Fundamentals of Real Estate: Scope Of Work
Fundamentals of Real Estate: Scope Of Work
In the real estate game, the fundamentals are key to success. In buy and hold landlording, for example, how you handle the basic blocking and tackling (to use a football season analogy) will determine your success; that is, you handle the daily people and property issues can keep you on top, ahead of the competition and in the game.
An advantage of Bigger Pockets, to continue the analogy, is that you don't have a lot of untested trick plays or just a cheering section (though, that is nice, too), like you might get from a pricey guru or late night infomercial. Real landlords and flippers provide real information that is practical and useful.
In the landlord play book, much of my work involves (1) people issues (like screening and communicating with tenants) or the (2) property issues (like painting a unit or doing exterior maintenance). But one area where you may need to handle both is with the use of contractors. These are people you use to help maintain the property. So how landlords (and flippers) use their contractors is a key real estate fundamental.
I see a lot of forum activity on the selection and use of contractors. But one thing I don't see that much is clarity in the scope of work. A helpful tool and starting point for using contractors is this three word mantra: "scope of work", easily one of the most important parts of your agreement with a contractor.
The "scope of work" is a key term of art that encompasses the agreement about the fundamental work to be performed. It is what will be done and all the materials, specifications, description, plans, etc.
The scope of work is a great way to help make sure your expectations (what you want done) match with what the contractor actually does. You want to be on the same page here, literally.
Without a scope of work, a forum on "Is $8,000 Too Much for a SF Roof?" may not even make that much sense to answer, for example, because no one may know what the price entails exactly.
The scope of work is not the agreement per se between you and the contractors, but the key part of the agreement specifying what will be done. A scope of work should be listed or described in detail in your final agreement (and even plans, specification attached if possible, the more specific the better, so get the vagueness out).
Whether you are using a fixed price bid or a cost plus estimate (I have an earlier blog post on these two billing methods) the contractor really can't give you an accurate figure without certainty about will be done (i.e., the scope of work to be performed)...
The scope of work is where the vision in your mind and your expectations meet the contractor's expectation about what he or she will do.
Just asking the contractor to "fix it" "replace it" or "put in a new one" is often not enough guidance to get the best results.
Of course, just replacing a few pipes may have a shortened one or two-sentence scope and a major project a lengthy multi-page one. But think about scope of work in projects large and small. Make sure you and the contractor are in sync on the scope of work before you go forward. To make the concept more real (less abstract) an actual example is below.
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Starting the Scope of Work Conversation (My Four-plex Roof Example)
I enjoy landlording, but crawling around on a two-story roof not so much.
I wanted to re-roof my fourplex and get some associated work done (and done well).
There was a small area to paint on the gables, some ventilation issues and I even wanted the gutters cleaned for the year. I wanted to consolidate all the roof work at one time.
And I did not want to leave any details to chance.
I researched the project some in books and online, and sent this sample (below) to a few contractors. Even that activity was helpful. It helped me see who was even interested in my project. For example, one contractor called and said he just wanted to add a second layer of shingles (allowed in my area but not my choice) and another did not want to do any non-roof related items.
So just having the scope of work helped me from the outset get a contractor that was interested in my specific needs. The contractor I chose even added more detail to my scope in terms of hours and materials and more exact measurements to the items below. They gave me an estimate and did the job on a cost plus basis (finishing below estimate and on schedule). It turned out well all around.
I think starting the conversation right (with a scope of work) helped us both understand the exact project and gave them a better idea of my expectations. And we both avoided bad surprises (like a wrong color of shingle, gutters left off, or a wrong product used). An added bonus: I think clarifying the scope of work up front also helped establish I had some understanding of the project and what it entailed (which can also prevent overcharges). In the end, rather than try and guess what the other party wanted or was doing, we even worked together to reduce some hourly costs in some areas.
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SAMPLE SCOPE STARTER (Roof)
FROM: Mike Boyer (phone/e-mail)
RE: My Fourplex Address, Re-roof, ventilation and minor painting etc
DATE: March, 30 20XX.
SCOPE OF WORK (Re-Roof) SHINGLES
) MALARKEY “LEGACY 50” SHINGLE W/ALGAE BLOCK: Approx. 25 squares (Antique Brown, Sienna Blend, or Heather color, in order of preference).Contractor to order and deliver materials.
DEMO:
). Tear Off: Remove existing asphalt shingles and dispose of debris (dump fee paid by contractor)
UNDERLAYMENT:
) Install new roof underlayment, (brand, type agreed on)
) Install perimeter water & ice shield (150-200 ft)
) Replace all flashing to code and workmanlike standards
GUTTERS:
) Leave existing gutters and save if in good condition. Replace if damaged (not in quote). Clean gutters and flowing.
Existing Decking ROT REPAIR:
) Contact owner for approval and repair at standard time and materials rate with signed change order, rate at $3.00 per square foot (or agreed in contract)..
VENTILATION:
) Install Ridge Vent: Venta-Ridge (100 ft approx) installed per manufacturers specs.
) Add joist screens (one per bay) approximately 50 & foam baffles as required for soffit vent airflow.
) Replace flexible, white plastic dryer(2) and bath (2) fan vents with rigid sheet metal piping to code.
) Install 4 new Newtone Exhaust Hoods (close in color as possible or available) to code for kitchen and bath fans (note: we just ended up putting in new bath fans, too, and I was able to pick these up and give them to them).
