5 Methods to Negotiate Lower Bids with Contractors
1. Keep your "scope of work" simple.
I once drew up a scope of work so detailed, my contractor said he was impressed. But I think he was actually overwhelmed.
Put yourself in their shoes. If someone gave you a 10-page to-do list (actually, it was 12-pages in my case), wouldn't you charge them more? 12-pages looks like a lot more work than 3.
Instead, make life easy for them. Keep it tight. After all, the nitty gritty details will go into the architectural plans. And if you're gutting a home, construction code will rule and your contractor knows he has to install everything to a certain standard. In addition, you'll also be there along the way to guide and monitor things.
I'm not saying leave things out so you get a cheaper bid. I'm saying be comprehensive, but use bullet points.
You can see two examples of my scope of work pictured here - one is overly detailed and one is to the point.
If you'd like me to e-mail you either of these so you can take a closer look, feel free to leave your e-mail below in the comments section and I'd be happy to share it.
Tip: I've learned this rule goes both ways. Contractors with long, overly complicated project proposals tend to charge more. I appreciate their attention to detail but I need someone who can do quality work for a decent price. The guys who carry binders with branding on them, employ a sales team and take 2-3 days to draw up a 10-page scope of work tend to charge top dollar. Not a great fit when it comes to flipping houses.
2. Always get multiple bids.
You've probably heard this advice before. But something new to note: keep getting multiple bids.
We like the electricians, framers, plumbers and flooring guys we work with on our projects. But that doesn't mean we stop getting quotes from new people.
This is how you compare prices. And you can be honest with your contractors about other quotes you have received.
I especially like hearing how different contractors would approach the same job. For example, one contractor might step on the job site and say: "We need to rebuild this whole deck." Another might say, "If we sister each these joists, we can repair this deck."
Hearing different perspectives often gives me ideas or solutions for repairs.
Calling for multiple bids can also help you to learn your costs and expand capabilities.
For example, you might already know a great heating and cooling guy, but does he know how to set up a hydronic furnace and a tankless water heater? Not all are skilled in this area since it is new technology. The same goes for old technology, like oil burners. Wouldn't it be great to know multiple contractors who specialize in different facets of their trade?
It's also smart to have back ups. What if your favorite contractor falls down on the job or has some unforeseen life event?
3. Bundled work means discounts.
Something you can do, if this makes sense for a project, is give multiple jobs or the entire job to a general contractor. Some GC's are really expensive and so this won't make sense. But if you're giving them a whole house to work on, some will bend considerably on price.
Or perhaps you're working one project and you have another one coming up. You just got another house under contract, let's say. Or maybe you're just actively putting a lot of offers in. You should tell them this. It lets them know that you can pay them again and again in the future, and that could get you a discount today.
4. Always negotiate in person.
I've negotiated in text messages and over the phone. But nothing is better then a face-to-face conversation when your talking about money and expectations for a project. When you can hear each another's thoughts, problems or questions about a project, it can help to drive home your expectations and drive down the price. Matt, my partner, is exceptionally good at this. When a contractor begins listing how hard or lengthy or difficult a project might be, he simplifies and cuts right to the point. Ask questions like: is this the only way we can fix this deck? Is there another option? I'm not saying cut corners. You always want your repairs to be both safe and beautiful, but keep in mind there is always more than one way to fix a house and you want to choose the most efficient path.
Tip: Another flag to look out for is this - I've noticed some contractors make things out to be bigger or harder than they really are, or they make mountains out of molehills. These are not investor-friendly contractors. Especially when talking about an old home where not everything is up to code (because it was built 100-years-ago, duh!) They want to redo everything from scratch. They'll say things like, "we need to rewire this whole house!" But the truth is, you don't. Yes, all outlets need to be grounded and 3-prong. Yes, we need a light and a switch in every room. And yes, we need GFCI (water-safe) outlets near all sinks or water. But you can ground an outlet locally at the box, you don't need to rewire the whole house. And you can replace the panel and upgrade to 200-amp service, without rewiring the whole house. You can do the electrical work needed to modernize a home, without necessarily ripping out every wire and opening every wall. Now, if the walls are being opened anyway because you are gutting the home, that's a different story. But if I'm doing a cosmetic upgrade only, why would I spend all that extra time and money? Don't let a contractor overwhelm you this way, ask: what are my other options for this project? And don't forget Method #2.
5. Build relationships.
Developing a mutual respect or a friendliness with those you work with can do wonders. You want to help each other out. You want your contractors to succeed in their business, and they want you to succeed in yours! Your business feeds their business and vice-versa. Never be combative and demanding. Simply be firm and when you're talking numbers, be direct.
I give my contractors referrals all the time. Regular homeowners and other investors. And every time I do it, I let them know. If they see you are actively trying to give them business, both through your own renovation projects and through referrals - you will be among the few or perhaps the only one to get their absolute best pricing.
Other ideas? Questions?
If you have another method to add to this list, please comment below so we can all mutually benefit! Or if you have a question, please leave it here and I'd be happy to respond.
You can also enter your e-mail below to get more house flipping tips and tricks in your inbox. Would love to connect with you!