Paying contractor for bids?

27 Replies

Hello BP Crew,

We recently had a contractor in Montgomery, AL go look at some potential properties we were going to bid on and one we had a contract on.  He never mentioned charging us for anything and we just asked him for an initial ball park estimate on the houses that were not under contract so we knew if it might even be worth our time to bid.  The house we had a contract on fell through after which the contractor sent us a bill for $1,100+ for the time he spent preparing the bids.  Granted, we only received 2 bids but he claims he worked on 7 (we sent an initial list of 7 properties).  He is charging $65/hr to put bids together.  Has anyone else encountered this?

I spoke to two other contractors in that town and they said they never get to charge for bids.  If someone doesn't hire them after a few bids they might decline to give future bids but they never get to charge.  I finally got the contractor on the phone and he admitted that he normally doesn't charge for bids but "we are different."  The only difference we could identify is that we are remote investors.  I think he is just trying to take advantage of the situation.  

If I am way off and some contractors do charge for bids - please let me know what a standard rate would be.

Thanks in advance for your help!

Matt

Hey Matt,

I have a contractor that I'm getting ready to do my first flip with and I asked him for written bid and he did let me know ahead of time that it would be a charge for a written bid. He told me that it is time intensive and it would probably be at least $400. So we agreed to do verbal bids at no charge. You might have to go ahead and pay him this time but I wouldn't do any work with him because that is something that probably should've been communicated...especially at $1100. Good luck! 

It's fair to reward people for the time and energy they spend sharing their expert information and opinions. However, any and all charges should be disclosed and discussed in advance. They fact that the contractor failed to discuss his billable rates and anticipated costs with you, means he has no leg to stand on. Just my .02

Brandon Holley, MW investing | [email protected]

I listen to radio and use people that advertise because there is more recourse and a reputation to protect with the public.  To me anyway.  Charging for a bid becomes the income and detracts from someone competing with a little more urgency to win the bid. Most companies that advertise radio are best in my estimation.  Usually they have a large sales force. 

Unless he disclosed in writing and you signed something saying that he was being paid for bids I wouldn't pay him. I would actually tell him you have a call into your attorney to see if this is common practice. 

The only time I have ever even discussed paying a contractor for "bids" was when I had a GC who offered to walk through my wholesale deals and help me iron out a rehab estimate. 

This guy kinda sounds like a tool.

Medium head icon colorRyan Dossey, Call Porter | http://Callporter.com | IN Agent # RB15001099

As a contractor giving bids to someone who doesn't own the property, is only thinking about buying it....absolutely there would be a charge for bids, but it would be disclosed.  Like most "investors" I guess you could keep finding enough desperate guys who'd run around estimating bids on properties that you never buy, until they figured it out, then you find a new dummie.

@Tariq Bahay Not bitter at all. Just a statement of business practice.  Flippers always want rock bottom prices from contractors, but yet many want that contractor to run around estimating 15-20 properties for every one that guy buys, if they buy any, and then they still want to beat them down further on price?

Clarification;  I am a licensed GC and have never given a quote to another rehabber, just no interest in doing that.

As an agent, do you think I spend a lot of time running around trying to tie up some $40k property for some guy trying to wholesale them?

Originally posted by @Matt Bell :

I spoke to two other contractors in that town and they said they never get to charge for bids.  If someone doesn't hire them after a few bids they might decline to give future bids but they never get to charge.  I finally got the contractor on the phone and he admitted that he normally doesn't charge for bids but "we are different."  The only difference we could identify is that we are remote investors.  I think he is just trying to take advantage of the situation.  

If I am way off and some contractors do charge for bids - please let me know what a standard rate would be.

Thanks in advance for your help!

Matt

 I agree that he is trying to take advantage of the situation.  I think he sees it as his only chance to get paid by you.  I think with you being a remote investor he is more willing to risk his reputation for a quick buck.  He would have been reasonable if he stated up-front that he would need to charge based on the situation(no ownership and out of town investor).  However absent any advanced agreement, I wouldn't be inclined to pay.

Are you working with a local real estate agent?  If they can't point you in the right direction for contractors, it might be a good idea to find one that can.

@Wayne Brooks I completely agree with your statements, eventually for the contractor it becomes a huge time waster.  These bids can take a lot of time especially if they are line item bids.  I would never expect any contractor to run out and bid 10 houses for me that I don't own just to see if I should but them or not, unless I worked out some arrangement prior to doing so.

@Matt Bell Legally you have no obligation to pay this bill unless you signed something stating you would pay him for his time.  When we have invested remotely before, we have paid contractors for their bids, but this has been thoroughly discussed prior to them doing any work.  Typically I will also get 5 or 6 contractors lined up, so that I don't overload just one of them.  This way i can help find a contractor i like to work with better by sending them out for bids, and then i can distribute the time to just "look" at a property for me and give me a verbal.  If the verbal is within the ball park, id then ask for a line item.  If I found one contractor i trusted more than the rest, i would then offer to them a flat fee for driving houses for me to check them out, $50 or something and then a bump if they make a bid for me too, if i award them the work then they credit me back in the bid the amount of doing the bid or driving the house.