) Mechanical and plumbing vents: replace with new #3 master flash boots
PAINTING (Gable Siding, & the Fascia and Soffit on Gable area only (i.e., paint area accessible only from roof)
) Prep (TSP/Bleach/Water), Prime (Ben Moore FreshStart), Caulk (Geocel or Dynaflex)
) Paint Gable Siding, and Fascia and Soffit on Gable Only (i.e., area accessible only from roof) with Ben Moore or Ben Moore Aurora (Owner to provide paint onsite properly labeled). Colors on file at xyz Speciality Paint.
TRASH
) Contractor to Remove All Trash to Dump
Weather
) Tear off and underlayment to occur on day(s) without precipitation, if possible (huge issue in my area, technically a rain forest).
PERMITS/LICENSE/INSURANCE
) City and Borough Permit covered by contractor
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Feel free to chime in where a contractor situation worked out (or did not) and if a clear agreed on scope of work up front may (or may not) have helped...
Moral of the story: Try to get a specific (as reasonable under the circumstances) a scope of work as you can before starting a project. If you don't know where you want the project to go upfront, it is unlikely you will get there...
I think if landlords (and flippers) understand concepts like scope of work and both fixed price and cost plus (time and materials) pricing, they can make the blocks and tackles to keep them in the real estate game. Best of luck in the game!
Comments (5)
super, thanks for the comments.glad you found this...that is a great way to start the conversation, on scope of work...gets you for the abstract ideas down to actual materials and tasks. And if you like that fourplex, the challenge on the roof contingency may be that since it may not be yours yet, getting this level of oversight may be tough on that project, which could mean just negotiating it in the price and doing it later on your own. Or agreeing on the best roofing contractor in the contingency could work, too. Best of luck.
Michael Boyer, about 9 years ago
Hi Michael
This was an enlightening article. I rather liked the detail as I am detail-oriented and often times those around me want it "short and sweet" no details. Unfortunately, I cannot always give the glossed over view. I appreciate that you have a nicely formatted SOW that I'm sure others will appreciate.
I am learning all I can for the time when I have to address my townhouse rehab of the kitchen and baths. Likely when I make my list I will uncover some more things that need updating and have a SOW so the contractors bidding on the job will see just what I want to have done.
Daria B., about 9 years ago
thanks for the great insights from the contractor angle. I am hoping to see more posts on BP about projects move to more specific conversations like this. Flippers and landlords are huge consumers of construction services, but many, as mention, may not know how to start a project right with a scope of work (or even know enough to ask for one up front) so I am going to refer folks in forums with questions about a potential new roof or remodel to this scope piece and your great comments. Happy thanksgiving to all...
Michael Boyer, about 9 years ago
@michael boyer, what you're expressing here is ripe with valuable information, but sadly, I believe too few will understand or heed it. You are clearly far more educated about building materials and construction practices than the vast majority of investors, and thus you know what to ask for... and therein are the keys... education and effective communication.
Your request to have shingles with algae inhibitors, perform pre-painting prep with TSP (or the like) and requiring specific caulk, appropriate to the application, conveys to the recipients of your request that you value communication, quality materials and methods, and perhaps most importantly, a level or professionalism that the industry lacks. It tells me that you've done your homework in knowing, if only intellectually, what needs to be done and as such, I presume that you expect to pay accordingly. While I don't work as a fee for service contractor anymore, receiving scopes of work like this would attract me to clients like you. In part because giving you what you want is easy. But, neither I, nor any of the amazing contractors I know, have mastered the practice of mind-reading (and in fact, we all fail miserably at it) yet are asked to price and perform jobs accordingly.
Sidebar comment: How many of you reading this know, without Googling it, what TSP is, and require it of your painters? While shingles with algae inhibitors are arguably an elective enhancement depending on the environmental conditions in the area of a given project, a TSP wash (or equivalent) is something every self-respecting painter should be doing, as a minimum, in my opinion, when painting over existing finishes. And who among you don't require painting on any of your project, ever?
One of the reasons I so value my experiences in commercial construction is because having detailed scopes of work are commonplace. They exponentially reduce misunderstandings which ultimately leads to an enhanced relationship between the parties involved. REI could benefit greatly by emulating this practice. I believe that if more REI took a business-to-business approach on their investing, they would in turn, find greater satisfaction in the work they have done on their properties and realize that quality work comes with a price tag respective to that work. A higher price doesn't mean that the price isn't fair. I see over and over again here on BP, folks wanting "good contractors at a fair price"... sadly though, they are the same ones who don't even know what to ask for or how to compare proposals from different contractors to ensure that they are truly equivalent. If they don't know how to do these things, how can they know what they are buying? Oh yea, my bad, it's the low bidding mind-reader - that's the one!
As you noted, having a scope of work was huge in vetting several contractors from the onset as it included work that they didn't want to do (my roofers don't want to do anything but roofing and I'm good with that... I sure as heck don't want them painting or doing other tasks they are neither qualified to do or desire to do... there's no good outcome in that scenario in my opinion).
Enough of that though...
While certainly not comprehensive as to the whole of the scope of work, a few things I suggest:
- Adding some clarification delineating materials and labor in so much as defining a few terms and then using them in the scope's body, consistently. For example, "Install Only" as something we'd install that is provided by others, "Furnish Only" as something we'd supply but not install, and of course, "Furnish and Install" equates to the contractor providing the material and installing it.
- Specifying the insurance limits and licensing requirements as applicable, along with the anticipated start and completion timelines.
Your comment, "If you don't know where you want the project to go upfront, it is unlikely you will get there..." proves true over and over again. That applies to most things in life, eh?
Account Closed, about 9 years ago
nice note from BP contractor ( I asked his opinion on piece); he added this: when you get multiple bids, a good scope of work makes sure the bidders are all bidding on the same thing..
Great point from a pro on how a good scope also adds a level playing field and plays a role in selection, too...
Michael Boyer, about 9 years ago