Why Quality Checks on Turnovers and Rehabs Are So Important, and How to Master Them

In This Article

Picture this: You just moved into your brand-new home, having just relocated to this town days ago to start your new dream job, and are full of excitement. The rooms are filled with that brisk smell of having recently been painted. The countertops don’t have a speck of dust on them and glisten whenever the sun’s light touches them. The master bedroom is on the second floor, with a large bay window that looks out on the beautiful park next door, the downtown in the background. 

You smile with satisfaction, knowing that all that’s left is to go through the arduous process of moving all of your stuff in, and then you can relax to a well-earned night of sleep in your new place, in a new city, with a new job.

And then…

The toilet overflows and raw sewage pours out all over your bathroom floor as noxious fumes fill the home in a vomit-inducing cloud of agony and despair. 

Now, do you think such an occurrence will increase or decrease the likelihood that this tenant will renew their lease a year from now? 

Such issues can poison what I call the second impression. The first impression is when a prospect views the property to either apply to rent or make an offer to buy. The second is when they move in or do their inspections. That second impression will go a long way in setting the tone for the landlord/tenant relationship or getting the property through the inspection period unscathed. 

It’s amazing how many little things get missed if you don’t go through and check on each detail. And sometimes, even big things can get missed. We’ve seen this over and over again. The more diligent we are in finishing a project the right way, the fewer problems we have renting it, or with the tenant after they move in.

Not doing a sufficient quality check can cause all sorts of problems with tenants and maintenance, but it can also cause issues when flipping. If a whole host of problems pop up on an inspection report, you better believe you are about to get a nasty resolution of unacceptable condition or perhaps even a cancellation.

This is why it’s not just good enough to do proper due diligence and budgeting. Nor is it good enough to put together thorough scopes of work, find quality contractors or employees, and diligently oversee construction. As Robin Sharma puts it, “Starting strong is good; finishing strong is epic.” 

This is where the punch-out and quality checks come in.

A Word on Checklists

I would highly recommend that anyone in real estate, or any business for that matter, pick up a copy of The Checklist Manifesto by Atul Gawande. It describes in meticulous detail how important it is to create systems and well, checklists, and follow through with them consistently. 

At one point, he describes how physician Peter Pronovost implemented a simple five-step checklist for a Michigan ICU when putting in a central line that was later adopted throughout the state. The steps were:

1. Wash hands with soap.
2. Clean the patient’s skin with chlorhexidine antiseptic.
3. Put sterile drapes over the entire patient.
4. Wear a mask, hat, sterile gown, and gloves.
5. Put a sterile dressing over the insertion site once the line is in.

Seems simple enough. You would think, with seasoned and well-trained doctors and nurses, this would be little more than second nature and have no discernible effect. In fact, what Pronovost found after a year was remarkable, as Gawande notes:

“Within the first three months of the project, the central line infection rate in Michigan’s ICUs decreased by 66%. Most ICUs—including the ones at Sinai-Grace Hospital—cut their quarterly infection rate to zero. Michigan’s infection rates fell so low that its average ICU outperformed 90% of ICUs nationwide. In the Keystone Initiative’s first 18 months, the hospitals saved an estimated $175 million in costs and more than 15,000 lives. The successes have been sustained for several years now—all because of a stupid little checklist.”

There’s a reason you see the same thing amongst airplane pilots, mechanics, and other professions where life and death are on the line: Checklists work (perhaps Boeing should revisit this point).

You should be developing checklists throughout your business and using them consistently. They dramatically reduce the number of mistakes you will make and the number of things that fall through the cracks. But if there’s anywhere in a real estate business where this is the most important, it’s with putting together a scope of work and then finalizing everything with a quality check.

Quality Checks

Hopefully, I’ve explained why checklists, in general, and quality checklists, in particular, are critical. I will now describe how we do it. Of course, that doesn’t mean this is the best way. But we have put this system together over the course of 15 years, doing hundreds of rehabs and turnovers on our own properties and for clients throughout the Kansas City area. 

But whether you do it our way or another, it’s important to make quality checks (and thorough punch-out lists) a priority and do them consistently in the same way.

We base the quality check off our scope of work, which we put together by going through a detailed list of items and putting each one into Smartsheet (our project management software). It would be worth reviewing my article on scopes of work if you are unfamiliar with that process or think your system needs improvement. 

For each item that isn’t exceedingly obvious, we include a picture of the issue attached to that line item. The scope looks like this:

Once the project has been completed, we go back through and check off each item to make sure it was done and done right. We then email the contractor (or employee) with the following color-coded list:

• Blue: Item that needs to be done but was not on the original scope, making it an add-on.
• Purple: Note, but no action needed.
• Orange: Partially completed/not up to our standard.
• Red: Same condition as before the job.