I hope this makes sense.  Good luck!

Medium final file  jpg Tarl Yarber, Fixated Real Estate LLC | Podcast Guest on Show #189

I agree with the others that you have no obligation to pay as there was nothing signed or acknowledged.  With that said, if he provided you with good information and you learned something from his work, it might be a good idea to talk to him and explain that you are certain he has no legal standing to charge you, but that you'd be happy to pay him some paltry amount (say $250) to avoid any more contentious interactions.  If he is smart, he will count himself lucky, but if he gets combative then you can start to play hard ball by playing the BBB card and citing the reputation ding he is going to take among all the investors you know.

Hi all.....

I think the right answer here is "Best Practices" the relationship I have with my contractor dictates I look after his bottom line.  That I only send him to deals we are going to do, deals that will benifit both of us. 

As to paying for an estimate I NEVER PAY ever...... if he needs a partner to cover his operating expenses I would have to also be a partner in his profits.   Often I do a walk through with my contractor "5 minutes long" and get a thumb nail scetch/agrement on what is needed to complete the deal.  Then I close the deal and have the contractor give me the agrement.  This is working well for me and I fell more in touch with the process. 

Close deals and prosper 

Jim

@Matt Bell

I didn't even finish reading your post because it made me so angry.  In this business, you take the time to submit the bid so that you can build a clientele and do business throughout a career.  Even if your going to charge an estimate fee, it needs to be $50-$75 if at all.  I've never done it, and I would lose so much business if I did.  Even if that deal comes through and that guy is the cheapest bid, I wouldn't dignify him with the business.  You will need to go through a few guys, but you'll find the right one who gets it.  Best of luck and hope you find the right guy!!!  Unless you have a signed contract, I would not pay him.  

Medium avellino white copy  jpg Brandon Ingegneri, Avellino Const. & Property Mgmt. | [email protected] | 401‑301‑5528 | https://www.avellinocpm.com | RI Contractor # 41301

@Matt Bell I typically do not pay for bids.  However I typically do not have a contractor looking at 7 properties I do not own and asking them for bids.  I think that is pretty unfair to the guy.  That is probably a day or two worth of work that this guy was not out earning while he was driving to and from those properties and taking the time to consider, then write the two bids he did.

This is partly why us investors get a bad reputation.  Pay people for their time. Pay them a fair wage.  There should be enough profit in a deal for everyone to walk away happy, the seller, the buyer, the rehabber, the contractors, the end buyer.

Medium logo lf re cire box white bboxRussell Brazil, Associate Broker w/ Long & Foster | [email protected] | (301) 893‑4635 | http://www.RussellBrazil.com | MD Agent # 648402, DC Agent # SP98375353, VA Agent # 0225219736, MA Agent # 9052346 | Podcast Guest on Show #192

Some contractors charge for bids.  I can imagine that many would charge for an series of bids when most of the bids resulted in no potential for a job because the client did not own the property and did not purchase the property.

On the other hand, the guy should have told you up front about the charge.  On the other other hand, I wouldn't dream of asking a contractor to give me a series of bids like that without expecting to compensate him for his time.  I think both investor and contractor contributed to a substantial misunderstanding of how each thought the relationship was going to work.

The guy isn't a tool or a jerk.  He's just someone who realized the series of good jobs he had lined up was just a series of expected free estimates that would probably never turn into actual jobs.  And he wanted to ensure he got something for all the time, expertise, and effort he was asked to provide.

Coming from a contractors prospective, we never charge for bids.  On occasion, we will charge for our "preconstruction services" but we make it very clear to our client at the beginning and we will give them a hard cost before we move forward.  If its a small job like a few million bucks we won't even bother, but some of the larger developments we do take a lot of our time and its a full preconstruction service to get bids from our subs, develop a proposal, value engineer the project, work through architectural, structural and mechanical details.  

If you are using the same contractor over and over again to solicit bids over a very short time, it is a good idea to pay them for some of their time or they will stop bidding for you all together and you will quickly lose a lot of your contractors in the area.  Again, this is your at your discretion, unless an estimating fee was established before he bid the work.  The other way to negate paying them for their time, is to give them a job once and a while and they typically will waive any estimating costs.  

Bottom line, a contractor should let you know ahead of time before charging a fee.  It's like someone asking you to go to the Patriots game with them and then asking for money for the ticket after the game.  Should you have asked if he wanted money for the ticket beforehand?...probably...but I think it's natural to assume it was for free if they weren't up front about the cost.  

Hey @Matt Bell I am currently working with a contractor that has been to about five houses and put together two bids on spreadsheets for my partners and me. He has not charged us anything; however, we did give him some money for a thank you for doing all this work. 

Honestly there shouldn't be any reason he is charging you and it sounds a little suspicious as you said it seems to be that you are an out of town investor. And @Nick Noon is right, they should give you some type of warning, or better yet, a contract for you to sign stating there will be a fee associated with their work for due diligence. 

@Matt Bell I take no issue with a contractor charging for putting together bids.  I know it takes a lot of time to go look at jobs, get quotes for materials and labor, etc. However, that should have been discussed up front, and $1100 for two bids seems outrageous!  

