Property Preservation Bidding and Estimating
If you plan to become a Property Preservation Repair Vendor or an REO Repair Vendor, you will be expected to complete itemized repair estimates, or “bids” as they are frequently referred to in this industry. You will also be expected to use some type of estimating software.
Property Preservation Repair Bids are similar to the itemized estimates completed by insurance adjusters. So if you have ever been involved in the completion of insurance claim repairs then you will have no problem.
If you only complete the basic maintenance type work then you will not be completing these types of bids on a daily basis; however, it is still extremely important for maintenance vendors to know how to accurately price a job.
Producing an On‐Site Bid
Believe it or not, you can’t just rock up on site without a bid or preparatory work in advance. Specifically, you will need to take some basic items along with you. I recommend having the following available in your car:
- A camera with a charged battery, memory card, and spare memory card
- Flashlight and replacement batteries
- A few copies of the on-site/manual bid forms
- A copy of the Phone Bid Form that you completed when you were first contacted
- Pens, pencils, and a clipboard
- A hard hat
- Measuring tape
- Business cards
- PPE such as gloves and goggles in case you need to inspect areas that are potentially unsafe
- Any supplies and tools you may need to secure the property in the event that you’re asked to do so while you’re there.
- Basic tools, such as a drill and screwdriver, in the event that you are required to enter a property that has been boarded up.
- A change of clothing.
- A ladder.
In addition, you should:
- Wear suitable attire for the visit. This should consist of work boots, long-sleeved shirt, long trousers)
- Prepare a GPS printout of the exact location of the property
- Record your start and finish mileage for the purposes of your tax return
As soon as you arrive on the property, start taking photographs. You’re going to need to document everything for the purposes of your estimation and to provide later evidence of the work you have completed. Don’t be surprised if the neighbors approach you while you’re in the process of inspecting the property. Some will want to find out information about what is happening. Remain calm and explain that you are simply a contractor who has been brought in to take photographs. Tell them that you don’t know anything about the property and that they should contact the realtor/AMC for any information they need. This will usually get you off the hook.
When you’re performing inspections for the purpose of producing an estimate, you need to stay alert at all times and focus on getting the job done properly but within the minimum amount of time. If you’re surveying a property in a rough area of town, take an additional person with you. Be alert at all times, you don’t know what is lurking inside the property, or outside for that matter. Unfortunately, this work is not all roses around the gate, and it’s important that you are fully aware of the health and safety risks and take appropriate action to mitigate them. Recall the sticky situations we addressed on Day 3? Be ready and prepared for all eventualities.
Producing an On‐the‐spot Bids
You will frequently be asked to provide an on-the-spot bid when you visit a property. Sometimes, being able to produce a fair bid at a moment’s notice will actually win you the contract, especially if the realtor is in a rush. You will, hopefully, recall from an earlier section that there is typically a requirement for properties to be completely cleaned and junked out within five days of the initial inspection (external work within seven days). That is the work COMPLETELY finished, not the bid produced.
If you have visited a site, it is in your best interest to get your quote in as quickly as possible. Return to your office, produce the necessary paperwork and get the estimate submitted. It doesn’t matter how busy you currently are cleaning out and maintaining the properties you already have on your books; you simply have to find the time to produce bids. If you don’t win bids, you have no new work coming in, and you’ll soon run out of business.
In this industry, time is everything. By completing and submitting an estimate in a timely manner, you will enhance the view of your company as a reputable and professional provider and project the image that you are thorough and efficient.
Generating Estimates Over the Phone
You may be asked to supply a bid for your services over the phone. Where possible, you should avoid doing so for a number of reasons:
1) It will be difficult to generate a quote. Without seeing the severity of the junk and the condition the property is in, you have no idea what truck to hire, how many people you’ll need and how much time it is going to take you to clear/maintain the place. It is only through seeing the place first-hand that you can generate a realistic bid. If you get your bid wrong, you could end up providing your services free of change… no one wants that!
2) You don’t want to give away your competitive position. You’re operating in an environment in which the lowest bid usually wins. If you’re contacted by phone, the person telephoning you may actually be your competitor trying to find out your pricing. Knowledge is power after all! If you are contacted by phone and can’t be sure that you are speaking to a real customer, ask the caller to provide the exact address of the property. If he or she is unable to answer immediately, you should remain cautious about what information you share. The same is true if they refuse to give you their full contact information and the name of the company they work for.
3) You will miss out on an opportunity to up-sell your services. One of the advantages of visiting the site for the purposes of producing a quotation is that you will have a chance to really understand what needs doing. You can then provide a basic quote as well as an additional list of things that are “optional.” For example, if you are asked to provide a quote for cleaning out junk but then arrive on site and find that the roof is leaking, you can include it in your optional section. However, remember to exclude the optional items from your quote for the services you have been asked to bid for. Otherwise, you’ll appear to be much more expensive than your competitors.
