Flippers, how did you figure out accurate pricing/negotiations with contractors.

[Shivani Kumar]

I am trying to learn how to properly estimate rehab costs and negotiate with contractors. I’ve heard a lot about contractors taking advantage and overpricing. Any advice would help. 

[Allan Smith]

Best thing you can do really is to get quotes from people. Are you talking about subbing it out to all the different trades yourself? That's a little bit Advanced but that's how I started as well. It doesn't take long to get a feel for what the pricing is on stuff. Like putting in flooring is probably 1.50 to $2 a square foot for labor, and you can start to learn all these rules of thumb for all the trades.

[Shivani Kumar]

Quote from @Allan Smith:

Best thing you can do really is to get quotes from people. Are you talking about subbing it out to all the different trades yourself? That's a little bit Advanced but that's how I started as well. It doesn't take long to get a feel for what the pricing is on stuff. Like putting in flooring is probably 1.50 to $2 a square foot for labor, and you can start to learn all these rules of thumb for all the trades.

 I was planning to use a GC and get multiple bids. Then, hopefully I can get some good recommendations for subs. More of a trial and error approach. However, I wanted to know if there were any ways to figure out if contractors are overpricing you. Or should I take the mid range price?

[Clint Jusino]

Quote from @Shivani Kumar:

Quote from @Allan Smith:

Best thing you can do really is to get quotes from people. Are you talking about subbing it out to all the different trades yourself? That's a little bit Advanced but that's how I started as well. It doesn't take long to get a feel for what the pricing is on stuff. Like putting in flooring is probably 1.50 to $2 a square foot for labor, and you can start to learn all these rules of thumb for all the trades.

 I was planning to use a GC and get multiple bids. Then, hopefully I can get some good recommendations for subs. More of a trial and error approach. However, I wanted to know if there were any ways to figure out if contractors are overpricing you. Or should I take the mid range price?

Hello @Shivani Kumar. I just finished a medium style rehab and worked with a great GC. I can share my spreadsheet and quote I got which now gives me an ideas on pricing for labor and materials. I'm in the DFW area. DM me if interested.

[Matthew Paul]

@Shivani Kumar Contractors are businesses . They charge what the market will bear . If you get 3 estimates for work you will get 3 different prices .  Prices are also area specific , if you live in an area with a high cost of living , you will pay more . 

There are no magic discounts for "flippers" or "investors" . Especially if you are only doing 1 house .To a contractor its just another job . 

Contractors dont over price , you and the contractor agree on the price for the scope of work , if you dont like the price you find someone else . 

Some contractors are just more expensive than others .

[Lucia Rushton]

@Shivani Kumar are you intending to buy a property from Wholesaler or with a Realtor on your team?

[Bruce Woodruff]

Quote from @Shivani Kumar:

I am trying to learn how to properly estimate rehab costs and negotiate with contractors. I’ve heard a lot about contractors taking advantage and overpricing. Any advice would help. 

 @Matthew Paul had a great answer. You get to choose your Contractor so you get to choose the price you feel is fair. Generally speaking, the better quality businesses will charge more because they have to...their cost of doing business is higher because they have all of the proper licenses, insurances, bonds, etc.

Never ever ever take the lowest price...that guy is priced low for a really good reason. I recommend getting 5 bids and picking from the top three.

As far as you, personally., estimating rehab costs....forget it for now. It will take you years to get good at it. Years.

Now there are a few things you can do as a customer to be smart....1) make sure that the proposal and SOW are very detailed and nothing is left out. Every little thing that is being done during the project should be right there in writing. Everything. 2) Make sure you have a signed contract that is legal and thorough. 3) keep the progress payments relatively equal to the work being done....example - don't pay for tile when you're still doing framing.

Go get some bids and then come back and talk to us again...

[Jacob Sherman]

Everywhere in the country will be different with labor and material rates . Can get 3 bids for each trade and that's a good way to assess 

[Bryan Hartlen]

@Shivani Kumar get multiple line item quotes and then ask lots of questions. Ask if the GC has any employees (or dedicated crews). Ask what tasks they handle and what tasks he farms out to other contractors. Compare the lines item pricing across your quotes. If on GC seems significantly higher (or lower) than the others ask why. It may be his pricing or it may be a difference in scope understanding. Whichever GC you decide you want to use, you can always negotiate and see if they’re willing to discount. 

