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Investing in a Low-Value Home

by Michael Stone

We received a note about a situation that most of us will face at least once in our career.Honesty

I looked at a job the other day, an older (1980's) doublewide that has suffered termite damage, water damage, and several "repairs" by Chuck-in-a-Truck. The homeowner has reached out to Lowe's (they stopped returning his calls) and to another large roofing and siding company that was not interested. He seemed genuinely glad that I was there showing some interest.

Here is my dilemma....I told this guy that I would have to initially work under a demo/discovery agreement (we plan to go next week to take care of that part and then work up a proposal)...and that his repairs altogether would be in excess of $40,000 (new roof, new siding, new windows....). He seemed prepared to invest that amount.

My issue, and maybe it doesn't need to be my issue, is, I wonder about the wisdom of investing that amount of money into a doublewide? However, he seems like he really wants to spend the money and fix up his home. I realize that even a homeowner in a very nice home will not recoup all of their remodeling investments (cost vs value report clearly shows this...)

Any advice on how to have the right mind-set here?

This is definitely something you should be concerned about. The homeowner might not realize the value of his home and that the repairs could possibly exceed the value. If he's older, he might have children or grandchildren who could accuse you of taking advantage of him.

My response:

I would find out the value of the home in average condition, where it sits. You can get that info from any good realtor or possibly the internet. Take the time to find at least three comparables.

When you're confident in your numbers, meet with your client. Explain the facts. Let him know what you found on the value of his home after the repairs, and explain both the pros and cons of making the investment to repair.

If he still wants to proceed, make sure you have wording in your contract, or possibly write up a separate document, explaining the research you've done to estimate the value of the home after the repairs, the possible dollar amounts that he'll need to invest (giving both a high and a low range), and that he's making the choice to repair of his own free will. This gets signed along with the contract and you both keep a copy.

My concern is that his family or friends might come back at you through an attorney claiming you've coerced him into repairing a questionable property.

If he signs the paper and you feel you can do a good job, then do your best for your client. You've done your due diligence and it is his decision to make.

His reply:

Thanks for the great advice, Michael. I already have put this out to a few realtors. This guy was literally standing in the driveway with his checkbook in his hand....I told him let's wait until next week to give me time to mull this over and prepare the demo agreement.

Then, a week later:

I took your advice and contacted a few realtors. One of them gave me a print out of every double wide in our county that had sold in the last year. That was very helpful. They sold from around $40,000 to $150,000.

Next I made a customized version of the Demo agreement that contained, in my opinion, two very important paragraphs. One paragraph explained what you mentioned, the fact that I totally disclosed how the cost of these repairs would effect his financial situation and re-sale value and that I did not coerce him into the work. The other helpful paragraph mentioned that we could elect not to do the work, for any reason, and then I would just charge him by the hour for the inspection work rather than the full price of the agreement.

He signed the agreement and gave me a check for $1,000 (by mistake, I only required $800 initial payment).

I had two carpenters with me, and they started in the crawlspace. It was bad. To say the least, it would have required rebuilding about a third of the floor system, among other things that I had not originally included in my approximate estimates. There were layer upon layer of concerns that would have run up a huge repair bill, without even starting on the cosmetic improvements he wanted to make.

In summary, I told the owner that it was way beyond reasonable investment, we showed him what we had seen, gave him his $1,000 check back and charged him $290 for the time we had invested. He seemed thankful for the professional service and the honest report.

When you face a situation like this, the best thing is to be honest. Make sure the other party knows all the facts, and if necessary, put those facts in writing and get them signed. If you're dealing with an elderly person or someone whose judgment might be impaired in any way, have witnesses at your discussions and when all paperwork is signed.

This contractor will do just fine in business; his ethics and honesty, along with hard work, determination and focus, will carry him far.

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