Using Project Managers/Need advice

[Alan Jone]

Hey guys,

I am badly in need of some suggestions. Currently, my wife and I have purchased a place that is in bad shape for 84k. Our realtor is also our future project manager. She led us into the investment believing we should only spend between 40-50k on the rehab. After closing, her estimates is now at 100k for the rehab alone and her project management fee.

She wants 15% of total project (which I kind of want to see if this is reasonable?) for us being friends, she said this is already a friendship discount, since she normally charges 25-35% for other clients (which I don't think she even has other clients, because she started her own company and used foreign investment money to flip places and pay back the investment capital + interest)

Her current estimate of 100k is only her guesses, without really having anyone or any real contractor giving her a solid quote. However, this is not the part that is sketching me out, but she now wants a contract signed right away to use her as PM, with $5k of deposit down right now for her, THEN she'll start providing me quotes from her contractors, saying that it's not fair to her or her contractors without any promises on our end.

My thought is....... I would at least kind of need to know a number that your contractors will charge in order for me to determine if I want to use you or your contractors, so without any real scope of work done, I can't just sign a contract that needs me to take out $5000 of my budget.

What are your thoughts? Please let me know!

[Ritch Bonisa]

@Alan Jone Have you asked her how her estimation of rehab costs doubled?  Ask her to walk through those numbers with you?  

I would say you should have at least had a rudimentary scope of work prior to purchase.  I insist on one before I sign anything - even purchase agreement. 

Other question I would ask her "So you want me to pay 5k down on a 15k management fee to someone who does not have a scope of work on paper and more than doubled the cost of rehab from the numbers discussed pre-purchase?"

You simply need to get an explanation.  My guess is - there is no explanation. 

Next thing you could do is ask yourself the same question above.  Would you encourage your best friend to pay the fee and go this route?  

15% is a little high.  I'm sure it is likely high because she is inefficient and doesn't really have systems in place to manage a project like this.  She is doing things without a plan and shooting from the hip.  

If she's saying 100k now, wait til the demo happens and she starts pushing change orders at you.  It WILL happen.  Even the best contractors can't estimate what is behind a wall (what they can't see).

I assume she will be the listing agent. She may purposefully or inadvertently drive up the rehab cost. This might increase the sale price. It will also increase her commission on the sale. Also increase your budget. Will it increase your ROI?

I have alot of experience in rehab and based on what you've posted, this is my opinion.