Contractor fee to walk through property before bid is placed?
Rehabber · Jacksonville, FL · Member since 2013 · 53 posts · 3 votes
With our old contractor, years ago, we'd walk through a property right before we placed the bid, so we could see if my calculations for the renovation were on spot. He'd give me ideas, show me ways we could avoid/save etc. And he'd also advise me on anything he saw that just didn't look right....he kinda kept me on track and made sure I knew what would be involved etc.
I'd then close on the house, one house or another, mostly we did 2-3 walk throughs per 1 house purchase as the negotiations don't work out on every deal of course. He'd do the work, get paid, then on to the next house.
Someone I had intended on using as a contractor now, since I"ve been out of the game for a while, and this is the husband of someone I know fairly well, has just told me they will charge me for a walk through if I use them as my contractor.
Is this customary? It doesn't seem so. I've never had to pay a fee for that before. They get the project we end up buying, they make their money that way.
What are your thoughts?
Amy let me give you a perspective from someone with over 30 years experience in all phases of SFR & multifamily construction. But first let me address all the comments on your post. Most are from an buyers or investors view point and then there is Terry's that is totally unrelated too your question. Not a slam on you Terry, insurance work is great when you can get it but that's not what Amy's question was about.
Amy, these ain't the good ole days anymore when it was expected that a GC, a tradesman, carpenter etc would just show up and give you a free walk through or bid. I did it for years because it was just the norm and what people expected. So after doing the math and realizing how many hours, tanks of gas, people not showing up or thinking they are the only client you have and that your on their time and not yours was how do you say shocking was or is an understatement.
So basically your saying that it's not worth a few well deserved bucks to have someone with experience, knowledge, references maybe help you save $100s or even $1000s of $$ on a potential project that obviously your needing help on just doesn't make sense too me. So I started charging a fee to do a walk through and would take that off my bid if accepted. This usually weeds out the uninformed want a be investor not realizing that a good GC is their best line of defense from the start. So do your homework and find a good GC with references just like you do your DD on a property and move on. I could write on this subject all day long and go into the countless hours and money out of my pocket spent over the years doing free bids. In 30 years I NEVER advertized my work, never had to, it was all word of mouth. So do you still think this is not worth it for you to spend what you would spent on a good dinner, a pair of shoes, neither of which will make you or save you $$ in the long run. I guess it's all relevant isn't it??
I never paid for bids, but it is getting common as they realize you're using them and they don't end up with work. If you have a friend they might tag along unofficially and give you an opinion, especially if they would be doing the work.
Or, keep looking, getting advice is one thing, getting bid proposals with material lists and costs is another. :)
He's thinking that he's going to waste a lot of time, helping you price 5-10 different homes, to maybe get one. Maybe a fee for doing the walk through, with a credit worked out on jobs he does for you.
I never pay.. If they want the job they give me free estimates.. Way too many people out there looking for a job.. NEXT..
Times have changed significantly for contractors, at least in Florida. Lots of work out there and not a lot of people to perform it. This isn't surprising at all. Many contractors that I've spoken to are well aware that investors are generally a waste of their time unless they can see the opportunity for steady repeat business.
Contractors know that investors are a waste of their time? Better a home owner who does one renovation every 20 years than an investor who does 8 per year? Wow, an interesting concept. So 8 total home renovations per year isn't worth it to them to give me free bids? And a little free advise along with the bid? I mean normally a contractor you plan on working with long term....the advise comes free....as he better tell you NOW that roof repair isn't going to cut it, that the whole roof needs replacing instead....better to tell you now then later no? And the advice SHOULD come freely if they want a good relationship. I mean why not tell me you know of a material that will have the same look at half the price? These are just a small example of "advice" conversations that happen during a walk through for a bid. SO to charge me $150 to come and tell me how much it will be, and to build our relationship....that just doesn't sound right to me. Never paid for a bid before. Only the AC guy have I paid to just show up.
Amy, I agree with your disapproval of the comment that working with investors is a waste of time. On the contrary, a savvy GC sees value in working with a good rehabber.
