Not all vendors and contractors are created equal and requirements vary by property and company. Regardless of size and property type, always do your due diligence when selecting a vendor or contractor. In order to manage vendors and contractors effectively, efficiently and to get fair market value for work, you need to familiarize yourself with the process of vendor management.
Here’s what you need to know:
How Do You Figure Out Who to Use?
When you’re a respected professional owner and manager of multifamily rental homes, you’re in a different category than the Mom-and-Pop landlord. What that means for Haven Homes is that vendors and contractors seek us out. They find our name in title reports. They see our signs in various neighborhoods advertising units for rent. They find us on the internet or through our website.
Generally speaking, vendors and contractors seek us out in our markets because we have many units and because we can provide them scale, timely payments and consistent workflow.
What’s the Best Way to Negotiate Fees?
If we're in the need for vendors, whether it's plumbers, electricians, roofing contractors, swimming pool maintenance, landscapers, flooring, carpet installers, or whomever it may be, we know how much those things should cost. We have a deep market knowledge of retail pricing and wholesale pricing in the marketplace, and that’s where we set pricing for these services.
For example, if we're going to turn a unit and we need to replace 1500 square feet of vinyl sheet flooring, we know how much the materials cost, how long it should take to install, and the rate that the tradesperson makes per hour. Our pricing expectation is based on our deep knowledge of the industry, working with reputable and qualified tradespeople and past experience.
Our knowledge, combined with pricing based on volume, means that we get better rates than the Mom-and-Pop owner. A roofer might charge the Mom-and-Pop owner $10,000.00 to replace the roof and charge us only $7,500.00. Why? For two reasons:
- Because that's all we'll pay. We know that the extra $2,500.00 is pure profit into their pocket but the typical buyer doesn't know any better. Our price is not a bad price, either. The negotiated $7,500.00 price still has about fifteen percent gross margin built into it.
- We might give them less margin, but we're also going to give them more volume. Because we are a repeat customer with plenty of units that need work, they have skin in the game. They're going to do things properly and they're going to stand by their work because we’re a desired customer.
How Do Property Managers Usually Manage this Process?
In commercial real estate, there's this concept of owner representation. Even though we're managing single family rentals, which are much smaller, the same concept still applies. If you're a fee-based property manager, you are motivated, wired and geared in a certain way that is not in line with the desires and the needs of the owner.
Because Haven Homes has a staff of internal property managers who are part of our payroll and who oversee the vendors, we can better manage cost and time on the owner’s behalf. We know what’s fair and what’s not. If the vendor doesn’t want to accept that fee or timeframe, we have three other vendors lined up who are ready and willing to do the same job at our cost and stay on schedule.
Ultimately, these owners are really going to benefit—not only from our knowledge—but because we’re looking at the process from the owner's perspective and not a fee manager's perspective. We care about the performance.
What Are the Mistakes or Pitfalls that Get People into Trouble?
Lack of knowledge, lack of understanding. One of the biggest pitfalls when it comes to contractors and vendors is not knowing how much something should cost. For instance, let’s say you need to have a toilet replaced. Easy enough, right? Not really, if you don’t know that toilets can range in price from $60.00 to $600.00. If a vendor installs a top-of-the-line toilet at $600.000, the invoice will reflect that. You could just have easily had a $60.00 toilet installed, just like the one that was there before.
A lot of folks want their vendors to be their fiduciary. The vendor makes them feel “warm and fuzzy” so they say "Hey, my tenant just called me and I'm in Texas. Can you go over there and see what's going on?" Now you’re relying on your vendor to tell you the scope of the repair as well as how much it should cost. A lot of folks just don't want to be bothered so they depend on the vendor to tell them what needs to be done.
If you’re not willing to see firsthand what’s wrong, learn how long the repair should take and how much it should cost, then don’t be surprised if you’re paying more than you should. Sometimes, a quick look on Lowe's or Home Depot’s website will tell you how much the materials should cost. It’s the nickel-and-diming that goes on in the industry that can turn an eight percent management fee into fifteen percent in aggregate. The raindrops really do make puddles.
What Else Should You Know About Managing Vendors and Contractors?
You need to be plugged in. If you have a property manager don’t assume that they are operating in good faith or that they are acting in their client’s or contractee's best interests. If the owner were to sit in on meetings, they would see all sorts of things going on that they would never approve. But because the owner isn't there, it's all covered under a veil.
Not understanding retail pricing. Many owners think they’ll get the same level of service from Angie’s list or another contractor website with referrals and ratings, but those contractors are also getting retail pricing. The concept of “retail” for many property owners is all wrong. When somebody says, it costs X percent in repairs and maintenance a month to run this portfolio, it would cost you between 20 to 30 percent less if Haven Homes ran it. That’s because we're not going to pay more for something than it should reasonably cost. To us, that’s paying retail.