Should the person finding the deal also be the one estimating the rehab?

Question

Third one this year where the sourcing fee is quoted with a repair estimate included, and I keep going back and forth on whether I want that number from the same person who gets paid when I close.

The case for including it: they've been inside the house, they know the local trades, and they've seen twenty comparable rehabs in that zip code this year. Making me hire a separate person to walk it adds a week and a few hundred dollars to every single look, and on a small property that's a real drag on the whole thing.

The case against: their fee is contingent on the deal happening. A rehab number that's $12,000 light is the difference between a deal I take and a deal I pass on, and there's no mechanism that punishes them for optimism. I've had one where the estimate said $28,000 and the first contractor bid came in at $46,500, and the sourcer's response was that contractors always pad. Maybe. I still had to pay the bid.

On the other hand my own numbers on that property weren't better, and I'd been in the house too. So I'm not sure the independence actually bought accuracy so much as it bought me someone else to be annoyed at.

I'd rather hear from people who've bought both ways than argue myself in a circle again.

megan_doyle15 · Answer

That $28,000 to $46,500 gap is bigger than most of the margins I've seen discussed here. Does a spread like that mean the estimate was bad, or that the two of them were pricing different scopes of work? Genuinely asking, I don't know how these get compared.

dpatel_re · Answer

@rigging usually it's scope, and that's the part @thicket's post is actually about. A sourcer's number is almost always a cosmetic refresh plus whatever's visibly broken. A contractor's bid prices the permits, the code items nobody wanted to mention, and the thing behind the wall. They're both honest and they're answering different questions.

I'd take the sourcer's number as a screen and never as an underwriting input. If the deal only works at their figure and dies at figure plus thirty percent, you don't have a deal, you have a bet on someone whose fee doesn't move when you're wrong. Cheapest thing you can do is write into the sourcing agreement that the estimate is a screening opinion and your inspection period is long enough to get a real bid. Then the disagreement happens before your money's committed instead of after.

Should the person finding the deal also be the one estimating the rehab?

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