– “You said to keep the carpet in this room!”
– “No I didn’t! I said to remove the carpet in this room and install wood laminate.”
– “Why did you replace that light fixture? I said not to! I’m not paying for that!”
– “Excuse me? I remember you pointing to that fixture and saying you wanted it replaced! You ARE paying me!”
Yuck. Sounds like something you’d hear on a Jerry Springer episode entitled He Said. She said.
Although I’ve never been in a situation like this, I’ve heard stories from others who have and have never envied a fellow investor who ‘has’ been caught up in a conversation like the above. Am I some sort of genius for never being in this kind of situation? Heck no! Is it just pure luck that I’ve dodged this bullet so far? Absolutely not.
The good news is that avoiding the above types of circumstances is not rocket science and is very easy to accomplish. How so? Easy. By using what I call ‘The Drama Eliminator’, or in real estate lingo: the scope of work.
How to Estimate Rehab Costs!
Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.
The Real Estate Scope of Work
Besides the purchase agreement that maps out all the numbers of a deal, The Drama Eliminator is the most important document when part of your exit plan is making improvements to a property (to be honest, I may even argue that it is more important than a purchase agreement. Not sure I could win the argument, but I could see myself at least trying).
Not to pat myself on the back (trust me, I made plenty of stupid mistakes when first getting started), but this was an area where I chose wisely in terms of processes to implement into my business. After doing my research and chugging through a couple of educational sources, the scope of work made a lot of sense to me and was something I wanted to at least “try”, and needless to say, I’m glad I did and have never looked back!
Scope of Work: Definition
What is a scope of work? Put simply, it is a “To Do List” for the property you are working on. There are many formats for the scope of work, but I will share the way my company structures ours. Essentially, we cover three things in our scope of work. The “Who”, “What” and “Where”.
Before you even get to the “Who”, “What” and “Where”, you should address something that may seem obvious (but I overlooked it on our first scope of work). Having an area that maps out all the logistical details will ensure maximum efficiency.
2) Depending on the size of your company, you may only need to list your contact details. The point though is list “how” you want contractors to contact you after they have their bids ready.
3) Define any terms and conditions of the job and bidding procedure.
This is the most crucial part. Think about it, if your people are NOT in the proper location, then all hope is lost. A flooring guy doing something in the bedroom that should have been done in the living room is pretty darn useless.
Make sure you define the exact location in the property you are talking about. Many times, I am not at the home with the contractors (saves me time) so I need to ensure they understand the area I am referring to is the area they are physically at. I would recommend for your first couple of projects that you meet contractors there; however, when you put together your scope of work, write it as if you plan on not being there.
As you can see from the image above, not only do I specify “Hallway”, I also add a few more details (“main floor leading to bathroom”) so that the contractor, painter and flooring person know to be looking at the proper hallway.
I’ve found many contractors appreciate this. Remember, their time is valuable too, so when they know exactly where they are needed on a property, it helps them access the bid and ensures they are doing the work in the proper spot.
It is very evident that the four people needed in the main floor bedroom are the contractor, painter, flooring guy and electrician. As I alluded to earlier, if at the final walk-through I see the old light fixture is still in this bedroom, it’s going to be extremely difficult for the electrician to say, “you never said I needed to do anything in that bedroom”.
Now that you have the right people in the right location, tell them what to do! One thing to keep in mind, a ‘true’ professional shouldn’t need every detail spelled out. In other words, you shouldn’t need to tell them ‘how’ to do what you are requesting. If you find that the case, odds are, this person bidding the job isn’t the best choice. On that same note, you need to tell them “what” to do for sure, but if you find yourself typing out exact work instructions on how to remove cabinets, not only are you overdoing it, you will probably be insulting the intelligence of the person bidding the job (assuming of course they are a ‘true’ professional).
Final Things to Consider
The Drama Eliminator…
…ensures contractor bids are “apples to apples” and not “apples to oranges”. When you do ‘verbal’ instructions, unless you are recording your voice, odds are that you are not telling each person the EXACT same thing. Therefore, one bid may look cheaper than another, but that’s simply because you told the contractor something less cheap than another.
…ensure you don’t end up on Jerry Springer. I’ve had a few instances where contractors have missed something. No big deal, everyone is human, but boy oh boy is that an easy phone call to make. “Mr. Plumber, we wanted the toilet replaced which was in the scope of work”… the plumber: “Oh sorry about that Clay! I’ll get over there bright and early tomorrow morning and get it changed out”. (and of course, no “last minute plumber trip fee” since they fully understand it was their mistake)
…ensures you are on good terms with your contractors. I can’t tell you how many times I’ve been told, “we really like your scopes of work. It makes our job so much easier”. I’ve found contractors are willing to cut their prices back a bit more simply because they know it will be a drama free transaction.
Photo: Ludovic Bertron