When accepting bids from contractors on a rehab do you....

18 Replies

I'm interested to hear from other Rehabbers on how they communicate their budget to contractors. 

Do you keep your budget to yourself until you collect all your bids? 

Or do you hint or perhaps even come straight out and tell them how much you have to spend based on the level of rehab/finish-out you need? 

Discuss..... :)

I've been on both sides.  As a contractor, you give me a detailed scope of work..I give you a price.  If you want a lower price, we change the scope of work.  I usually worked as a sub to GC's on projects involving earthwork.  I had to tell many GC's that I didn't care what their fantasy budget number was, or how they came up with it, but this is the price for the work detailed.  Realize of course that many times a quoted "budget" number is just some low ball BS number that's quoted in order to try and beat you down.  Obviously, you want legitimate prices though.

@Wayne Brooks  thanks for the insight. I guess I'm trying to weigh what would be the best way to attain the right contractors for my flips. Once I find them I'll keep them around. I'm testing both ways of just coming out and telling them as well as not saying anything regarding my budget.

Tell the GC what you want done and let him give you a price, and if you like the price move forward or get another GC.

Joe Gore

There's no reason to reveal your budget to subs. Your budget number is simply the top dollar you would pay for a specific scope of work. If you reveal that, you are giving up you negotiating leverage.

I give the budget. I've worked with my crews for quite a while so I know what a fair price should be for me and for them so they can make some money. Sometimes I'll throw a little more in there and sometimes I have to cash in a favor with a tighter budget. It works well for me.

For all intensive purposes I am the GC (not licensed but I'm acting as one) on my current rehab. I call in the subs, explain what I want them to do, get their bid & scope of work and then either agree to it, ask them to change it (add/remove), or say no. I don't tell them my budget ahead of time. 

I have an inspection and make a repair/rehab list based on that inspection.  I then give that list to my GC and ask for a line-item bid.  Based on the bid I decide what the GC completes and what I sub out.  Usually I end up going with a big box store on flooring and appliances, and the GC gets everything else.

As a contractor I dont care what the customers budget is , the work cost what it cost . You dont tell the contractor what you can spend , you give him the plans and get a bid . It may be more it may be less than you want to spend .  if you get 3 estimates and they are all over what you budgeted , then you didnt budget enough .  The same in reverse.

When I hear the word " budget" from a customer , its basically time to leave them the estimate and tell them to call if they are interested .  

If I am working with someone I know well, I may tell them my target number.  Note that this is not necessarily the max number.  If it is a small project, $5-10K, I may do this as well just to save time.  Otherwise, I prefer to get 3 quotes and ask the contractor I feel best about to match the lowest price. 

As a contractor, I know most customers are reluctant to reveal their budget early on in hopes that the contractor's price will be lower than their budget.  If a contractor's estimate comes in higher than desired, sometimes they might be willing to lower their price a little bit to fit your budget depending on how much fluff they have added to it and how bad they want the job.  So I would say keep your budget to yourself until you see what the costs come back as.  

Now if you are comfortable with a contractor and you know their quality of work and what they typically cost you, I think telling them upfront what the budget is just speeds the whole process up.  

@Paul Z. I think the answer to your question depends on your experience and level of confidence in your budget numbers.  

If you're new to the business and you have no historical pricing data to work with then you will have to get bids from multiple contractors to figure out what the going rate is. In my experience, the bid amounts fluctuate by how "hungry" the contractors are so bid numbers can change quickly with the market.  You'll have to sort that out as you go.

If you're an experienced investor with lots of historical pricing data to work with then you will pretty much know what the bids are going to (or should) be.  This is a much better position to be in because you can negotiate with the contractors better. 

You will probably run into some "take-it-or-leave-it" contractors but you will also find some that will care about your budget and work toward helping you save money where ever possible. THOSE ARE THE GUYS YOU WANT!!

I've been doing this for quite a while so I'm pretty comfortable that my estimated budget is going to reflect reality.  When I meet with my contractor, I ALWAYS give him a project budget and ask for his help to get it done at that price.  He's great at finding ways to save me money including negotiating with material suppliers for discounts!  When my project succeeds, my contractor benefits so we're both motivated to work in cooperation.

Hope that helps!

Originally posted by @Matthew Paul:

if you get 3 estimates and they are all over what you budgeted , then you didnt budget enough .  The same in reverse.

 Completely disagreed.  There are different types of contractors, and contractors have different levels of overhead and different profit requirements.  Just because 3 (or 50) contractors give you a specific bid doesn't mean there aren't other equally qualified contractors who won't give you a lower (or higher) bid.

I have contractors who will charge me $X for the work they do.  I can easily find other contractors who will charge $Y for the same work (where Y could be higher or lower) -- that doesn't mean they aren't both equally qualified.

Thank you EVERYONE for the replies. Its interesting to see such a diverse opinion on the topic. With that said, I think for me and my business model I'm going to move forward with keeping my budget to myself, having a solid task list ready to provide to the contractors, and then working with the contractor to make any adjustments necessary after I receive the bid. 

I like the idea of getting at least 3 bids as well until I have gained enough data to know what I should be spending and until I can identify contractors that I can trust and work with well. 

I am a licensed contractor in two states. If I don't know your budget is realistic for the work we're discussing, you'll get no free estimate from me. My time is valuable and I don't waste it on dreamers or on potential customers who don't value my reputation.

Originally posted by @Joseph Corlett:

I am a licensed contractor in two states. If I don't know your budget is realistic for the work we're discussing, you'll get no free estimate from me. My time is valuable and I don't waste it on dreamers or on potential customers who don't value my reputation.

It goes both ways.  

You want to know if the investor's budget is realistic.  By the same token, investors want to know that prices are reasonable before they waste their time on contractors who overvalue their services and work.

Personally, I hate dealing with contractors who tell me they have reasonable prices and then come back at twice the cost of another contractor who will do as good a job, in as short a time frame and for half the price.

There are plenty of investors who are unreasonable when it comes to budgets.  The are just as many contractors who are unreasonable when it comes to prices.

Couldn't agree more @J Scott . What you just said right here is large inner reason as to why I started this discussion in the first place. My time, reputation, and business development as an investor can't be wasted on anyone who is not willing to work on the same team and at the same level with a win-win scenarios. 

I try to be realistic with myself by figuring out my ideal budget and knowing I might be around 2K-5K above that depending on how things go when we get inside. If that overage still works with my numbers then I can move forward with the deal. As far as my contractor goes, I never tell them what my actual budget is. I have a couple contractors that I use and I make sure I get at least 2 bids on all my projects. Sometimes if I prefer working with one contractor I will come back to him with the lowest bid and see if they will match that. A lot of the time it works. 

@Paul Z.  undefined

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