We include pictures of anything that isn’t plainly clear. The email we send looks something like this:

At this point, the contractor has until Thursday at 5 p.m. to send us pictures of each of the completed items in order to receive full payment that Friday. (We try to get this to them no later than Tuesday, usually sooner.) 

If the contract does not respond or fails to fix any of the non-blue items, we simply deduct the amount associated with that line item from their paycheck and use one of our other contractors or employees to finish up the last items. (And the contractor who failed to finish the punch-out list goes to the proverbial doghouse.)

Depending on your business, of course, this could look different. If you are operating an apartment complex with on-site property management, doing this through pictures and emails would be unnecessary, as you could just have the property manager walk down and verify the items were completed. In such properties where there are many similar units, you could also probably make standard checklists for the turnover staff to go through instead of going off the scope. 

Whatever you do, make sure to refine your system and checklist to get the kinks out of it. Then, follow through with that system the same way each time. It’s essential to make it a cookie-cutter operation. You absolutely don’t want to be flying by the seat of your pants or reinventing the wheel each time with every rehab and turnover.

Marketing and Deposit Dispositions

Last, I’ll give a quick note on marketing walkthroughs and deposit dispositions. When selling, we make sure everything is completely right before pictures, but we are a little more forgiving with rentals. Our leasing agent will take pictures and make a note if there are any items still not completed on the quality checks (or other things that they think should be done). But unless it is in terrible shape, we go ahead and market it for rent.

We then have a Last Fixes list that an employee or contractor will address as soon as we can, but because the items are so minor, we don’t wait to complete them before marketing.

The leasing agent will also do an amenities check if one hasn’t been done already. This involves noting things like if there’s a master bedroom, walk-in closet, fenced backyard, privacy fence or chain-link fence, gas stove or electric, finished basement, etc. We put all this information into our property management software and include it in our advertisements.

Regarding deposit dispositions, it’s important to know your state and local laws, as they differ widely. Where we are, we have 30 days to return the deposit to the tenant minus the cost of repairs. We do this by comparing the items on the scope of work to a cost sheet we put together. You can also use a contractor’s quote or the actual price to repair, but remember, you only have 30 days (at least where we are) to return the deposit, so you must be quick in determining the cost of the damages.

We also compare the repairs needed to the move-in checklist we provide each resident. On this form, they can note any deficiencies in the unit when they moved in. We tell them that if they don’t return the move-in checklist to us, we will assume all components of the unit were in working order at the time of move-in, so any damages will be deducted from the deposit. 

The move-in checklist looks like this:

We also make adjustments for how long the tenant has been there, of course. If they lived there for 10 years, it’s not fair to charge them for replacing the carpet. Finally, we allow for appeals, but evidence our determination was wrong must be provided—and rarely is.

There is no perfect way to do dispositions, but we try to be as precise and systematic as possible and do it the same way every time to avoid heated arguments and potential legal disputes. But check your local and state laws before implementing any system for deposit dispositions.

Final Thoughts

With contractors, there are three really important things: price, quality, and speed. They say you can pick any two, but that’s it. (In case you’re wondering, you can get less than two, but never more.)

We track each of our contractors in these three departments. The way we evaluate quality is by the percentage of line items that pass our quality check. The best we ever have is 98%. But many are around 85%. 

So it should be no surprise that when you don’t do quality checks, lots of things get missed. At first, we didn’t do any quality checks. We learned very quickly that it leads to disaster. 

So we started doing them, but they were very vague. Things got a bit better, but it was still bad. So we kept getting more and more detailed, and it kept getting better. In that way, it’s very similar to our screening practices. 

In other words, this isn’t something to do halfway. That’s especially true with rehabs since many things that look fine are actually right on the edge. Thus, we make it a point to tell anyone moving into a house we just remodeled that it’s likely something will break shortly after they move in, because while it may have worked while being tested, it hasn’t been under a load. We definitely have more maintenance calls right after a move-in with rehabs than turnovers, so this would be a good thing to mention in such lease signings.

It would also be a good idea to make sure you can get out to properties just after someone moves in quickly to do any maintenance items that slipped through the cracks. Indeed, it might even be worth it to try and avoid having move-ins on Friday if convenient, at least when getting started. Remember how important those second impressions are. Quick, quality maintenance to fix any problems that do pop up upon move-in can pull a bad second impression out of the fire. 

A good rehab and marketing effort will provide a good first impression. A good quality check and punch-out list will provide a good second impression. Together, you will substantially improve your tenant relations and lease renewal percentage or get your properties sold more easily and with fewer headaches during the inspection period.