Negotiating with GC bids

[Logan Turner]

So does anyone negotiate with bids they received from general contractors on rehabs? If so how do you usually go about that? I put together a detailed scope of work and a bid document for the contractors. They then email me their price. This is my 3rd major rehab so I'm still very green. So far I've accepted prices and went with reasonable contractor with good references. How do you all proceed? Thanks everyone Ps I have j Scott's book and Brandon turners books but I don't recall a part about negotiating GC bids.

[Ritch Bonisa]

My comments are more general in this situation.  I do think a contractors first attempt at a bid is usually more what they would like to make on a particular project.  I agree there is room for negotiation.  I do have to throw in the fact that many rehab projects that go south are due to lack of funding.  Many of the rehab contractors that I see don't have the resources to fund much of the project themselves, where you find that responsibility pushed upon them, you likely find a project that begins to have increasing issues and increasing risk to the investor.  Once a contractor gets behind the 8 ball - you have trouble!  This also holds true when you are looking for ways to reduce costs.  It's great to reduce costs, but you still have to leave some meat on the bone for the contractor.  If you don't you force the contractor to find his own way of making up that cost. 

I manage rehab projects so I work with a various number of contractors.  I think part of the problem is just dealing in reality.  I mean what are the REAL costs associated with a particular rehab. I've seen those low estimates and they end up with a lot of change orders, unforeseen issues, and increased costs on the back end.  Much of this can be avoided, both investor and contractor need to deal more in reality - this includes budget.  Yes, the older the home the more unforeseen issues there may be.  You can't estimate what you can't see.  

Investors want it done at the lowest cost possible.  Contractors want it done for the highest price acceptable.  What is fair does matter, but what is correct or real, matters most. It's hard to make money and projections on a sliding scale of rehab costs.  Realistic Budget.  Realistic SOW.  

Keep in mind that a good contractor will go lower if he can, but he will pass on the project if he can't. You can certainly beat a bad contractor down on price.  He probably needs the work because he doesn't have any other project opportunities.  If he doesn't have other project opportunities, he's not worth using - and he probably has financial issues.  Bad News!  A good contractor will be in higher demand and can much more easily pass.  I would say (within reason), don't let the good one's get away.  

Another way to look at it is:  To get and keep a relationship with a good contractor, you have to get a good deal up front on the property.  This is where your money is made.  You don't want to be in a position to make your profit on the rehab costs.  Leave enough meat on the bone so the contractor can make something on the rehab costs.  This way you make money, the contractor makes money, and you are both excited to repeat the process over and over.  From my perspective, I think this places more importance on the property you acquire instead of on the rehab costs and the contractor.  I always encourage investors to know the rehab costs before property acquisition.  If the costs are too high - just pass on the property. 

AND, yes, this is all easy for someone else to say!  I hope something in there is helpful!