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 don't think this thread is relevent to what you are talking about. I am sure there are medium to large GC firms out there who have the man power and expertise to target huge accounts....and only huge accounts. I wouldn't go to someone who builds 200 home developments and try to get a bid on my $20,000 renovation. So I think that your kind of company and the examples you share are irrelevent on this thread, and probably in this entire forum as well.
I am talking about regular GC around town, who WANT clients, like clients, value clients etc. Not every REI is donald trump, and not every GC is a big baller like you apparently claim to be.
I'm not asking someone for a 5 hour home inspection and walk through. I am talking about up to 1 hour at most, going through the house deciding what's to get done (or informing the gc what's to get done) having a short dicussion on their recommendations if they are different from my initial plan, and then submitting a bid on the work we discussed. It's less than an hour of time, and if their prices are fair, they are respectful, helpful, positive and can build a good rapport with me (and they check out) they will get business from me....even if they need to give me 2-3 more bids before we find the right project.
I don't think a GC who's int he business of doing $10,000-$50,000 renovations should be charging for his bids. I need to know how much something is going to cost before I can hire someone, plain and simple.
Lots of on topic info here, thank you, I appreciate that. I think I will stick to working with someone who is willing to take a "chance" on me that I am a real REI who has jobs for them, just as I am willing to take a chance on them, that they are capable and can deliver...until we have a couple projects under our belt together....we are BOTH taking a chance on each other....not just the GC on me. After all, the GC could be wasting my time just as much as I could be "wasting theirs".
Here in Dallas you don't need to be on the insurance list to bid on insurance work all you need to be is licensed and have insurance and if you are a good GC and have the best rates the insurance companies will call you first to bid on the job.
Joe Gore
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.
Now I see based on this new information. Basically, you are telling us that you are able to gouge the homeowner for your services. If costs are around $20k, a typical up charge of profit on that would be no more than $5k so the total cost of work to the homeowner would be $25k and they would keep the remainder of the funds from the insurance proceeds. In your case, you keep it all. Nice for you, not so nice for the clients.
I agree with others that regardless if your information is correct or not, it is really irrelevant to this thread and to REI as a whole.
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??
The last 5 projects I have done resulted in approx. $250k per project. The contractors profit is somewhere between 15% and 20% depending on the jobs performed. I am just tossing out a wild guess, but I think my contractor is very happy making $50k per job and around a quarter million a year with only 5 job sites. Tack on the rest of the jobs he gets from me each year and I am confident he is happy.
Chuck, great answer, I agree with your perspective. Just to be clear, I did state that a REI can pay a fee upfront so long as it is arranged to come off the top of the accepted job, just as you stated.
If Terry Portier is gouging the home owners of the insurance work, it is only a matter of time he will get caught. I bet he want say what insurance company that hired him to do that job.
Joe Gore
My point was simple and related, GC would rather target or do free estimates for insurance work since the profits are higher. Has nothing to do with the size of GC either, they all do it. As I said, we do free estimates and walk throughs all the time more so for clients that give us profitable work.
The programs (XACTIMATE, ETC) that the insurance companies use are monthly studies of the going rate for material and labor, overhead, etc. Technically the homeowner is not allowed to profit from an insurance claim, altho they try and do. The insurance companies know what contractors are making, that varies based on the ability of the GC to get discount materials and labor. In the case I showed above we were the lowest bid, no other GC was willing to eat the $10K deductible.
It has been stated that insurance is off topic so let’s stop discussing it and any other means GC get paid or profit other than by walk through's. My bad for bringing insurance into this as I said most don’t understand.
I am in central Florida and I never had to pay anyone to show up not even an A/C guy. Also if someone you would consider a "friend" would charge you to show up you may want to reconsider calling them a "friend" cause your not going to get a friendly price. IMHO
Insurance companies typically build in a 30% profit margin for the contractor. Many good contractors can squeeze out an additional 15-20% in profit depending on material cost.
I have many investor and contractor clients. investors want to pay wholesale pricing and they were getting a bargain over the past 5 years. Times have changed and contractors have enough profitable work available that they don't have to work cheap.
Amy,
If you need experienced, licensed & insured people to do the reno work for you, you'd expect to pay them what they are worth, same as you expect to be paid what your worth.
You're not asking a handyman for an estimate on a broken fence or to fix a door, your asking someone their expert opinion on the overall condition of every major component of a property, and what it would take to fix or replace, right? That's a lot of knowledge & experience being called into service, not including the actual walk thru (inspection) time & time to work the numbers for repairs. As a contractor I would charge a fee to do that, I wouldn't mind that fee coming off the price of the subsequent work later.
There's not too many free lunches nowadays, times money for everybody.
Moe, yes, definitely not a FRIEND. Someone I've seen socially once, and who taught my kids to swim, this PERSON's husband. IF it were a true friend I would hope they wouldn't charge me $150 to come to a 1100 sq ft home that is 15 min from their house for 30 minutes.
I am also from central florida, never paid contractors there for estimates. So I guess I will move onto my next question and start a new thread....
If I can't get a GC to come and look at a property and give me a bid on it before I put in an offer, then how will I really make sure that I am in the right ball park for "guessing" the right cost to renovation.
My experience has always been with renovate and hold, so spending a little more than I thought I would on a renovation wasn't such a big deal at the time. Now that I am trying to flip 8 houses a year, every dollar counts and needs to be accounted for.
I have J Scotts book on estimating...but does anyone else have some suggestions? I could always do the whole $10 - $15 - $20 per sq ft estimate until I have done a few flips with and have a relationship with a contractor to the point in which he'd come check out my property before I make an offer.
