really important.
I’m not clear on your plan with the contractors. If you have to get a quote in order to make an offer and the contractor understands that he may not get the job, then a fee is reasonable. But I’m not sure that having two different contractors walking through at the same time is smart. I would want to spend time with each one individually – no influences or distractions.
Once you dive in, you should start to get a feel for it. Be diligent and honest.
You're advice has been super helpful! I hope to return the favor some day.
Happy to help Josiah, Good Luck!
The investor should pay for a written estimate, and the GC should tell the investor if you hire me; I will credit you the written fee charge. Most investors will play games with GC to try to get something for free.
Joe Gore
Good Lord if you are paying $250 per estimate call me every time I will do those all day long! Estimates are free! Detailed itemized written estimates are all part of the contractors marketing plan and tools to land the job. If you call the same contractor to just do estimates and not give him any work then Its justifiable to pay him something for his time and fuel.
When it comes down to get an estimate from a contractor , have what you want done written down , in detail , lots of detail , room by room . Just walking thru with a couple different contractors and asking for a bid to fix up this house will get you wild swings in prices . Plans are even better . Contractors are in this to make money , good contractors make GOOD money . Great contractors do better than that . I give free estimates , I dont give free designs , I dont spend hours on a bid from people that are so vague , or who are unrealistic . No I cant send 3 experienced guys to your job for a week for $ 2000
Hey Tom, do you know of any GC's you can recommend in Easton? We are looking at an 8,000 sq ft commercial space to rehab. Thank you!
I would like to add a couple of points that may add value to some of the posts on this thread. If you are an active rehabber or rehab and holder as we are, it is really important to have more than one good GC in your arsenal. Good GCs are always busy, and it's always hard to line up scheduling to work out just right, no investor wants an empty house sitting and not progressing because their GC is busy working on a big job for another investor. So, to that point I am always upfront with the contractors we work with that scheduling and accuracy are paramount. I spend MY time doing the detailed write up exactly as @Matthew Paul stated above. The devil is in the details, contractors love it when they don't have to spend a lot of time describing what they will do on the project. My favorite proposals are when the GC simply puts a dollar amount next to each line item on my proposed work sheet. They are only estimating how long the labor will take....keep it easy for them, simple. It is not their job to tell you how much the materials should be, that what the Internet is for, we can do that in our sleep. I try to get 2 proposals, and I do not pay for the proposals. I ask the GC for a fair price, if I like it, we do business, if not, I do not haggle with them, I move on. There is where the trust factor comes into play, I have to trust him to be reasonable and fair with me, because if I don't trust him, nothing he does or charges is going to be adequate ( in my mind), it just cheapens the relationship. The times I have been screwed over hailed from skipping the 2 estimate step....we all know sometimes it seems like you just can't get an estimate for a project. When that happens, take my advice, drop back ten, take a deep breath and come at the project from a different perspective, start over with finding the right contractor for the job.
Regarding the time spent doing walk-throughs with GCs....I used to think it was just a waste of time, but I soon realized that when going through a house and having a GC realize your vision, here is where you will find their creativity and perhaps a vision much better than yours. They have to understand where you are going and what you are trying to accomplish. You will quickly find out if you can work with this person. I have walked out of appointments knowing I wanted to work on a project with one GC over another, before I ever saw a price. It's a strange feeling.
Finally, pricing...leave some meat on the bone....we all have to eat, so does your GC. After all you want him to hurry back next time you have a job for him.
@Deborah Moser I really like your post, and I would wish all investors think and act like you, 80% of the investors I met fall in two categories, 1 - they don't know what they are doing, 2 - they can put together a good scope. Most average contractors know how to read a scope and simply follow the details and what owner wants, the one who pretends to be a mind reader usually ends up in trouble or will give an investor a headache. Great and informative post.