So if someone legitimate does contact you to request a quotation, how should you respond? Before you give any information away yourself, start by asking some basic questions to ascertain the following:
- Name, job title, firm and full contact details of the person calling.
- Full address of the property that requires servicing.
- Gate code, if relevant.
- Size of the property, number of stories and accompanying land.
- Entry information.
- Whether photographs will be required with the bid.
- Whether or not an initial inspection has already been performed.
- The general condition of the property, how long it has been empty, etc.
- Whether there are any known hazards or organic material on site.
The type of services that will be required.
The deadline by which the bid needs to be submitted.
- Where the bid should be sent and who it needs to be addressed to.
The timescale in which the services will need to be provided.
Pricing Your Services
Of course, in addition to submitting your bid in a timely fashion, you also need to ensure that it is fair, realistic and accurate. To do this, you need to be aware of what the going rates are for foreclosure cleanups and property preservation and maintenance. Once you have this information at your disposal, you can produce bids that are competitive and realistic.
When producing your bid, you should take a number of factors into consideration:
- The scale of the work/the number of properties you may be required to service for a given customer. If you expect more work, you may wish to consider a bulk pricing approach.
- The extent of the services that you will be providing at the same property.
- The number of competitors in your area and the amount of business you are currently competing over.
- The area in which the property is located.
- The complexity and scope of the job.
This industry isn’t particularly complex. As such, pretty much 99% of the time, the business will be awarded to the lowest bid. This means that your task is to figure out what that bid will be and how you can perform the work for that price while also turning a profit. In many ways, you are going to need to get creative.
How to Price Foreclosure Cleanup Jobs to Make a Profit
In order to ensure you make a profit, you need to pay attention to several factors before providing an estimate. Advice on foreclosure cleanup pricing varies, but below are some soft factors that should be taken into consideration:
1. Prices vary depending on the area. What someone in your county, city, or zip code is willing and able to pay for a foreclosure cleanup service will depend on where you live. For example, clients in large cities such as Chicago will expect to pay more than clients in a smaller town like Selma, Alabama. Where possible, new companies should call other, more established companies that offer some of the services they plan to offer in their new business to see what their pricing structure is.
If you are the only foreclosure business in your area, this won’t be possible. Instead, you should call domestic and commercial cleaning companies, lawn maintenance companies, gutter cleaning companies, painters and decorators etc. to give you some idea of how to create a pricing structure that is reasonable for your area.
2. Who will be paying you? Knowing who will be writing the check will help you price to make a profit. Realtors who specialize in REO properties often find themselves out of pocket for maintenance jobs such as lawn care, trash outs, and minor repairs and have to be reimbursed by the banks. These days, commissions are lower and slower. If a realtor is paying you directly, you may need to lower your quote slightly to secure the trash-out job. These realtors deal with bulk jobs, so if they can afford you, they will rehire you, and this is how you will make your money.
On the other hand, if you agree to wait for payment from the realtor for 60 or more days until they get paid by the bank, your estimate should be higher. Why? Because while you are waiting for payment, someone else will be holding the money that should be in your bank account earning interest or maintaining your business’s cash flow.
If you decide to wait on the bank, you may have to “factor” the invoice. “Factoring” means to sell the invoice to a company who will give you a percentage of its value in exchange for immediate payment. However, this will cost you a percentage of your profits, and you will have to pass that cost on to the bank by charging more.
3. In pricing foreclosure cleanup jobs, you should also look at the job from a wider perspective. Does the realtor have bulk jobs for you to handle or is this a single home trash out? Again, bulk jobs should lead to lower pricing, but these need to be immediate bulk, not “promised” bulk.
If a buyer is seeking a trash-out estimate themselves, find out if the buyer has already closed on the home or if the property is still under offer. If the buyer has already closed on the home, you should schedule an estimate meeting at the property itself. This will allow you to do a walk-through and evaluate the contents for yourself. If the buyer has only just bought the foreclosure, there are likely to be extra jobs which have not been allowed for.
Foreclosures are almost always sold “as is,” so the property will probably need a total clean, including painting, clearing of gutters, outdoor pressure washing, and minor repairs. Point things out as you do the walk-through, and ask the buyer if you should add them to the estimate based on what services you have already decided to offer in your basic foreclosure cleanup. At the end of the day, the trash out will probably be the least lucrative portion of your estimate.
If the buyer has not yet closed on the home, they may be getting several estimates from several companies in order to get the seller to drop the price of the foreclosure based on the amount of work that needs doing. This adjusting of price according to the trash-out estimate is called the “seller concession.” In this scenario, it pays to not be the lowest bidder.
