Consult a contractor before purchase or after?

Question

Hi everyone,

I was hoping that by this time I would be telling you about the start of my first flip but...

Over the last two weeks I sourced a house in a really nice neighborhood, did the initial walk through with my Realtor and my investor. I typed up a scope of work to be done on the property and gave it to  the contractor who met me the next day at the property.  He showed up almost an hour late, did a very basic walk through not checking electrical, plumbing or really anything else. About 2 day after that he gave me a verbal bid. ($54K -not sure for what exactly) He then said and I quote," I don't want to get my electrician or plumber involved unless I know we got the job".   Needless to say, I was not happy.  I then called another contractor (not telling him my quote) and he met me same day at the property.  He walked through and discovered a lot of issues.  Several leaks, polybutylene, mold, issues with the roof, shorts in smoke detectors and the hot water heater not meeting code.  He then asked if his subs could meet me there the next day.  When I got to the property, He was there along with his floor guy, plumber, electrician, and the painter/sheet rock.  I was shocked and happy given the most recent experience with the other contractor.  We all walked through, each one writing things down in order to provide a bid for their service.  Several days later, I contacted the contractor and was presented with a bid for $77K.  Needless to say, I began to negotiate with him and was able to lower the price by $6500.  Even with all of that, the numbers didn't work so I had to scrap this flip.  Please note that all of this contractor's subs owned their own businesses in their respective fields.

Okay, so I want to know how you more experienced flippers handle these two issues.

Should the contractor give me his price and take care of paying for his own subs out of that or is this common place for all the subs to provide individual bids?

And,

I have read dozens of post on BP by people who purchase the houses first and then meets with the contractors after the close for bids.

Which is the right way:  Walk the contractor through before the purchase and get bids or wait until after the house is purchased?

Account Closed · Answer

I think it's a mistake (and impolite) to tell the contractors that you're getting many other bids.

First, it tells them that your main focus is on price, rather than quality, which invites the wrong mindset and often leads to many problems down the road.

Second, it is irrelevant. My price is my price. It is based on my costs and the amount of time it will take me to do a job. It is the amount I need to earn to be profitable and stay in business. It can not and should not be lowered simply to come in lower than the next guy.  That is a sure recipe for going out of business.

I suggest a better approach is to develop a relationship with a good contractor (your 2nd guy, for example) and use him for your projects, once he's proven himself.  It can take time to find the right one but that's like anything else.

It's certainly wise to get other bids (3 is plenty) but make sure you have a clear scope of work and a realistic budget.

Brian Pulaski · Answer

I don't give my contractors a budget. I let them price the job how they would normally price it. I would rather know a real number, and not them attempting to hit my number.

Ben Wendt · Answer

I think that you did the right thing here. In walking through the property before buying it and getting an estimate on the work needing to be done, you can determine whether or not the flip meets the numbers. I think that this is a good practice until you are confident enough in your own rehabbing assessment to determine a SOW just as you're walking through. Doing this prevents you from taking a deal that won't profit for you.

I'm sorry that your first contractor was so lackadaisical in his approach to your rehab. Not a pleasant experience! I remember reading/listening that flipping should be strictly about the numbers and not the emotional attachment to the flipping process. I might have gone back to the seller and tried to negotiate the sales price down, based on all the work that needed to be done. You were willing to buy it, and if the seller dropped down the price to the threshold that would have worked for you I think you would have gotten the deal.

Having been in sales and observing RE agents, it's about the relationship. Why is the seller selling? Are you helping them solve a problem? Emphasize the fact that you are willing to solve the problem right now if they'll drop the price to something that meets your number. Would they really be more successful in selling their home to another person with all the problems that you described? Doubtful. I would encourage you to go back and try to renegotiate the sales price with this kind of approach. Maybe the numbers will work out for you then!

Lisa Johnson · Answer

@Dayn Beals, Account Closed, Thank you all for taking the time to advise me on contractors.  I really felt that the second contractor was very professional as well.  I have known him through networking and he seems to have a good reputation.  The first contractor was referred to me and various people told me that he does good work.  My issue with him was he didn't really seem to want to do the job.  Also, him showing up an hour late to meet me and my investor was very embarrassing for me. Okay, so I gather from your advice that I should not tell them about each other when getting bids and I should give them a budget for the SOW before so they can see if they can work within it.  Am I understanding your posts correctly?  I really appreciate all of you taking the time to help me understand this process and I would like to invite all of you to be my colleagues.

Dayn Beals · Answer

1. I will totally be your colleague.

2. It would be rude of an interveiwer to tell a potential employee they aren't the only candidate. That's all.

3. Relationships, even with contractors, are important. You know your people won't let you down.

4. It's your job to develop the scope of work. Once you have done that, present that to all bidding contractors without changes and have them bid. If you are using a contractor to help you determine your SOW, that's different.

Michael Collins · Answer

The investors that I contract with always want me to evaluate potential properties. Its a common business practice here. I alway negotiate price with my subcontractors and am solely responsible for paying them.

Ryan Cameron · Answer

@Lisa Johnson I believe that a walk-through with your contractor is the best done before the purchase. This way you'll have a better estimate of the entire project, and can make an offer accordingly.

Best of luck

Brian Pulaski · Answer

Keep in mind, if you are getting bids before you own the home, you may not get contractors to willingly come out and view the property. The second contractor sounds like he is willing to have himself and his subs spend the time with you on a project that you don't even own yet. To me that is him showing extremely good faith in a relationship with you. I have a few guys I work with who will come view a house during inspection before I own it, but not all of them would. Personally, my first call would be to this second guy you brought in. Have him create the budget for your house (I would also entertain paying him for this service). If his numbers work, getting multiple bids is an option, but in the end his leg work for you would weigh more than a few thousand dollars in savings.

Dayn Beals · Answer

Hi Lisa,

That second contractor sounds professional. Ask him lots of questions. Contractors love to tell you what they know.

As a subcontractor, I provide bids to the general contractor and he includes that and all others to the client. Typically my bid as a sub is lower than if I deal straight with the owner. I am paying his mark up to manage the project, in a sense, so that my time is not consumed with customer relations. The general contractor needs to be compensated for his management and liability for customer satisfaction, as well as his knowledge.

Get to know your state's lien laws. Hope this helps.

Lisa Johnson · Answer

@Timothy Steele, thank you for your advice.

When I locate another house I will contact at least 4 contractors and let them know that this job is up for grabs if the price is right.  They will all know that they have competition.  Have a great day.

Consult a contractor before purchase or after?

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