At any rate, many contractors are afraid of dong free bids as they expect to not get the deal, particularly since the competition is so fierce these days (your old 1 out of 3 is now likely more like one out of ten) and there are a ton of wholesalers asking for free bids who have no intentions of getting work done because they are wholesalers and not rehabbers.
So I understand the contractors desire to not waste time and get paid for time, however, I would never pay for a bid. If you can prove you will give them the job and they simply need to invest a small portion of time with you, it is a win win. Worst case, offer to pay them a small fee for each but all fees are credited towards the rehab you do. That way, f you bolt, they at least go paid and if you do get a project, you have essentially not paid for the bids.
My vote goes with Will's approach. You and the contractor are having your first dance, so neither of you really know the other. Tell him you will entertain a fee for walkthroughs - though, personally I wouldn't entertain more than $30-$50 for a 30-45 minute walkthrough and I would be carefully evaluating the input provided. I would also be clear that you will expect the cumulative total of such fees to be credited against the renovation.
After you have done a job or two together, he should drop this whole idea of charging you for a walkthrough.
Alternatively, take another contractor for a test drive.
I'm simply telling you what several contractors I've spoken to are saying. Unless they see a real likelihood for significant repeat business they seem to be staying away. As @Will Barnard stated many of these guys have wasted countless hours over the past several years on deals that never closed.
There are a lot of retail jobs out there right now and i'd guess that 3-4 retail jobs are about as profitable as 8 investors flips. Hard to blame the contractors logic ( do contractors actually use logic? ).
If you've done 8 flips so far this year then you've got a recent track record to show these guys that you can execute.
in an attempt for me to make it clear regarding the last post by Steve, I would not state that a minimum number of deals done this year is necessary to prove worthiness. Eight deals could equate to $40k in business while one deal could equate to $80k. In other words, the quantity if deals should be irrelevant, the ability to prove to the contractor they will get the job and the amount of work will be worth their time invested.
@Steve K has the right idea. Our target customers are management companies with 100's of properties that need rehab. A REI with 8 properties per year is a waste of time. We also target insurance money since the ROI is much higher than most REIs can offer.They range from many small to large jobs, time vested proportional to ROI.
I'd say to the REI that thinks GC should go around giving free estimates with little ROI for their time, well, how about you as an REI go do a bunch of deal analysis for free for a GC? Any here in KS let me know ;) Once I close the deal I'll give ya a bone or two, 8 if your real lucky! ;)
Before starting anything with this contractor, I would suggest you "vet" him - check whether his insurance will be appropriate (maybe you want somebody with workers comp, and lots of contractors avoid that), check whether he is licensed, check out other jobs he has done, see if he'll provide a W9, and follow this advice that @Will Barnard offered in another thread: walk one of his existing jobs with him to get an idea of his prices. He might be one of those ridiculously high priced guys, and you wouldn't want that ...
The only thing I can add to what's already been said: Careful about doing business with friends. Some people have been successful, but I and many others I've heard from, have not.
What if you end up not working well together? Firing him might mean losing your friend, as she will have to take sides.
Friends often expect us to bend over backwards for them, give them more leeway than they'd get from a pure business relationship.
I'd be careful with that
I agree with Steve. We always tell GC to vet the home owner to make sure they are the owner, and they have funds to pay once the job is done and always get a copy of the home owners ID asks questions and if the home does not like the questions, you ask run for the hills because you might get a scam.
The last 8 properties I did averaged about $75K in rehab apiece. For a GC making 10% of the rehab costs in GC fees, that's $60K in GC fees. I'd think any client consistently generating $60K per year would be a pretty good client for most GCs.
I don't know many contractors who think a $60K/year client is a "waste of time."
Here's another way to look at this...
@Amy Solomon
@Amy Solomon indicated that her GC would typically do 2-3 walk-throughs for each deal she got. That means the GC would get a project for every 2-3 walk-throughs he did for her. That's equivalent of getting 1/3 to 1/2 of the jobs the GC looked at, which is a higher success rate than most GCs have with their bids.
In fact, @Terry Portier, I think I recall a thread where you were saying how it pissed you off when people wasted your time bidding projects that you didn't get -- based on that, I would think you'd be thrilled with any client that gave you 1/3 to 1/2 of the projects you bid for them.
