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Top-Cut Contractors
by Ryan Schindler
Maintenance costs are one of the most significant expenses affecting the bottom line of property owners. The costs associated with landscaping, painting, plumbing repairs, replacing flooring and general maintenance can add up for any size property. In owning or managing a building, you quickly outgrow the folk advice of: “If it should move, but doesn’t, use WD-40; and if it shouldn’t move, but does, use duct tape.”
While some owners and managers do their own maintenance or have a staff that handles repairs, they may have to hire out some of their larger jobs to contractors. That’s why owners often want to know how to find skilled contractors who provide high quality work and give them a good value.
Finding a Contractor
Word of mouth is a great way to get started in finding a great contractor. Asking other property owners you know for referrals can provide solid leads to get you started. Once you have your short list, ask each contractor for a portfolio that describes jobs they have completed and includes pictures. Have they handled similar projects of your scale? While some contractors have built skyscrapers and manage a large crew, others may work alone and have experience limited to smaller remodeling projects. Know what kind of contractor you are looking for, as the California State Licensing Board lists 43 licensing classifications of different types of specializations.
Years ago, I learned the importance of these sometimes-subtle distinctions when I called a friend who is a plumbing contractor to come to a rental unit where the toilets and drains were clogged. After unsuccessfully working on them for a few hours, he explained that he was not a service plumber but actually specialized in new construction. He referred me to a service plumber who had special equipment, including a video camera system that went hundreds of feet into the pipes and found that the source of the clog was tree roots that were getting into the pipes in between the building and the street. He was then able to quickly remove the clog.
Also, make sure a contractor is state licensed before hiring them. Anyone performing home improvement work valued over $500 (including parts and labor) are required to be licensed by the CSLB. People doing jobs under $500 are usually classified as “handymen” and do not need to be licensed. You are required to submit IRS form 1099-MISC if you pay over $600 for a job. The exception to these laws is when property owners do their own work or hire maintenance workers as their own employees. Hiring people who are licensed also ensures that they have years of experience in the industry and in their specialization. To be licensed, a contractor is required to have a minimum of four years of experience beyond the journeyman level. Becoming a journeyman takes several years of apprenticeship (the exact number varies depending on specific trade specialization), and means one is fully qualified to perform the trade competently and without supervision. To check a contractor’s license, get the contractor’s license number and verify it online at www.cslb.ca.gov or at 800-321-CSLB. Judgments against contractors can also be researched.
Getting Bids
Once you find a contractor you are interested in working with, the next step is to meet in person and get a bid for the work you want done. It is a good idea to get multiple bids for a project, but keep in mind that some bids are only estimates of the cost of the work to be done, while others may give you a guaranteed price for a job. Keep in mind that bids are negotiable as far as price, as well as the scope of work.
Get repair bids in writing and make sure the bid is comprehensive in itemizing all the work that will be completed. Itemize parts and labor separately when you get a bid and do it again in the final invoice. By doing this you will often get a more reasonable price than just getting a bid for how much the completed job will cost. By getting a comprehensive bid that is not itemized, you could potentially be paying a contractor hundreds of dollars per hour for labor.
When you get a bid, keep in mind that a low price is not always the best value. The lowest bidder does not always provide the best quality of work. Also, be sure not to sign anything until you understand the contract and agree to the terms. It is always smart to let your attorney read and advise you on contracts before you sign them.
When You Hire a Contractor
Once you have bids on the project, many suggest checking out the references of a contractor. The downside to references is that contractors generally only give out phone numbers for people who they are confident will give a positive and glowing report. Seldom, if ever, will you be given references that have anything negative to say when you talk to them.
Obtain a copy of an official document with a tax ID number. It is important to obtain a signed consent so you can run credit and criminal background checks, which can be done affordably through the SFAA’s preferred provider, Credit Bureau Associates. By running these, you can see if there are judgments against someone and ensure that you are not assuming the liability for things like giving a convicted rapist or thief access to people’s residences. Also, for the peace of mind of your tenants, let residents know ahead of time when a contractor will be by and never give a key to an occupied apartment to a contractor without tenant permission.
Make sure your contractor and everyone working for him has both liability insurance and workers compensation insurance, and get a copy of the certificate of insurance that names you and your company as additionally insured. This is essential because it means that they assume liability for accidents that occur during the job. Without this, you could be held liable for any accidents and injuries that occur. Before you send a contractor to your property to begin work, you will want to have them read and sign off on a brochure or policies regarding fair housing. You are liable for the people who work on your properties if they may happen to make a discriminatory remark to a tenant or prospective resident.
