First Flip, Contractor selected, but what should I be aware of?

Question

I have my first flip house in escrow. Repairs should be minimal.....this is paint, flooring, fix a window, and repair a hole in the wall. Make it pretty. I have a licensed and bonded contractor who has done some work on my personal residence. I like the work I have seen. I like the work ethic I have seen. He is young and just starting out though. What would I expect to see in contract? What is usual? What should I watch out for? I am so new that I don't even know what questions to ask!

Michael Hayworth · Answer

You're doing cosmetic stuff, not rebuilding the house. It sounds like the guy you've picked is a good fit. Good contractors are hard to find. Don't run him off asking for requirements like you were having him rebuild the house from the foundation up.

Oregon is a blue state, so I assume y'all are heavy on licensing out there. You could check his licenses, but that honestly does nothing to insure quality. You've had him do work before, so you know what you're getting. There shouldn't be any permits involved in paint or flooring, so that's not really an issue. (Maybe in the window, but who really wants to do the paperwork (and added cost) to pull a permit to replace one window?)

Think of the contract as being a written agreement so each of you is clear what you agreed to, because verbal conversations get remembered differently. You don't need pages of legalese - if you end up suing each other, at this level of project, it would be in small claims court, which is more like mediation than a huge lawsuit.

I use a plain-English agreement with all my clients. It has a work order that clearly describes the work to be completed, a terms sheet that indicates general agreement terms, and a payment schedule.

It's good to be named on his insurance, if he has insurance. But I honestly wouldn't worry too much if he doesn't. (Again, we're talking cosmetic stuff here. The chances of someone falling to his death are remote. And you should have a liability policy on your rentals, regardless.)

Agree on a payment schedule. For a small job like this, I would just insist on 50/50 - it's not worth my time to generate more admin work on a small project. But for someone newer like him, maybe you front enough money for materials, but tie payments to completion stages. It does happen that contractors get a big deposit and then don't show up, so I'd dole out money carefully.

There are all kinds of things that sound like good ideas, but can make it very difficult for a young, starting-out contractor to comply with them. He's probably doing the work during the day and handling the business side at night. (That kinda sucks for him, but if he's good at it, he'll be successful and grow.) Right now, you need a good contractor who'll do the work at a fair price and do a good job so you can get the house making money for you.

Jacob Passmore · Answer

Jodee W.

I always forget a tag!

Jacob Passmore · Answer

I'm a fan of the young guys.. Most of them are hungry, and willing to do stuff that your more "seasoned" guys won't do. Plus it sounds like you have developed a trust of him from prior jobs etc.. but that's just my opinion! From an insurance standpoint,  At a minimum you are going to want to be listed on his insurance policy as an "additional insured", and ask him to provide a "certificate of insurance" stating so for your files. I'd look for a minimum of 1 million General Liab. and work comp (the cert will show coverages he has) Also, I would consider getting a OCP (Owners & Contractors Protective liability)  policy to cover your liabilty. It doesnt sound like the remodel will be too intense, but a Builders risk, with existing building coverage, will cover the property during a course of construction.

Jodee W. · Answer

And Brandon, Thank you! I will take what you said and list it out.....that is exactly what I was looking for. I know he has family that are in parallel businesses....a brother who is a landscaper, cousin who is an electrician, etc. And knowing they have multiple jobs going, I am afraid of paying for more than I use. Also, I have heard of contractors charging an extra $4-5000 because they can. They end up with a lien on your property until you pay it, and it costs more to go to court that. So that seems to be the magic number.

Jodee W. · Answer

Jacob, I hadn't even begun to look at the insurance side of things. Thank you! I will bring that up with him, and also with my own insurance agent.  I do like the fact that he is young because I think he is wanting to build a reputation. I worry that the seasoned contractors may have less respect for what I am doing as a female, and that I could be a target for rip off or shoddy work.

Kevin Romines · Answer

It doesn't sound like this would be the case based on the work that you described, but if he or any other contractor you ever work with decides to use sub-contractors, you must also check to be sure the subs are insured at the same level as the general. You must also get lien waivers signed off by all contractors and subs for sections of work they have completed. If you don't, they can come back an place liens on the home / project and sue you even if you had paid the general contractor.

I saw this happen to a friend of mine years ago when he was building a gas station convenience store / fast food drive through. The general ran off with the money, stiffed the subs and the subs placed liens on the property and in the end it took my friend and the store he owned for years, down. He lost it all. Be careful.

You do want to be listed as an additional insured on their policies and get the certs. Call the state and the bond companies as well as the insurance company. Make sure that your own policy will cover these types of potential liabilities? A builders risk policy is purely structure and contents coverage, generally no liability coverage. I would assume you don't have a builders risk policy on this property, but spend some time with your agent and get familiar with the differences and get the policy and endorsements you should have?

Keep in mind that you are technically an employer, so a workers comp policy needs to be in place by the contractors, if not, your now responsible as the employer.

First Flip, Contractor selected, but what should I be aware of?

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