Estimating rehab costs before or after inspections?

[Patrick Zepeda]

Hi all! I am having a hard time understanding the timing of the estimation of rehab costs. I thought you first estimated on a PSF basis how much the rehab would cost to come to a purchase price (PP+Rehab=70% of ARV), but does it not make more sense to do the inspections first and then have contractors bid on the total project cost with more accuracy? Can this be done within a 7-15 day period to close quickly? Assuming you renegotiate the price if the inspections show more than what's superficial.

Thank you in advance!

[Edward Stephens]

@Patrick Zepeda ideally you know what your best bid is going to be before you write the offer.  That way you're not wasting the seller's time, the agents time, and most importantly your time.  It's also bad for your reputation if you're running around town making $200,000 offers on homes and then after inspections trying to renegotiate to $170,000 because you didn't understand the cost of repainting the interior of the home or installing granite countertops before you made your offer.  Your professional reputation is paramount and should be protected.

You will have an inspection on the home, and that inspector might find that, for example, the roof needs replaced or the furnace needs replaced, but the inspector won't be telling you how much it costs to lay hardwood floors or how much to change out a kitchen backsplash with something more stylish.  If something is mechanically wrong with the home, something not disclosed and couldn't have been reasonably discovered before your offer was made, then it's fair game to renegotiate after inspections.

If you have add'l questions feel free to DM me.  Good luck!

[Eliott Elias]

Your contractor should be able to give you a bid without an inspection report.

[Mike Hasson]

A fair question, but I'd answer with a question for you - how are you making offers without first understanding at least a rough idea of rehab costs?

Inspections are only a part of the estimation as @Edward Stephens pointed out, we won't be looking at aesthetics or cosmetics, so you should already have a good idea if you need new floors, finishings, etc well before inspection.

Check out the Book on Estimating Rehab Costs by J Scott, that should be very helpful for getting started, and with practice it will become second nature to look at a property and know what it will need. Though some things are fairly obvious and you can figure will need replacement without the help of an inspector.

Even if you are 100% percent relying on your contractor for bids, it seems like it still might benefit you understand what exactly they do and how they do it, so you can clearly communicate your needs and expectations. Most contractors aren't investors and so we must be diligent about our budgets and scope of work to keep projects profitable.

[Bob Stevens]

Quote from @Patrick Zepeda:

Hi all! I am having a hard time understanding the timing of the estimation of rehab costs. I thought you first estimated on a PSF basis how much the rehab would cost to come to a purchase price (PP+Rehab=70% of ARV), but does it not make more sense to do the inspections first and then have contractors bid on the total project cost with more accuracy? Can this be done within a 7-15 day period to close quickly? Assuming you renegotiate the price if the inspections show more than what's superficial.

Thank you in advance!

 I am not understanding the question. Of course the contractor needs to bid on the job BEFORE you make the offer otherwise all you are doing is wasting everyone's time. You cannot put in an offer without know the reno budget. 

I have done 100s of deals in Cleveland and have 25 contractors, more than happy to help you 

I just noticed this is a 3-month-old post, did you close? 

[Bob Stevens]

Quote from @Eliott Elias:

Your contractor should be able to give you a bid without an inspection report.

 If not FIRE them :) 

[Tatiana Viviano]

I have only completed 5 full rehabs  and my husband is a commercial estimator but this we feel is good general advice:

Getting a very good understanding of repair and replacement costs yourself so you can estimate is very important.  It takes time to get good at estimating and you can borrow a friend/relative with a good solid knowledge to do walk through with you. 

Also, if you throw a question at a contractor for something you aren't sure of most will give you a good general idea. Pick your materials well in advance and prepare for long lead times for certain things. ( I start orders as soon on materials that take awhile as soon as inspection period ends like typically windows, sliding doors, cabinetry and appliances)

I took a ton of pics at walkthroughs to reference as I write estimate and then allow a 10% buffer. I do this if I "GC" myself with subs. For your first house make a 15% buffer. 

If you are using a GC send photos and list of repairs to them. A good one can give you a ballpark. They can't see through walls so it's important to know what pics/video to take. Always get pic of utilities and electrical box too.  

I do not send contractors out to give estimates for houses I haven't received an accepted offer on. If something is super unsure I put it in my estimate just in case. Nothing worse than losing a great contractor because you sent them to 5 houses you didn't get an accepted offer on they will stop answering texts/calls. Good ones are worth their weight in gold and I value their time so they value mine.

[John Chong]

If its a property that your interested in making a strong offer I would walk it with the contractor first to see the total rehab cost and then do the inspection during your option period. You can negotiate the purchase price if you find major defects on the inspection report.