Perhaps you can expand on why 8 projects per year (out of 16-24 bids) is a waste of your time? If I were a contractor, I'd love to have lots of those types of clients...
The last 8 properties I did averaged about $75K in rehab apiece. For a GC making 10% of the rehab costs in GC fees, that's $60K in GC fees. I'd think any client consistently generating $60K per year would be a pretty good client for most GCs.
I don't know many contractors who think a $60K/year client is a "waste of time."
Here's another way to look at this...
@Amy Solomon
@Amy Solomon indicated that her GC would typically do 2-3 walk-throughs for each deal she got. That means the GC would get a project for every 2-3 walk-throughs he did for her. That's equivalent of getting 1/3 to 1/2 of the jobs the GC looked at, which is a higher success rate than most GCs have with their bids.
In fact, @Terry Portier, I think I recall a thread where you were saying how it pissed you off when people wasted your time bidding projects that you didn't get -- based on that, I would think you'd be thrilled with any client that gave you 1/3 to 1/2 of the projects you bid for them.
Perhaps you can expand on why 8 projects per year (out of 16-24 bids) is a waste of your time? If I were a contractor, I'd love to have lots of those types of clients...
The ROI we see on storm damage insurance work is 50-60% consistently. We build strong enough relationships with management companies as repeat customers since we do quality work at a competitive cost. They keep is swamped with work and we do not get into bidding wars with other GC. The insurance industry most GC do not understand, it takes alot of time to learn it.
I have an appointment Monday with an attorney to go collect from an REI that did not pay us, the only default account we had all year. I don't know if it is this area, but the storm damage industry is far better than rehabbing for home owners and REIs, not always but most of the time.
Where a smart GC could do very well is rehab their own REIs. We are in a strategic position for that, not other REIs we have bigger fish out there, unless they are doing big volume and ROI.
We still bid and don't always get the job, but we will not do it for a client more than once. We have cut the amount of time we spend on free estimates way down with software and experience.
The ROI we see on storm damage insurance work is 50-60% consistently. We build strong enough relationships with management companies as repeat customers since we do quality work at a competitive cost. They keep is swamped with work and we do not get into bidding wars with other GC. The insurance industry most GC do not understand, it takes alot of time to learn it.
You're answering a question I didn't ask. You claimed that working with investors was a waste of time, and implied that it was a waste of time for all GCs, not just you specifically. For those GCs who don't do insurance work (and I assume most do not), why is working with investors who do more than a half-dozen properties per year a waste of time in your opinion?
Terry, it sounds like you are not in the same business that Amy is looking for. I think she is looking for the typical small time contractor who thrives on residential rehabs. Most contractors in my area would KILL for 8 huge rehabs a year.
Speaking for myself and the Midwest, most GC target insurance work…..we see consistent storm damage, hail, wind, tornados, every year. If not we are targeting fire and flood restorations insurance work. The estimating programs the insurance co's use pad the retail value high, that coupled with a GC ability to manage cost can yield profits as I said 50-60% returns. It doesn't take a lot here to see where a GC target customer would be, when REI's are paying 10%. You misunderstood my statement, I said most GC do not ‘understand' insurance work. Your ether good at working with insurance agents and mortgage companies or don't understand how to get the best bang for the buck out of them.
In areas of the country that do not see a lot of damage from Mother Nature (assuming here that most of the country does) and insurance work is not available, then I would assume the GC is looking to work for clients that provide volume and high as possible ROIs. Makes sense, IF they can get that from a REI I am sure that will be their target customer, if not then I think we can assume not. If management companies have higher volumes and ROI (I'll make the assumption here they do in general) than they will be the target customer. The management co we work with allow us to handle the job as we sit fit even down to picking paint colors, carpet, etc, since they have a lot of other properties they manage, unlike homeowners or REI that take a lot of our time micro-managing. We have expertise they trust to construct a rental property.