[Carlos Ptriawan]

Quote from @Shivani Kumar:

I am trying to learn how to properly estimate rehab costs and negotiate with contractors. I’ve heard a lot about contractors taking advantage and overpricing. Any advice would help. 

 Same question like if you are a supplier to company , you made your project more continues and large enough so they can give you enough volume discount… key imo is to use the same contractor over and over so both parties are creating mutual trust.

[Diego A.]

You might get a difference of 50% more or less between contractors, the idea as many here mentioned is that you have to make sure you itemize as much as possible.

Flipping is a project management work, and you have to be very organized.

Saying all this I was thinking that it should be a better way, this can be automated, but it seems that there is no something that everyone is willing to pay so that is why no much solutions out there.

@Clint Jusino I will reach out to get a peck on your spreadsheet, I am also planning on a new flip now and estimating cost is the most difficult part.

[Shivani Kumar]

Quote from @Bryan Hartlen:

@Shivani Kumar get multiple line item quotes and then ask lots of questions. Ask if the GC has any employees (or dedicated crews). Ask what tasks they handle and what tasks he farms out to other contractors. Compare the lines item pricing across your quotes. If on GC seems significantly higher (or lower) than the others ask why. It may be his pricing or it may be a difference in scope understanding. Whichever GC you decide you want to use, you can always negotiate and see if they’re willing to discount. 

Thank you for the advice! 

[Shivani Kumar]

Quote from @Bruce Woodruff:

Quote from @Shivani Kumar:

I am trying to learn how to properly estimate rehab costs and negotiate with contractors. I’ve heard a lot about contractors taking advantage and overpricing. Any advice would help. 

 @Matthew Paul had a great answer. You get to choose your Contractor so you get to choose the price you feel is fair. Generally speaking, the better quality businesses will charge more because they have to...their cost of doing business is higher because they have all of the proper licenses, insurances, bonds, etc.

Never ever ever take the lowest price...that guy is priced low for a really good reason. I recommend getting 5 bids and picking from the top three.

As far as you, personally., estimating rehab costs....forget it for now. It will take you years to get good at it. Years.

Now there are a few things you can do as a customer to be smart....1) make sure that the proposal and SOW are very detailed and nothing is left out. Every little thing that is being done during the project should be right there in writing. Everything. 2) Make sure you have a signed contract that is legal and thorough. 3) keep the progress payments relatively equal to the work being done....example - don't pay for tile when you're still doing framing.

Go get some bids and then come back and talk to us again...

 This makes sense. I appreciate the breakdown and advice! 

[Shivani Kumar]

Quote from @Matthew Paul:

@Shivani Kumar Contractors are businesses . They charge what the market will bear . If you get 3 estimates for work you will get 3 different prices .  Prices are also area specific , if you live in an area with a high cost of living , you will pay more . 

There are no magic discounts for "flippers" or "investors" . Especially if you are only doing 1 house .To a contractor its just another job . 

Contractors dont over price , you and the contractor agree on the price for the scope of work , if you dont like the price you find someone else . 

Some contractors are just more expensive than others .

Definitely understandable. I just hope they don’t purposely over price, but I believe getting multiple bids plus references would help a lot. Appreciate the reply. 

[Bruce Woodruff]

Quote from @Diego A.:

Saying all this I was thinking that it should be a better way, this can be automated,

Nope. Never in a million years. The human factor is essential here....

[Bruce Woodruff]

Quote from @Bryan Hartlen:

you can always negotiate and see if they’re willing to discount. 

In my many years of experience, if a GC would even consider negotiating, that would be a huge RED FLAG. We all have our margins, our exclusive costs and our profit/overhead. People think we just add in an extra few thousand for negotiating purposes? No.....that's not how it works. I guess only other GCs understand how this pricing thing works....?

[Bruce Woodruff]

Quote from @Shivani Kumar:

I just hope they don’t purposely over price

This shows that you still do not understand this important facet of building/remodeling/flipping.......

[Bryan Hartlen]

Quote from @Bruce Woodruff:

Quote from @Bryan Hartlen:

you can always negotiate and see if they’re willing to discount. 

In my many years of experience, if a GC would even consider negotiating, that would be a huge RED FLAG. We all have our margins, our exclusive costs and our profit/overhead. People think we just add in an extra few thousand for negotiating purposes? No.....that's not how it works. I guess only other GCs understand how this pricing thing works....?

