Working with contractors ranks among the hardest parts of real estate investing.
However, as a real estate investor, unless you have a property manager, working with contractors unavoidably comes with the job whether you are building a property, remodeling or making repairs.
Be proactive when learning about hiring or firing contractors so that if trouble arises, you are prepared.
Assemble All Evidence
The first step when dealing with a bad contractor is to gather all paperwork and evidence. During the hiring process, you should have collected copies of their license, bonding and insurance paperwork, and of course a clear written contract with the scope of work.
Take photos throughout each stage of the project, take notes about progress or lack thereof, delays, and so forth.
In addition to information about their work, keep record of all communication including phone calls, emails, texts. Specifically, any important agreement between the two of you should be put in writing. Unfortunately, we cannot trust the old “handshake” agreement in situations involving thousands of dollars.
Finally, keep track of all deposits, materials provided, and payments to the contractor. Make all payments either electronically or via check. If you paid half of their bill in cash, where is the money trail?
Fire the Contractor
While this seems obvious, it is not always the smoothest interaction. Initially your contractor will most likely challenge the firing as a breach of contract. Which is precisely why having a record of how they actually breached the contract agreement first is key. Some things to consider as you document their misdeeds:
- Did they ever not show up when supposed to?
- Were non-agreed materials used?
- Did they consistently stick to schedule?
- Did they go over budget?
Don’t dig yourself into a deeper hole. After you have compiled sufficient evidence of the contractor’s poor job, fire them immediately so that you are not continuously paying for bad or mediocre work.
File a Bond Insurance Claim
Before going any further, note that you can only file a claim if the contractor is bonded. Which is why you should only work with bonded and insured contractors for large projects.
By communicating with the contractor’s insurance company, you can reclaim the money you already spent. Even the threat of filing a claim often persuades wayward contractors to finish the work properly.
File a Complaint to the State Licensing Board
If the contractor is licensed, you can file a claim to the state board if needed. No contracting company wants this to happen. Licensed contractors can charge more and earn more projects, so they don’t want to jeopardize their licensing in any way.
By threatening a complaint to the state board, you can force their hand. Usually in these cases, they will want to resolve the conflict and you are also more likely to receive your money back.
Go to Court
By filing a suit in a small claims court, you are able to receive justice at a small price. Not only are suits in small claims affordable but they also offer the option for you to represent yourself, with no attorney or legal fees.
Of course, if you paid your contractor a large amount, consider hiring an attorney even if the amount falls under the jurisdiction of small claims court.
Post Public Reviews
Although this strategy may not get you any financial gains, the threat of posting poor reviews across many websites might convince the contractor to fix their faulty work.
Even if that doesn’t work at least the next person looking to hire a contractor may think twice before hiring them.
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Specific Problems with Contractors
Different contractor problems require different solutions.
Here are some examples of common contractor problems and how to address them.
If the contractor completed the job in full and on time, but did shoddy work, the burden of proof falls on you. This comes back to taking photos, making lists of materials used, collecting opinions from other contractors, and so on.
The first step in this scenario is to politely ask the contractor to fix some of the work. Showing anger or resentment may result in the contractor continuing poor work or potentially messing something up greater.
If they refuse, then fire immediately and use the course of actions provided above.
Quote Changes Halfway Through the Job
Contractors love to underbid jobs then find excuses to charge more once they’ve started the work.
When collecting bids, be extremely clear with all contractors that you have a tight budget limit and can’t go over it. Tell them any surprise extras will result in immediate contract termination — and follow through on it.
While it would be difficult to prove that this was intentional on the contractors behalf, taking a situation such as this to the state licensing board sometimes does the trick.
If you have been in real estate investing for some time, you already know that predicting how long it takes to remodel, renovate or build a property is difficult. Often projects go over, which means longer vacancies as a landlord.
The greatest incentive any contractor will have is money. If you only pay them a small portion of the work before it is completed, they have a great financial incentive to get the work done.
You can also prevent delays through constant communication. Call them daily to check in, and if possible, visit the job site to review progress every day. Point out workmanship problems as they arise. Confirm that they’re on schedule. By staying on top of them, they know they can’t slack off or work side jobs without you noticing.
If the contractor doesn’t complete their job or if they don’t respond back to you post-payment, you should immediately call their insurance company to file a claim. Use the steps above if this is the case and see where you are able to retrieve your money back.
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How to Avoid Issues with Contractors
If you are reading this, you have clearly read the vast amount of issues that occur when hiring contractors. While they are great if they complete their job on time and in-budget, there is a reason why working with contractors can be a pain, otherwise, I would not be writing this article.
If this is your first time hiring a contractor, follow these steps to minimize headaches.
Start New Contractors on Smaller Projects
The first house renovation or remodelling project you invest in should be small. Perhaps a paint job or tile fixing. Not only is it cheaper but you are able to get a gauge for how that specific contract company completes their work. In other words, you are building trust before hiring them for a large renovation project.
Use Licensed and Bonded Contractors on Larger Projects
The responsibility of a licensed contractor is much greater, for they have much more to lose. When flipping a house or making a major renovation, always hire licensed contractors. Not only do they probably have greater experience but the quality of work is most likely greater as well.
See what others have said about this contracting company! Learning about others’ experiences allows for you to understand what you are getting yourself into. If other real estate investors had a horrific time with a certain company, my advice: don’t hire that company!
Before, after, and throughout the entire process of the project take photos of the work as a whole as well as specific detailings. As mentioned prior, in any dispute or issue, photos are your greatest weapon. Not only will the contractor notice your involvement in the project and want to make sure their work looks good, but you will also have photo documentation if an issue arises.
Real estate investing is a great way to earn income. That being said, there are aspects of the job that are really difficult, such as dealing with contractors. Open communication and negotiation with contractors is one of the most crucial parts of working with them. Not only do you want the job done to increase property value, but having a good relationship with a trustworthy contractor can make all the difference in the world. Do your research before hiring a contractor and ensure you are prepared and knowledgeable of dealing with the firing process if needed.♦
What problems have you experienced with contractors and handymen? How have you addressed it?
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About the Author
Emma Dudley is a data marketer by day and financial writer by night, early on her journey to financial independence. She lives in Baltimore but loves international travel, and enjoys the challenge of cutting-edge fashion on a cut-down budget.
I have always experienced bad contracts. Thanks to you now I know how to deal with them.
Glad you found it helpful Cassandra!
Well well, if you are unlucky you will come across bad contractors. Mostly there are good contractors and that is why the real estate business keeps on growing.
I didn’t know that I can file a small claims with no Attorney or any Legal fees. Thanks!
Glad it was helpful Chelsea!
Very well-written article. Dealing with such contractors has been a huge headache for me!
Thanks Julieta, and I’m sorry you’ve had such problems with contractors!
Well, not every contractor is a bad contractor. Sometimes people are themselves annoying and they blame the contractors.
Fair enough Murad!
As soon as you get bad vibes from your contractor, just end the contract with them. It is not suitable to carry on with people you are not getting good vibes.
I hear you Nahme!
I never experienced bad contractors and hopefully not in my life. My contractor always do a great job and I wish our partnership will grow stronger.
Glad to hear it Melissa!
I only look for contractors that are recommended by friends and have at least 4 out of 5 stars reviews. Bad contractors are a pain in the neck and pain in the wallet too!
I hear you Mr. Eco!