4. Will you be a subcontractor on the job for which you are giving the estimate? Are you working for a bigger vendor? It is very common for larger property preservation companies to use smaller foreclosure cleanup companies. If you are a subcontractor, expect to bid lower on these jobs because the primary vendor will probably be working to a tight budget dictated by fixed HUD-type guidelines that they just can’t go over without approval. Try to find out what those pricing guidelines are for your vendor, and price accordingly.
So, there are many factors to consider when pricing your foreclosure cleanup job, and you really need to weigh up everything from equipment and outside labor costs to pricing your own time. At the very least, you must consider the above soft factors before giving an estimate so your company can price effectively to make a profit.
Bidding for Interior Cleaning Jobs
The contractor that wins the job for the junk out will pretty much always get the clean up work as well. When you submit your estimate, include two different bids, one for clean up and one for junk out, but also specify a special price if the two are contracted together.
There are two types of cleaning services when it comes to REO properties: Basic clean and detailed clean. You can learn more about cleaning in the Maid Services page.
The two services have very different scopes. In general the following applies:
- Lenders and AMCs will usually only require a basic clean. If remedial work or repairs have been performed, they may ask for a detailed clean after the work.
- Investors usually want a detailed clean but will only be prepared to pay for a basic clean. Don’t forget to include the full scope of work in your bid to avoid any misunderstanding in this area. If you’re dealing with an investor, quote for the detailed clean unless you’re specifically asked otherwise.
Bidding for Ongoing Maintenance Activities
Some recurring services may be provided on a bi-weekly or monthly basis. Touch-up cleans don’t tend to pay too much, and most lenders have a monthly budget of around $100 per house. As such, it is usually better to offer a once monthly clean to make it worth your while. Generally, it will take a team of three people about an hour to provide a touch-up clean to a property of around 2000 square feet.
Identifying the Winning Bid
Now comes the tricky part: calculating an appropriate bid that will secure you the work while also making sure you turn a decent profit. To stand a chance of winning the business, it is imperative that you understand how the system works. You’re in this for one thing: cash. There are a large number of elements that can influence what you can charge for your services. The appropriate fees can vary according to geography, your experience, the number of firms offering a similar service as yours in the area, the availability of skilled workers and the number of REO properties. However, while all this sounds very complicated, in reality, the basic cost structures are relatively similar throughout the country.
How to Avoid Common Pricing Mistakes
Pricing mistakes are the most common types of mistakes that a small business owner can make, no matter what type of business they’re in.
Business is about guts, so once you’ve managed to set up your own foreclosure cleanup business, don’t ruin everything by setting your prices too low and creating the wrong impression to clients from the get-go.
If you follow our advice, you’ll greatly improve your chances of being in business in three years’ time. Why three years? Because most small business owners fail within three years, and this is because they routinely undercharge for their product or service, which can lead to cash flow and other problems.
When they first start out, most business owners begin from a point of anxiousness or desperation. They will take on jobs they really should avoid in order to gain customers. They may plan to raise their prices at a later date, but this is not always easy to do. You need to have the guts to set your prices at the beginning and stick to them. If you know your real costs, this will be easier than you think.
Another reason not to price from a point of desperation is that it sets a precedent for how clients will treat you, and this is true in every type of relationship – business or personal. If you don’t value your work enough to charge what it costs you to be in business, then why would your clients? It’s very difficult to raise rates on established clients, even if you have explained that they are getting an introductory rate.
The problem with desperation pricing is you will struggle right from the start to cover those all-important direct and indirect costs. When you use desperation pricing, most of the time you won’t even cover your direct costs, never mind the indirect ones that are commonly associated with cleaning foreclosures.
Remember Indirect Costs
Indirect costs are all costs not accounted for in your direct costs for a particular job, but they are still necessary to get the job done. You will have to cover these costs whether you get a foreclosure cleaning job or not, so they need to be factored in every time. These are things like business insurance, phone, gas, paper, and ink cartridges for your printer.
Customers for Life
You want to make all your clients customers for life, and a good way to do this is to charge enough at the beginning to allow you to offer them a discount if they give you more business. When clients give you bulk foreclosure cleanup work, they want bulk rates. If you start low, there’s nowhere left to go.
You will begin to resent the fact that you are working for nothing – quite literally – and you will give the impression to clients that you offer a lower-quality service, even if it isn’t true.
So to avoid all this, get your pricing right from the start. While this may mean losing some jobs initially, in the long run, jobs which you have priced right will start to roll in, and you can rest easy knowing that you’re getting a fair rate for the hard work you’re going to have to put in.
Learn From Your Past Underbidding Mistakes
Remember that it’s not all about winning bids. It’s about winning bids and making a profit. Underbidding happens, especially at the beginning of your new career. It’s not the end of the world and you should consider these incidents as valuable lessons to learn a thing or two. Take some time and dissect what went wrong. What led to the underbidding. Where did you overspent, overpaid or what took more time than expected. Use this information when you’re bidding for your next job and after a while you’ll master the art of bidding.