In our experience, we've almost always had success negotiating. And I'm pretty sure I understand how their pricing works. We understand that GC's need to make their margins and we want them to be around for our next properties. We're always looking for a long-term relationship. 

[Bruce Woodruff]

Quote from @Bryan Hartlen:

Quote from @Bruce Woodruff:

Quote from @Bryan Hartlen:

you can always negotiate and see if they’re willing to discount. 

In my many years of experience, if a GC would even consider negotiating, that would be a huge RED FLAG. We all have our margins, our exclusive costs and our profit/overhead. People think we just add in an extra few thousand for negotiating purposes? No.....that's not how it works. I guess only other GCs understand how this pricing thing works....?

In our experience, we've almost always had success negotiating. And I'm pretty sure I understand how their pricing works. We understand that GC's need to make their margins and we want them to be around for our next properties. We're always looking for a long-term relationship. 

Well, ok, if it works for you go for it. Not my thing, not my way of doing business. It cheapens the process for me. I ain't a used car salesman and this ain't Tijuana. I lay it all on the table and expect the same back. Honest fair numbers for honest fair work.

I also can honestly say that I never knew a GC that would negotiate. That's an automatic get up and walk out....

But seriously maybe there is some value for you to do it the other way.

[Gi'angelo Bautista]

I think you should at least get all your finish material pricing figured out first by going to the material stores and also getting quotes. 

From there, you can figure out labor and rough material pricing. This will take long of course. 

You can also pay a GC and subs to give you pricing.

You can also have an actual project and get estimates. You might have to pay for a detailed estimate, but sometimes you can get them free. 

[Shivani Kumar]

Quote from @Bryan Hartlen:

Quote from @Bruce Woodruff:

Quote from @Bryan Hartlen:

you can always negotiate and see if they’re willing to discount. 

In my many years of experience, if a GC would even consider negotiating, that would be a huge RED FLAG. We all have our margins, our exclusive costs and our profit/overhead. People think we just add in an extra few thousand for negotiating purposes? No.....that's not how it works. I guess only other GCs understand how this pricing thing works....?

In our experience, we've almost always had success negotiating. And I'm pretty sure I understand how their pricing works. We understand that GC's need to make their margins and we want them to be around for our next properties. We're always looking for a long-term relationship. 

 I’m assuming you can negotiate prices if you have experience with rehab costs. Would it be best to leave the negotiations out until you have more experience? 

[Diego A.]

Quote from @Shivani Kumar:

Quote from @Bryan Hartlen:

Quote from @Bruce Woodruff:

Quote from @Bryan Hartlen:

you can always negotiate and see if they’re willing to discount. 

In my many years of experience, if a GC would even consider negotiating, that would be a huge RED FLAG. We all have our margins, our exclusive costs and our profit/overhead. People think we just add in an extra few thousand for negotiating purposes? No.....that's not how it works. I guess only other GCs understand how this pricing thing works....?

In our experience, we've almost always had success negotiating. And I'm pretty sure I understand how their pricing works. We understand that GC's need to make their margins and we want them to be around for our next properties. We're always looking for a long-term relationship. 

 I’m assuming you can negotiate prices if you have experience with rehab costs. Would it be best to leave the negotiations out until you have more experience? 

 Few things here, first you can read "The Art of Negotiation" by Tim Castle.

Negotiation doesn't always mean to get the price down for the same work. Negotiation means to adjust our goals so we can get the same results. (Both be profitable)

In a contractor/investor relationship when built you need to find a real partner with whom you can negotiate so prices don't scale. 

In the experience, there are some contractors that overpriced to mitigate the risk of the unknown. Other overpriced to get a higher margin depending on the area that the project is, the people that are dealing with, etc. 

All this is in you to identify what best you can do with what you know.

At the end, this partnership will build on trust or you won't be able to sleep at night.

[Matthew Paul]

Quote from @Shivani Kumar:

Quote from @Bryan Hartlen:

Quote from @Bruce Woodruff:

Quote from @Bryan Hartlen:

you can always negotiate and see if they’re willing to discount. 

In my many years of experience, if a GC would even consider negotiating, that would be a huge RED FLAG. We all have our margins, our exclusive costs and our profit/overhead. People think we just add in an extra few thousand for negotiating purposes? No.....that's not how it works. I guess only other GCs understand how this pricing thing works....?