Medium buysellinvest.2Dawn Brenengen, Trailwood Realty, LLC | 919‑840‑8692 | http://www.trailwoodrealty.com | Podcast Guest on Show #101

I wouldn't expect a contractor to run out to 7 properties I don't own and give me bids on the off chance that I buy one of them and decide to award him the work.  If someone is going to put in that much time on properties you don't even have work to give out on then they should be compensated, but that should have been discussed and agreed to ahead of time.   Now if I own a property and have a contractor come out and bid a job then at that point I wouldn't expect to pay for the bid. 

I am a contractor and a former home inspector in Northern NJ.  My rule of thumb is, if you don't own the property I will charge you to do an estimate.  I don't charge all prospective clients.  I usually charge those that were referred to my by a real estate agent.  The reason I charge is because I know they are still looking and have done pretty well as far as that rule is concerned.  I usually charge about 90-100 per hour.  I dont give a written estimate, I just ballpark it right there.  If they do purchase the home then I come out again and give them a free estimate, and afterwards, if I am hired, I credit their initial fee that I charged them initially.  I have been doing this the past few years and alot of the realtors that referrer me have no objections to this and thinks it fair.  So that the properties that the prospective buyer is looking at is pretty serious vs the ones that are just kicking the tire.

As for what happened to the OP, I think both should try to compromise on a fair price for the contractor's time.  As stated previously the contractor was in the wrong on the part that he did not mention there would be a charge for the estimates.  I always tell my potential client and the realtor upfront there is a charge.  I dont know half the time if the potential buyer is from out of state or not and nor do I care.  I treat everyone equally bad :-D

Thanks everyone for the feedback.  I should clarify that we had 1 of the 7 houses under contract and were ready to move forward and that is the only bid we asked for in writing.  All others were simply verbal estimates of the totals he thought it would take and all the properties were within a few minutes of each other - mostly in the same 2 neighborhoods.

We were actually going to offer him $150/bid going forward before we got his invoice.  We now offered $300 to settle the issue and move on.  We have learned a lot during this process.  One other point - we were not going to initially send him out to all 7 properties but he asked for the entire list of what we were considering so he could give us an idea of what a rehab would cost since we were just getting started in the business.

We have a new contractor that seems trustworthy and we have already confirmed he does not charge for bids - but we also learned only to send him to houses we have a contract on that are likely to move forward.

Thanks again - you all are awesome!

Originally posted by @Matt Bell :

Hello BP Crew,

We recently had a contractor in Montgomery, AL go look at some potential properties we were going to bid on and one we had a contract on.  He never mentioned charging us for anything and we just asked him for an initial ball park estimate on the houses that were not under contract so we knew if it might even be worth our time to bid.  The house we had a contract on fell through after which the contractor sent us a bill for $1,100+ for the time he spent preparing the bids.  Granted, we only received 2 bids but he claims he worked on 7 (we sent an initial list of 7 properties).  He is charging $65/hr to put bids together.  Has anyone else encountered this?

I spoke to two other contractors in that town and they said they never get to charge for bids.  If someone doesn't hire them after a few bids they might decline to give future bids but they never get to charge.  I finally got the contractor on the phone and he admitted that he normally doesn't charge for bids but "we are different."  The only difference we could identify is that we are remote investors.  I think he is just trying to take advantage of the situation.  

If I am way off and some contractors do charge for bids - please let me know what a standard rate would be.

Thanks in advance for your help!

Matt

 Unless you agreed first hand, you don't need to pay. In business, this is called an opportunity expense, it is part of your overhead, just like an office employee. If you agreed to pay him 65/hr for his time, yes, if no such verbal agreement exists, then no. That's why when I get a call for a price, I ask the owner what he/she wants, if they don't know, then I am not interested in it. If they do, I ask how big is the job and if there is 20k worth of business, I would pay them a visit, if it is 5k, I tell them upfront that there's no money to be made and somebody will beat my price. I'm not a big fan of giving quotes to investors, specially if the property is not theirs yet, I have a lot of more important things to do, well, I might, if it's a new development.

if they did a thorough,  professional job and you want to have an ongoing relationship then you should pay them something on your own as goodwill between professionals (I have done this).  They are not a free estimating service and it takes a lot of time to put together an estimate.  

However,  I don't like that they gave you a bill unless they made that clear up front. 

If you want an accurate bid with no fluff, and the guy has no guarantee to get the job, you're going to have to expect to pay for the bid. A whole house estimate is extensive. Try writing a detailed one. Will probably take you 4+ hours. Any contractor that's worth working on your project is worth compensating for their time. 

As others have mentioned, this is why investors get a bad reputation. Expecting bottom of the barrel pricing and wasting a lot of their time. Lots of folks on BP say they can't find good contractor relationships. Try treating the contractors better and the contractors will treat you better. They're your partner not your enemy. I've gotten so many things done for free simply because I treat contractors right. I don't think I've ever seen a change order and yet I've made plenty of changes. They get paid timely, for fair wages, and know there is more work. 

[email protected] | 215‑490‑4851 | http://www.atanosmanagement.com | PA Agent # RS314542, NJ Agent # 1221341