how does a contractor bid?

9 Replies

I just got a property under contract, and I have 2 contractors coming tomorrow for bidding the rehab. My question is how are they bidding? Do they bid all the labor and materials? Do they include the appliances? Do I need to provide them a scope of work detailing everything I would like done? Any help would be appreciated.

Harold, welcome to BP. 

Contractors can bid either ways, and it's usually up to you. What do you plan to use it for?

In a nutshell, you should:

- Get a scope of work as detail as you can. 

- When contractors come, don't tell them you're new in the game. Just hand out the list and walk the property with them. 

- Have them all come out at the same time.  They all know they'd be bidding against a couple of others already so it'll be in your advantage. 

- If possible, ask them to give you 2 separate bids, one for labor only, other with materials. For the one with materials, ask them to give you details as what it is, or allowances. 

Sample quote with materials: 

- bathroom: gut all existing hall bath fixtures, install 36"x21" vanity cabinet in ginger maple wood at ABC cabinet, Americast bathtub, 1/4" frameless shower door, 8x10 tile up to ceiling height on tub surround ($1.5-$2/sqft), budget toilet from $100-$120, etc...

Next, find out how to:

- pick out the best quote (not necessary the lowest)

- pick the best/good contractor

- handle contractor during the process (payment schedule, lien waver, quality checking, etc ...)

Isn't it fun already? :). Not to worry. Read up the forums, or get the books from J Scott and/or ask up!  

Good luck. 

thank you for responding, I'm sure it will get easier each time.

You're in AK, not CA, I suggest you not schedule them all together, never even heard of, some will walk off as many don't play games, another point, they probably know each other, you want independent bids or bids that can be done in collusion? You do make it clear you're taking bids, but don't put it their face!!! Telling them is clear enough. If they don't know who they are bidding against you'll get their best bid, if they know Joe has higher overhead that can pad their bid, and Joe may walk off knowing Sam does lowball bids and comes in with overruns half way through, so you set up conflicting issues before they start.  Never have contractors show up together.

Yes, you need scope of work and quality of materials, appliances by price range or make model. Be as specific as you can. If you don't already have that, meeting tomorrow is a little soon unless you're good at it.  

Get referrals and check them. You can go to building regs and see permits, the address will be on it, drive by, knock on the door, ask the owner how their rehab went!

Takes time to find good contractors, take the time and check them out.

I ask for two bids from each, turn key and labor with profit, I can get materials and they charge to go get it, find it, haul it and carry it, much can be delivered too. If the turn key isn't much higher than my material costs, I go there with less brain damage, if they want too much, I just buy their labor and project management. You'll do better starting off with a turn key bid and just keep back. :)

thank you Bill, you make a lot of sense

@Harold Groetsema  

Please don't schedule everyone to come at the same time. Personally, I would consider that disrespectful and would not be interested in even looking at your job. 

I think it's the wrong approach to focus on getting the cheapest price. If you plan to do this as a business, I think you are better served by building relationships with contractors and other colleagues.  Take your time to find quality-minded, trustworthy people.  It should not be an adversarial relationship. 

I'll make sure they come at different times. I know both of them personally, as Fairbanks is a small town, and I've been here for almost 25 years and own a BBQ joint.  We still do hand shake deals up here:)

Contractors love BBQ and beer, you can make a great deal....LOL

You're lucky to already have a relationship with them then and while I've never been up there, I think folks up there are much like around here, it's great doing business with those you already know! Good luck.  

Just to expand on others suggestion to provide contractors a scope of work...

The reason for a very detailed scope is so that all are bidding on the same work. Rehabs can be very involved and the larger the job, the more variables are likely to exist or develop. A good contractor understands the historical building practices in a particular market and the potential problems he will likely encounter. His bid may include these factors while a less experienced contractors bid may not. For this reason, the lowest bid is seldom the best.

Even with a detailed scope, contractors may be bidding apples to oranges. An inexperienced investor often doesn't have the knowledge and experience necessary to write a detailed scope. I recommend that investors just starting out first seek out a contractor with a great reputation who is willing to act as a paid consultant. Possibly a retired contractor or an old school remodeler who is always busy but willing to write a scope based on the end product you are looking for. If he will also provide an estimate to use as a measuring stick for the bids you'll receive, all the better. 

What you are looking to avoid is leaving it up to contractors to low ball and then hit you with all the "unforeseen" problems when you have little choice but to absorb more costs and blow up your budget. Ideally, new investors will find this partner and pay for their experience for pre-purchase rehab estimates. Knowledge is power. Gaining that knowledge after you've already purchased a property is like marrying a woman before you get to know her!

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here