Offer first, or have a contractor quote repairs?

Question

Good morning Bigger Pockets Community!!

This is my first post of hopefully many and I’m very grateful for all I’ve learned and will continue to learn through bigger pockets!

Just a little about me: I’m a Texas Realtor in the South Texas (Rio Grande Valley) Area and I just completed my first year in real estate yesterday! It hasn’t been a great year (0 sales so far, 1 Listing, and only rental commissions) but there’s been a lot of learning and self realizations in my life that I’m positive will propel me forward in this career. My Fiancée also a Texas Realtor has had a better year and also started at the same time as me and we have high hopes for what is to come!

To get to my point for this post.

I have a friend who has family in another state and his family would like to invest in South Texas. Specifically my hometown because of several upcoming projects that can really impact the growth of the economy down here. There are 3 properties they want to make offers on however they want to know how much renovations/repairs will cost before they submit an offer. They also want me to find the contractor for the quotes and schedule them to go out and check out the properties. All 3 are Duplexes and one has an occupied trailer included.

My question is, should they first submit their offers and get under contract or should the quotes for the scope of work be obtained first?

P.S.: I don’t have experience with construction (yet) so I do not have the slightest idea of labor or material costs.

Thanks in advance for any advice!

I look forward to making lasting connections through bigger pockets and hopefully some good friends too.

Steve Milford · Answer

@Marcos Duran And use an inspection contingency. That is your out in case the costs to repair are too much or your recommendation is for the Buyer to walk away from deal and still keep their earnest money. Waiting for bids and then offering, usually means I lose the opportunity to offer onto if it a good deal. Look at your speed of DOM and speed of market in bottom 30%. Well-priced deals in my area are gone in 5 days or less, often at over retail. Full-retail priced deals are gone in 20 days or less. Once 3 weeks hits, prices should be coming down or you should be offering less than retail.

Once you get under a few contracts, and then recommend Buyers to walk away, yes you won't get paid for your time, but your Buyer's will trust you to present their best interests.

Steve Milford · Answer

@Marcos Duran Go for the contract first, without the contract there is no point to contacting a contractor for a bid. Then shift your mindframe, think about their money as your money. You don't want your time wasted, as they don't want theirs. Go sniff homes for comparisons; pictures always lie. Find 3 bids for comparison, this by itself may take contacting 20 companies. I.e. When I see a bad roof I tell clients that we need a roofing contractor out here immediately for a bid from an expert, but new basic roofs in my area run $5-$10k. The contract and transaction fee from contract pays for your leg work. As an agent your job is to manage the project, so go do that.

Christian Rojmar · Answer

How long have the properties been on the market? If recently and it is a good deal, it will most likely be under contract before you have a chance to bring out a contractor that can help determine repair costs. As such, it may make sense to get it under contract for a price that that will meet buyers return requirements assuming property require little to no repairs and then include a clause in contract that allows you to change offer or back out without losing earnest deposit depending on the costs of repairing the properties. I guess the risk with this strategy is that the seller may have a harder time going down in price after receiving a higher initial offer if repairs are required.

If the properties have listed for a while, you probably have time to get a contractor our there asap to look at the property and then make an offer based on repair estimate. Just remember that good deals do not last long in today's market!