If you are the owner of a small property who self manages and wants to keep costs low, you might consider working alongside the contractor, assisting him and doing the cleanup yourself after the job is done rather than paying $80 per hour or more for a professional to do it. Working alongside a skilled building professional can be a great way to improve your own building knowledge and skills.
Making Sure the Work Gets Done on Time
Having work completed on a deadline can sometimes be a challenge when you work with independent contractors on smaller jobs because they might have multiple other jobs going at the same time. When a contractor is working exclusively on your project, things are inevitably different.
Never pay in full until the job is completed. Paying for a job before completion leaves little to ensure that all the details are completed to your expectation or that work gets done in a timely manner. The State License Board suggests not paying more than 10% of the job or $1,000, whichever is less, as a down payment.
Check on the completed work before paying the final bill. If it is a minor job or if you are far away, contact the tenant to see that the work was completed to her satisfaction. Consider offering extra cash for jobs that need immediate attention or rewards if you want the work completed by a specific date. Just as you may pay a premium to get contractors to come on a holiday, weekend or late at night, giving them a financial reward is a great incentive for giving your job priority when they may be managing multiple other projects. Paying a little extra, for instance, to turn around a vacant housing unit can pay off if you can get paying tenants moved in sooner. If the job met your expectations, do make sure to pay them quickly and show your appreciation so that they will be eager to do business with you in the future.
Be Aware of Mechanic’s Liens
The law protects contractors when they are not paid what they are owed by allowing them to place a lien on your property. This is called a mechanic’s lien. But did you know that if a contractor you hire fails to pay subcontractors or suppliers, they, too, may file a lien on your properties? The State of California’s website defines a mechanic’s lien as “a hold against your property that, if unpaid, allows a foreclosure action, forcing the sale of your home. It is recorded with the County Recorder’s office by the unpaid contractor, subcontractor or supplier. It means that any of these unpaid entities can place a lien against the property until they are paid.”
Mechanic’s liens are very easy to file by contractors at county recorders offices and can easily be abused. While my property management firm has done business with many excellent contractors over the years, we have unfortunately seen a few who abuse the system by failing to pay suppliers or subcontractors. The CSLB website recommends that property owners have contractors sign a “Waiver and Release” before payment is made, and provides those forms on their site. This will protect you from having a lien filed against you in the event that a subcontractor or supplier is not paid by the contractor whom you paid to oversee the job.
An Alternative to Contractors
Consider working with a property management company with an in-house maintenance staff. At my company, we can get building material and appliances far below market prices because we buy in bulk at wholesale prices. The savings are passed on to the building owners of the properties we manage. The maintenance expenses would be significantly higher if we used outside contractors for all jobs.
Also, make maintenance a regular part of the budget. Deferred maintenance will cost you more in the long term. A plumbing leak that is ignored can be exponentially more expensive to fix down the road than if it were handled promptly. I recommend budgeting a percentage of the property’s income for maintenance and repair expenses. The amount you budget for capital can vary depending on the age of the building and be higher if there are existing deferred maintenance issues. By doing this, you will usually have money available for needed repairs. Having a good property management company conduct a reserve study can give property owners and managers a calculation of how much money should be set aside for maintenance and repairs by estimating when certain items need to be replaced and how much it will cost.
If you keep a property long term, you will collect less rent if it is in poor shape. Even if you plan on selling the property soon, the sales price will be less on a property with deferred maintenance. Making sure your properties are well maintained will not only allow for higher rents and property values, but you will see tenants stay longer when they are at a place they feel good about living.
While finding a great contractor requires setting aside time for screening, getting bids and hiring, the time spent is well invested. Just as screening and qualifying tenants is important for the bottom line of your buildings, the same goes for contractors. Once you find a good contractor and build a working relationship, they can be your best friend and a valuable asset.
The opinions expressed in this article are those of the author, and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Ryan Schindler is the vice-president of marketing for Fast Forward Property Management, which has more than 40 years experience in property management and specializes in managing apartment buildings, HOAs and commercial properties. He can be contacted at 707-766-8100. Copyright © 2010 by Black Point Press. All rights reserved.