What do you do when the contractor quote comes after your option period?

Question

Curious how other investors handle this. I keep running into the same problem: inspection report lands, option/offer clock is already moving, and the contractor who would actually give the best number is 3–5 days out.

Do you still submit based on your own rough scope, wait and risk losing the deal, or use a first-pass estimate before getting the contractor involved?

I’m not talking about a final construction budget. I mean the go/no-go repair number before you decide if the deal is worth pursuing. What workflow has been most reliable for you?

Richard Golding · Answer

Ali

If you are waiting on a contractor quote to decide if a deal pencils during your option period, you have already lost your leverage. Relying on a sub who is running three days behind means you are letting someone else's schedule control your entire investment strategy.

For this current deal, carry a brutal contingency and underwrite it based on the ugly case and not the hopeful one. Moving forward, you have to become your own first pass filter. You need to know the baseline market math for the big systemic ticket items like the roof and foundation and sewer and electrical and HVAC before you even lock up the contract. Use the option period strictly for validation and scope refinement and specialized trade verification, not for basic discovery.

If a deal only works when a contractor delivers a perfect, low-end number on a tight deadline, you do not have a flip. You have a prayer circle.

Kevin Sobilo · Answer

@Ali Kalaei, a few thoughts:

1. If you are rehabbing/flipping you generally need to be able to estimate rehab work yourself.

2. Does an actual estimate even matter?!?

For example, you might feel comfortable that you can solve an issue for $2,500 because you will already have the appropriate contractors working on the project and already have things demo'd etc with your planned work, BUT you know if the owner was hiring a contractor to ONLY come in to address that issue it would probably cost them $5k.

Well, you can justify asking for $5k in negotiations even if you eventually settle for $2-3k.

3. If you are evaluating properties well yourself, it should be pretty uncommon for unexpected issues large enough to arise out of inspections that should affect a deal even if you have to accept/negotiate without a solid estimate from a contractor.

A couple issues totaling a couple thousand shouldn't be a go/no-go on the deal, especially when you can negotiate something without a solid estimate.

4. Have you considered skipping inspections?!? If you are skilled enough at evaluating properties for rehab, then it might not be a value to you. In fact, you may be able to negotiate a lower sale price up front by offering no inspections!

5. Why are you waiting for the inspection report? You should be attending inspections! You would know about the issue 1-2 days before the inspection report lands.

6. Also, with regard to attending inspections, you can discuss the issue with the inspector and often gain some insights into possible solutions allowing you to get a handle on the issue and better estimate the cost yourself.

Attending inspections not only let's you know the issue sooner, but its a chance to pick the brain of a professional who often has real world experience as a contractor of some sort. Many of the inspectors I have known were contractors, electricians, etc before getting into home inspections.