Making Sure Your Contractor Writes a Bid that Protects You

Mike: Welcome back to the flipnerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Ron: Hey everybody my name’s Ron Carlson. I am with Renovation Gurus. Today I will be your host on the REI Classroom, and I want to talk to you about making sure your contractor writes a bid that protects you.
Mike: This REI Classroom real estate lesson is sponsored by theinvestormachine.com, FlipNerd’s private investor coaching program and your blueprint to investing success.
Ron: What I mean by that is a lot of contractors will have an Excel spreadsheet or they’ll have a Word document and they write a bid that’s comfortable for them. It makes sense to them but it needs to make sense to you. You need some things in your bid or your contract that helps the process go along smoother, some accountability, some things that if you all have to throw down, you guys get into an argument about something, you walk away from each other, then it’s a lot easier to separate the money and separate the tasks and almost point the blame on you said he said she said type of thing.
I have a couple of things I want to talk to you about that you should have on every contract or every project or every contractor that you’re working with. These are a couple of things that you need to do.
First of all, you need to have a line item for every single thing on your bid. For example, don’t let your contractor group together a bathroom. Hey, the bathroom is $5000. I’m just using that as a fictitious number. Make sure you break down that bathroom. You want to know how much is the plumbing going to cost. How much are the P-traps going to cost? How much is the granite for each vanity top going to cost? How many square feet is it? How big is the vanity? Is it a 26 inch or is it a 44 inch? How much is the seamless glass shower going to cost? How much is the soap box going to cost?
You want to break down every single line item because then if you get into a conflict with your contractor and let’s say that they are rehabbing the bathroom but they don’t put the toilet in, well it’s really easy then to say okay you charged me $150 for this toilet. We’re just going to take $150 off. It’s really easy to square it with the contractor. On the flip side, when they install the toilet then you can say okay you’ve done $150 worth of work. I’m going to pay your $150.
You cannot have too much detail on a bid. If you have a question or a concern about the item, make sure your contractor changes it. For example, you could say hey I want this vanity number this part number from this store that is currently online at this web address for this price. Maybe that’s a little too far, but you kind of get the point that the more detail you have, the safer you’re going to be if there’s a conflict.
Remember, the contract is only there to hold each other accountable but really if there’s a problem. You’re holding each other accountable if there’s a problem. If everything’s smooth, the contract is fairly irrelevant. They finish the job. You square up. You pay them. Everything’s good.
You want to have on your contract for sure an estimated time frame. On our bids typically what we do is we do, like, draw one, draw two, draw three, draw four or something along those lines. You want to have an expectation date. I have seen way too many bids go 6, 7, 8, 10 months and not have an estimated time frame of say 30 days or 60 days. A good rule of thumb for every $10,000 it should take about 10 days. If you have $100,000 bid, it should be 100 days. If you have a $10,000 bid, they should be able to kick that out in 10, maybe 14 days. You’ve got to give a little bit of grace on that end date because it is construction. Things happen. But have a definitive date that you can hold each other accountable for.
You want to know the total cost for each line item. We kind of went over that briefly. Break it down either labor and material together, labor/material. Make sure taxes are included. You want the total cost of not only the line item but the complete bid. You want to know at the end of it okay this is a $30,000 bid and be able to hold each other accountable. And then you want to make sure that you have in writing your draw schedules. When do you as the client have to pay the next draw schedule for your rehab? Is it today? Is it tomorrow? Is it when this is done? When that is done? Just make sure you know exactly what your draw schedule is, or you’re going to run into problems with the contractor and you won’t have anything to hold each other accountable for.
Again, my name’s Ron Carlson. I am with Renovation Gurus. If you have any questions, you can contact us at (855) 99-GURUS. That is our 855 number. Or, you can email [email protected]. I would love to help you out. Have a great day.
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