Preventing contractor upcharging

[Gustavus Adolphus]

I'm a reluctant real estate investor (I bought a rental property next to my house not because I want to be a landlord, but the previous owner agreed to sell for a low, low price, and I wanted to control the house next to mine, which was in rough shape and had some shady tenants). So I'm new to the game.

My issue is working with contractors. So far, it seems like almost every guy I've hired to do work on this house (which, again, has needed a lot of work -- from driveway repair to siding to roofing and more) upcharges as part of their pricing strategy. They'll quote a price for the job, sign a contract with me and then inevitably find all sorts of previously "unnoticed" problems once they begin working.

I get that there is always a certain amount of uncertainty regarding what you're going to find when you start opening up walls, etc., and that contractors need to be paid for significant amounts of extra labor or materials that go into a job. But the problem is that 1) the contractors seem to upcharge the job even for relatively minor extra work (like having to sister a few joists -- which takes maybe half an hour and $20 worth of material) and 2) it feels like I get gouged on pricing for all of the upcharged work. Once the contractors have half of the roof torn off and discover supposedly new issues that they did not know about when they gave me the original quote, I'm not in a good position to say no to the extra work. Nor do I have a realistic chance to shop around and see what other guys would charge to do that work. As a result, they get to charge basically whatever they want for the extra work. 

Any thoughts on dealing with this? I know vetting your contractor is part of the process, but I try, and it only seems to go so far. I get multiple bids for every job, I don't always hire the cheapest guy and I stay away from people who clearly underbid. In fact, I've tried to err toward people who give higher quotes, in the hope that there will be fewer surprises once the work is underway. But they all seem to take advantage of the situation once they are in the middle of the job.

Is this a problem with all contractors? Should I basically just factor in an extra 10-20% on every quote I get? Or is there a secret trick for finding guys who will avoid upcharging unless there is really a reasonable need for it (and in that case, give me a fair price for the extra work).

[Frank Chin]

I have similar issues thru the years, but don't let it bother me. I see it from a few standpoints, as contractors in the IT field, owning a auto repair shop, and having partners in my properties in the beginning.

The comment about relatively minor work is something that people don't understand. Your example of relatively minor work, 30 minutes to add sister joints is a good example. If they found the problem after opening the walls, quoted you the job, bought the materials, they have to spend more time running back to the lumber yard, or Home Depot, and get the additional material, which at the busy time of the day cost them time. Contractors I use generally price themselves $300.00 a day in labor, so if the sister joint takes 30 minutes to nail in, but 2 hours in additional time, that's 2.5 hours in total time.

There's another contractor that charges a minimum of $300.00/day labor plus materials. So if he opens up the wall and find additional work, and the additional running around takes an additional day, that'll be another $300.00. He won't charge a fraction of the day. One time he had to upcharge me on something, and charged $300.00 more, because of his daily labor charge. I complain it doesn't take one more day. He says I could be right, so find him some other thing in the property he can do if he finishes faster.

My plumber has a good system. For quick jobs that he has parts in his truck, he schedule those jobs at 8:am, with $85.00 in labor if the job takes 30 - 40 minutes. This he does on his way to his bigger jobs. When tenants complains about drips, I call him and for about $100.00 or less in parts and labor, I would have my washer changed, something I have to do several times a years.

I had a IT consulting business once, doing hardware and software installation, and I enjoyed it. It was unprofitable because everyone believes jobs take 30 minutes to do, and the constant fighting with customers over it. People don't see the time I took me to figure out what parts are needed, pick the parts up or order it, and bring it by. They only see the part when I walk into the office, open up the computer, and install the part. To them, it's only 30 minutes.

So yes, I saw the problem from the real estate investor standpoint, and the contractor standpoint.