In our experience, we've almost always had success negotiating. And I'm pretty sure I understand how their pricing works. We understand that GC's need to make their margins and we want them to be around for our next properties. We're always looking for a long-term relationship. 

 I’m assuming you can negotiate prices if you have experience with rehab costs. Would it be best to leave the negotiations out until you have more experience? 

 You can always try . But you are basically asking the contractor to take a pay cut .  If you want to rehab a house  there is one big phrase to know . That is " Change Order" . Very rarely a rehab goes as planned , something unknown comes up and the contractor will call you and tell you the problem and the additional cost . 

Remember this , you make your money on a flip WHEN YOU BUY THE PROPERTY .  If you buy a skinny deal , do not expect anyone to make less so you can make a profit .  The TV shows like HVTV look like rehabing a house is fun , contractors show up with smiling faces and everything goes according to plan . 

I live in a fairly expensive community , sought after , houses are late 1960's .Price range non waterfront $650K to $750K in good shape . A house 4 doors down , a split foyer in fair shape , very little updates just sold for $520K . Great price if you were the end buyer , but a novice flipper bought it .  Some rough numbers , Price $520K add 15K closing = $535k  New windows and siding $40K = $575k overgrown lot and landscaping $5k =$580K  Kitchen , bathrooms , paint , flooring $60k ( on the low end) New deck it was rotten  $20K They are now in at $660K  This doesnt include holding costs and what ever I missed . Now if they sell it at $750K with commissions thats $42K .  $708 -$660 leaves about $48 grand as profit .   Thats ONLY if nothing major shows up . And if they get top dollar .   Thats way to skinny a deal playing with those numbers 

[Bryan Hartlen]

Quote from @Shivani Kumar:

 I’m assuming you can negotiate prices if you have experience with rehab costs. Would it be best to leave the negotiations out until you have more experience? 

You will have line item end quotes from multiple GC’s; so you may not have experience but you will have data. Negotiating doesn’t mean just a lower price- in many cases it’s the mitigation and allocation of risk. Asking questions will help you both understand where some of these less obvious (but real) costs are allocated. And negotiation doesn’t have to be confrontational, and there is an art behind it. I’d be happy to discuss in more detail if you like.

[Bruce Woodruff]

Quote from @Matthew Paul:
1) But you are basically asking the contractor to take a pay cut  

2) Remember this , you make your money on a flip WHEN YOU BUY THE PROPERTY .  If you buy a skinny deal , do not expect anyone to make less so you can make a profit . 

These two things - ^^^ Epic!

[Carlos Ptriawan]

Quote from @Shivani Kumar:

Quote from @Bruce Woodruff:

Quote from @Shivani Kumar:

I am trying to learn how to properly estimate rehab costs and negotiate with contractors. I’ve heard a lot about contractors taking advantage and overpricing. Any advice would help. 

 @Matthew Paul had a great answer. You get to choose your Contractor so you get to choose the price you feel is fair. Generally speaking, the better quality businesses will charge more because they have to...their cost of doing business is higher because they have all of the proper licenses, insurances, bonds, etc.

Never ever ever take the lowest price...that guy is priced low for a really good reason. I recommend getting 5 bids and picking from the top three.

As far as you, personally., estimating rehab costs....forget it for now. It will take you years to get good at it. Years.

Now there are a few things you can do as a customer to be smart....1) make sure that the proposal and SOW are very detailed and nothing is left out. Every little thing that is being done during the project should be right there in writing. Everything. 2) Make sure you have a signed contract that is legal and thorough. 3) keep the progress payments relatively equal to the work being done....example - don't pay for tile when you're still doing framing.

Go get some bids and then come back and talk to us again...

 This makes sense. I appreciate the breakdown and advice! 

 also shivani these days the way I do it is I checked the inspection report and I would categorize it, will it require 30k-50k rehab, is it 75k-100k project ? is it 100k-150k rehab project and so on and so on...

for example i know if i have to replace the whole plumbing the whole cost would be $15k-$20k, so it's known factor before I even started looking at the house.

Then if I thing the house ARV is $900k while home got bid for $810k, I dont even visit the house because the risk is too high for me.

So having these visualization of price is something that we need to know, before I do even anything.
And the more expensive the house, the more irrelevant the budget is