Remodelers — not consumers — have the upper hand as their workload picks up

March 12

(Justin Pierce)

Justin Pierce is a real estate investor who regularly writes about his experiences buying, renovating and selling houses in the Washington area.

If you thought you were going to take advantage of this sluggish economy and get a great deal on that home-remodeling project, you may already be too late. Washington-area contractors are no longer desperate for work. They’re busy again. And you need to be careful.

I was made painfully aware of this fact in December when I purchased a house in Annandale and I was eager to get rolling on the renovation. I had originally lined up a contractor for the job and even had another earmarked as a backup.

I had planned to own the home in early November and have the contractors start immediately but the sellers dragged out the buying process and I didn’t end up closing the deal until a week before Christmas. By then, my primary contractor informed me he was too busy to take on the job. I was very grateful for his honesty and very happy that on this particular job I had a backup ready to go.

I reached out to my back-up contractor several times and got no response. He disappeared. I took this silence to mean that he had plenty of work and he didn’t need me. It turns out that was exactly the case.

So there I was accruing more than $150 per day in holding costs — which include interest on debt, taxes, insurance and utilities — with no contractor to start the renovation. I went through my contacts and called two more contractors. They also were too busy to get on my job before the holidays and their bids were high.

Being an optimistic person, I told myself this was the perfect opportunity to go find a new good contractor to add to my contacts. With that, I pulled out all my tricks. I have a file where I compile advertisements that I receive from various contractors. I also snap pictures of contractor vehicles that I see at building material stores and on other work sites when they look like they’ll fit my model. I started calling the numbers on those flyers and photos. I set up meetings and provided scopes of work. Again, prices were high and start dates were weeks away. They were naming their price and terms.

Now desperate, I subscribed to one of those contractor review Web sites.  I called no less than 10 contractors and met at least five at the house — absolutely no luck.

With no general contractor lined up, I approached subcontractors and tradesmen to start on specific items like the electrical and windows.

After the holidays, my original contractor had completed enough work that he could commit to my project. It was mid-January before major work finally commenced on my project. That was a month after I had purchased the home and nearly $4,000 in holding costs had piled up.

As a general rule, contractors get busier before the holidays because many people are sprucing up their homes for parties. Typically, they slow down again in January. January is usually a good time to get a construction project done. But this year was noticeably different. I haven’t seen contractors so busy and so confident since 2006. There was clearly a take-it-or-leave-it attitude with the bids.

My story is anecdotal but I’m not the only one seeing it. A woman from Falls Church contacted me months ago. She was trying to do major renovations to her home. After numerous e-mails and phone calls, I finally agreed to swing by her home and see if I could give any suggestions. I looked at the project and I drew up a rough sketch of her vision. She shared the quotes she’d been given and I’m confident that a couple years ago the same project would have cost at least a $100,000 less than these quotes.

She was essentially looking to get a garage built and add a 1,300-square-foot second level to her home and a covered front porch. She had quotes as high as $400,000. Could you imagine paying $400,000 to build a 1,300-square-foot home with a two-car garage that didn’t require a foundation and that didn’t include the land costs? The average American home costs about $170,000, including the land and the average American home is nearly double the size.

The Census Bureau reported this month that construction spending was up 18.3 percent in 2013. Things are feeling a little frothy again.

I have great respect and admiration for good contractors. Good contractors are artists and they deserve to make a good living. It’s an extremely difficult business and hard work. Good contractors normally survive down markets. The bad contractors are often weeded out of slow markets making it easier to find good contractors and get better deals.  Hot markets often bring out the other kind of contractor which dilutes the pool.

I have been spending the last four or five years walking through homes that had been started in 2005 and 2006 and never finished. I’ve looked into the eyes of many homeowners who  hired a contractor back then. They took whoever was available at whatever price.

In construction and real estate, you don’t always get what you pay for.

Follow Pierce on Twitter at @justinpierce1.

Read Pierce’s previous posts:

At long last, investor’s pop-top house sells

Setback may push Temple Hills renovation beyond Oct. 1 deadline

Crews make up for lost time in pop-top project

With plan approved, race is on to reconstruct house for fall sale

Pop-top renovation becomes pop-back plan

Gone are the low lying fruit of real estate investing

 

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