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Posted about 6 years ago

6 Rules for Hiring a Contractor for a Flip

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Finding and working with a contractor has traditionally been quite the crapshoot. It can be hard to find a trustworthy contractor that does good work, and even when you do, disagreements and disputes between owner and contractor bog down the work. To help you find and work with the right contractor, one you won’t have to fire halfway through the project, we’ve put together this list of important guidelines to follow when hiring a contractor.

Vet Your Options

At the beginning, you’ll have a lot of options for contractors when you’re looking for someone to work with. Do not just pick the first guy in the phonebook and give him a contract to sign. You need to vet the contractors to determine who’s a good fit. There are a few ways you can do this, and using a combination of tactics is highly recommended.

First, get recommendations. Friends and family who have worked with contractors are a good start, but don’t end it there. Check the National Association of the Remodeling Industry for members in your area. Ask a building inspector for names of contractors that meet code. Ask the local lumber yard for names of contractors who pay their bills on time.

Next, sort them by the kind of work you’re doing. Not every contractor is an expert in every type of job, so you’ll want to find out what kind of work they typically do. Either look them up to see what kind of business they do, or do phone interviews and ask. The interviews are important as well for determining if they are prepared to handle a project of your size in the timeframe you have.

Be sure you talk to any of your serious candidates, to see how well the two of you communicate, as poor communication will result in a problematic project. On the other hand, you don’t want to hire someone just because they talk a good game. In the end, what you’re looking for is someone licensed, who gets the proper permits, pays their bills on time, does reliable work, and is easy to work with.

Check Out Their Previous Work

Part of the vetting process should include an inspection of their previous work, or works in progress. Take a look at how clean they keep a job site, if safe procedures are followed, and how the employees behave at work. Review a finished project so see the quality of the work. Being a little nosy at this stage will save you a lot of grief later.

Get Several Bids

Once you have a shortlist of potential contractors, get several bids for your job. This is important, otherwise you have no way of telling if you’re within normal ranges for the job. Getting at least three bids will ensure that you don’t overpay for the job. Typically, 40% of the cost of the job should be materials, and 15-20% should be the profit margin markup. The rest is the cost of seeing the job done.

Don’t Take the Lowball Bid

When you get your bids, don’t just take the lowest bid. Compare the bids to each other, and if one seems too good to be true, it probably is. A respectable contractor knows what their service is worth, and will charge a fair price. A lowball bid is an indication of at least one of a few things: they cut corners, use shoddy work, are dishonest, or are desperate for work—none of which are good.

Have a Payment Schedule

Once you’ve picked a contractor, set up a payment schedule—a set timeframe where the contractor will receive payments incrementally. It’s customary for the first payment (usually about 10%) to come at the beginning of the job. Beware of contractors that try to ask for half upfront, as this is a sign they either couldn’t pay bills for a previous job, or don’t have the resources to fund the materials and labor at the beginning of your job. Neither is good news.

Put the Contract in Writing

Perhaps most important is putting the contract in writing. This is critical because it makes sure everything happens in accordance with the agreement you’ve made. It also means that if something goes wrong or if there’s a dispute, there’s something to use in arbitration. Be sure you include details in the contract for how those disputes will be resolved, as well as language indicating that the contractor is liable for mistakes or problems that arise.

For more information on hiring contractors for flips, contact the pros at Real Estate Elevated.