What would you do? Kinda new, kinda experienced...but need some insight.
Amy, I understand you may not be accustomed to paying for a walkthrough and every dollar is certainly important, but $100 seems like a pretty trivial amount of money to spend on a project that might end up netting you $15k or more.
If you've read J Scott's book, my suggestion would be to do a rough estimate yourself and if the property meets your criteria based on that, call a GC to get a more precise estimate. So long as you are within 5k or so, I would imagine you won't be throwing away too much money on walkthrough fees. If you qualify the properties you look at, it should help so that you don't waste either yours or a general contractors time.
Amy, estimating your own rehab budget is key in my opinion. Your short inspection time can be used to bring in the contractor at that point to make sure you can stay within that budget.
I have several threads that I have posted in regarding how to do this yourself.I don't remember them all, but you can find one at the end of this thread:
http://www.biggerpockets.com/forums/93/topics/58383-the-truth-about-wholesaling-?page=13#p637450
The Truth About Wholesaling
Thanks...but also it's not just about the contractor and their time. I do value what they bring to the table...should they pan out to be 5 stars.....but a brand new contractor that I am meeting for the first time....I need to know they are worth the "investment" and I don't yet...never even met them and I've no idea of their experience, expertise, ability or even if they are properly licensed or insured. So I'm still leaning towards initial meeting, I won't charge them for my time, and they shouldn't charge me for theirs...let's meet, get to know each other briefly, look at the house, show me what you know and I will show you what I know...give me an estimate...THEN and ONLY then will I know if this guy knows what he's talking about and are his prices reasonable. Should that house fall through, and I"m hooked on the guy from our initial meeting then moving forward I wouldn't mind paying a reasonable fee for a total renovation bid due to the last one not panning out....but again...first meeting...I think we are both checking each other out...for free.
That's my opinion...but, I will go in with an open mind and I won't necessarily disqualify meeting/getting bid from a new contractor just because he charges a fee...but I will need to be cautious that I am not throwing $100 at a shady unlicensed uninsured GC or a handyman posing.
I agree with you that you like to know if the GC can do the job to your specs, and I bet the GC want to know can you pay when the job is done so there have to be trust for both parties and put everything in writing on what you expect from the GC and how much you agree to pay the GC so it wants to be I say she says, and I have seen where everyone agreed on something, and the investor will come back trying to slip something in for free.
I agree that it's a 2-way street. Having done many major rehabs in the South/Atlanta , there's often more involved than just plain numbers, when you are a woman. There's the male pride and a lot of men have problems taking directions from a woman. There's still that 'oh, don't worry your purrty little head' attitude.
I've always been my own GC and worked with the subs directly, so this is a different situation, but you'll still have to figure out if this will be a harmonic situation or not.
So, the initial bid is when I figure out some of the attitudes and if there's any chance for us to possibly work together. I've learned a lot in the years of rehabbing and that walk-through will be a test.
So, since you've done flips before, I'm sure you know what you're dealing with and don't necessarily need the contractor to decide whether you want to buy or don't want to buy, but rather have him as a safety net. But in addition, this first walk-through will tell you, whether he'll respect you or whether he thinks that he can pull one over on you.
As far as I'm concerned, I'm not going to pay a fee for someone to give me a bid. Giving bids is part of doing business. It's called 'marketing'. And giving me a bid and discussing the job with me lets me know if we can work together. Someone sexist or homophobic or racist won't get it - I don't care if they're the lowest price. I don't play people against each other and I don't get many bids. Once I work with someone and feel that I can trust them, I'll just give them the job. I don't get bids.
Male rehabbers don't have the problems that women rehabbers do. Seriously, the male ego can be a big problem for us.
You forgot I have seen a lot of women with an ego big as the Texas stadium and also men. Just because someone is sexist or homophobic or racist should play no part if they can do the job or not. I hire people of all race, and some of them have not taken a shower this year, but as long as they can do the job, I do not discrimination. By the way, some are women I hire with a big ego.
Joe,
I'm talking someone giving me a bid and talking disparaging about blacks, calling them 'n....s' , when I have black subs on my crew, that have been working for me in a while. I'm not going to put someone new into the mix, that is going to create problems and maybe have old, trusted subs walk away from my job. I don't need that kind of friction on a major rehab.
Same thing with someone being sexist. It doesn't matter to me if they're the plumber or the electrician or the roofer. They have their set work and we don't have to adjust their work and thus it doesn't come up. But I frequently have that with carpenters.
Since I've been dealing with Victorians, it's not a paint-by-number scheme and it's the final touches that will sell the house. It's different from a ranch or other styles where you can use your standard taupe walls with white trim. Victorians need drama. It's the colors and the trim that sell the house. And that requires the carpenter and I needing to work closely together. And it's me that makes the final decision on what we're going to do - whether triple crown or whatever and we're not able to set down exactly ahead of time what we're going to do, because we don't know what we'll find until we start tearing down walls.
I remember once I had a carpenter walk off the job, when I said that we'd need a higher ladder to screw in a new light bulb. I had just tried to reach the 12' ceiling and couldn't reach it and when he went up the ladder I made the mistake of saying that we really needed a higher ladder, because he wasn't much taller than me. He came back a few days later and apologized, because it was his own insecurities that made him do it. But if I had been a guy, he would have just shrugged it off.
That's the kind of stuff that happens all the time , but you don't see it, because you're a man, dealing with another man.
All I have ever done is contracting and I often work with investors doing the pre- bid walk thru, I have never charged a fee for this because investors mostly get a few bids and then award the job. If I am first in I know my bid is one of them. Homeowners however will shop around for a year and a half getting 50 bids and then decide to not do the job at all.