Back to OP: A good GC contractor is not going to follow an REI around helping them do deal analysis without seeing a good ROI. It does take to time to work up estimates and good GC has valuable experience that should not be taken for granted. Some larger ones we spend hours (6-8) just to not get the job at times, we won't be repeating that again with that client anytime soon. That is a waste of time and if the client (not caring whom they are) continues to treat us this way we will not waste our time on them. If it is insurance restoration work we will have more tolerance for it than rehab since our margins are much higher.
So to answer your question, I guess it just depends on the GC, client, volume, and ROI. For me a waste of time, and I would say for most that want to see higher returns than 10%.
We're just started a room/garage addition for a homeowner 30% ROI since the storm damage season is slowing maybe I'll post up some build pics on a different thread.
Not sure what you mean by 50-60% returns (since you're not putting in any of your own money, presumably). Are you talking about getting 50-60% of the total job cost in fees?
So, just to clarify:
1. If an insurance job costs you $50,000 to complete, you're charging the insurance company an extra $25,000-30,000 for your fee (i.e., your profit on a $50K job is $25-30K)?
2. You're claiming that "most" (i.e., more than half) of the GCs in the midwest are spending their time doing these jobs that are paying 50-60% in fees?
Just wanted to make sure I understood exactly what you're claiming...
Fire restoration job we completed last month for example,
Insurance award to homeowner: $52,000 - $10,000 (deductible)
Our contract price: $42,000
Our MLO cost: $20,000
Profit: $22,000
You should try it J. Scott :)
I have no way of quantify how many are after insurance work. Why wouldn't they be? All I know is my competition is pretty strong and they advertise all over the place, "We work with your insurance co to get you the most" as we do. We also have the same software the insurance co.s use. There is ALOT to know when it comes to dealing with them and yes for the GC very profitable as with management companies that have alot of properties.
As I understand it, this is a real estate investors forum. So, I'm really surprised to see someone here, who basically tells us all what a waste of time we are for him, unless we're total fools and pay double the price.
You are obviously not working with contractors, so I'm wondering why you are responding to a topic that asks about contractors?
What are you getting out of insulting us all?
Our contract price: $42,000
Our MLO cost: $20,000
Profit: $22,000
You should try it J. Scott :)
Neah...I don't like having a boss... :-)
This is definitely good information, though...thanks for the example...
I'd be curious to hear if those numbers are typical with insurance jobs. If they are, and if insurance jobs are plentiful enough that most GCs can keep busy with them, I'm not sure why I don't know more GCs who focus on this type of work.
But I don't...which seems weird if those are really the numbers...
Neah...I don't like having a boss... :-)
This is definitely good information, though...thanks for the example...
I'd be curious to hear if those numbers are typical with insurance jobs. If they are, and if insurance jobs are plentiful enough that most GCs can keep busy with them, I'm not sure why I don't know more GCs who focus on this type of work.
But I don't...which seems weird if those are really the numbers...
Actually I forgot about the supplement we submitted and got approved for $7K profit on top of that. We supplement since the adjuster did not account for everything. For example, they only replaced 2 windows when we got into it we had to replace 7 that were fire damaged beyond repair. What makes this more sweet is during the process we told the management of other issues they missed on the claim(like rotted fascia, etc) so they will submit again and give us more work, like the roof, siding, and guttering. You can see in some cases if you add it all up we are above 60% ROI.
Not trying to state anything bad about REIs I am one, but where the REI sits in the pecking order, and perhaps reasons why it is so difficult to get good GC and compete with insurance co/s. I never wanted that problem so I am a GC. If you have a good GC that works for 10% ROI treat them well.
The insurance co's have Engineering programs out there to reduce future storm damage cost, especially hurricane, tornado's, like roof ties, etc......So this may not last forever, but the industry is very lucrative right now and has been for a long time.
Moore, OK they swarmed there like Bee's, GC storm chasers. We didn't but are working at reaching out to surrounding states, especially OK.
@Will Barnard has given you some great insight into the situation. @Terry Portier is right in the comparison between free bids and free deal analysis.
The question is, are you just wanting a simple walk through, or a thorough inspection with a detailed bid?
I also agree with @Michaela G. about using caution when using friends. You want to make sure there's a relatively high probability the relationship will work for both of you, otherwise, don't do it.