Real Estate Articles

How to Pre-screen Contractors to Build Your Dream Team! | By: Robyn Thompson

Q: Many real estate investors shy away from the house business because they fear hiring contractors. We have all heard the horror stories of rehabbers who lose their shirt because a contractor took them to the cleaners. How do you feel about contractors?

A: I am here to tell you that contractors can be your worst enemy or your best friend, depending if you hire a good one or a bad one.

 

Q: So how can the beginning, novice real estate investor make the correct choice - the hard working team player that gets the job done on time, on budget and at a high standard of quality?

A: The answer is by following my eight prescreening steps below. This is critical.

 

Q: First you want us to ask the contractor we are interviewing, how long they have been in the business? What is the guideline we’re looking for here?

A: I prefer at least five years of experience in the trades. I want a contractor who has seen and repaired every strange, odd, and crazy thing that could be wrong with a house. Experienced contractors know how to estimate all tough projects and experienced professionals can give an accurate price to fix any problem. Inexperienced contractors, on the other hand, under estimate repairs to get the business, and then they try to push their mistake on the home owner by upping the price half way through construction. The investor needs to say NO. NO is the most powerful word in the dictionary, and a rehabber needs to use this tool. If they did not have the knowledge to make a good estimate, it is their problem not yours.

 

Q: Next you suggest we ask for three references from the last three major projects that the contractor has recently completed. Why is this important?

A: Once you receive the reference letters, make sure you call to verify the references and the quality of the workmanship performed. The quality of work should be satisfactory to the homeowner and should have been completed in a timely manner. If any of the references don’t check out, do not hire this contractor. If they gave you false information upfront, you know they cannot be trusted. Move on to the NEXT quote.

 

Q: The third pre-screening task is to ask for a copy of the contractor’s license (if required in your state) and for a copy of their workman’s comp insurance. What else should we be verifying for this step of the process?

A: Once you receive a copy of their license, make sure to check that they are not suspended. Also check to see if any complaints have been filed against the contractor with the Better Business Bureau. It is absolutely mandatory that a contractor prove that he or she has workman’s comp for all the employees that will be working on the job site, before they start renovations.

Q: Why is this so important?

A: Well, if one of the workers has an accident, you do not want to be sued as a potential employer.

 

Q: For the next step in the pre-screening process, you say to make sure the contractor pulls all necessary permits as required by your local building department. Why should we do this?

A: The homeowner/investor should NEVER pull the permits. The contractor should also be responsible to pass all necessary inspections required throughout the construction process so a certificate of occupancy (CO) can be obtained when construction is complete. It makes them responsible for making sure their work is up to standards.

 

Q: Should we as the investors be purchasing the materials for these projects?

A: NO!!! The real estate investor should make it mandatory for all contractors to buy all necessary materials to do the renovations. The investor should never waste their valuable time buying materials. Also, if the investor buys the materials, it is possible that the workers could be viewed as the home owner’s employees per the IRS guidelines. You do not want this.

 

Q: Do you ever require the contractors to warrantee their work?

A: The real estate investor should always demand a minimum six month warranty of all parts, labor, workmanship, and materials provided by the contractor. This warranty should be in writing. WARNING: If a contractor will not provide a warranty and stand behind the quality of his or her workmanship- DO NOT hire them!

 

Q: When bidding out our projects, do we want contractors to bid by-the-hour, or by-the-job?

A: Real estate investors should never agree to pay any contractor by the hour. You should pay a fixed price for the complete job. Never pay the final payment in your independent contractor agreement until the project is 100% complete.

 

Q: For the eighth pre-screening check, you suggest asking for references of the contractor’s supply houses (where do they buy their materials?)

A: It is so important to ask for these financial references. I will contact the supply houses to make sure the contractor is not behind on paying for materials because I do not want to give the contractor a check to pay off an old bill and then they have no money for the materials they need to buy for my job.

 

Q: Do you have one more bonus tip for our readers?

A: The last words of advice that I can give to anyone beginning a renovation project is to make sure every agreement with a contractor is detailed in writing with an independent contractor agreement. A detailed list of materials required should be listed in a comprehensive scope of work. The documents should have work completion time frames, penalty clauses for finishing late, require all permits be pulled and inspections completed before final payments are released.

 

Q: Thanks, Robyn for all these great tips, I know they will be a big help for my members and new rehabbers alike. I do appreciate you speaking with me today!

A: it’s my pleasure!

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