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How To Do A Proper Scope Walk To Reduce Costs and Change Orders
Brad and Jeremy are doing a scope walk today through a property in Northwest D.C. Watch to learn how to do proper scope walk on renovation to reduce costs and change orders.
See the full transcription of the video below this article.
Architectural Plans Are Only A Beginning
Many investors get in trouble when they get a great set of plans from an architect and then just hand them over to the contractor and say, “Get this done.” Architects are expensive so you want to keep what they do to a minimum, and what they can do is provide plans in order to get permits to be able to start the process.
The problem is, there are a lot of details that get left out of the actual drawing. Everybody will discuss what’s actually in the plans. But there are little things we need to address, that are probably going to be outside of the plans. The plans don’t say we have to paint the whole front façade or remove these awnings or paint this fence. They don’t mention needing to address this lattice underneath the front porch take care of all the light fixtures on the outside.
So it’s important to go through and fill in the blanks on things that still need to happen in order to make the project go smoothly. When you have a really detailed scope, you have less back and forth and fewer change orders, which means less money out of your pocket.
As best as possible, you want to finalize your costs, and know what your construction costs are going to be once you enter into the whole project. You don’t want to think you’re going into this for $100,000, and then find out the whole front porch needs to be torn out and redone and you need to put out an additional $20,000 for the change order. You want to control that cost at the very beginning.
Set Expectations Up Front
It helps tremendously to set expectations up front, just like when you hire a new employee. You should be doing an expectations dialogue before you hire them. You tell them what you expect of them and what they can expect of you. It’s the same thing with a contractor. You should have clear expectations on everything they’re going to do, how you’re going to work together, how you’ll handle change orders, etc. That way the process runs much smoother.
If you’re doing multiple properties, consider doing the same finishes on all your properties too. It makes things a lot easier for the contractors to narrow down their prices and really understand what they have to do. Think of how McDonald’s is successful; they do the same burger every single time.
Looking around the first floor of this property, Brad and Jeremy discuss what to do with the exposed brick wall and the importance of demoing out the entire place to prevent surprises.
Jeremy notes that what we try to do is whenever we have the larger projects, we try to expose as much as we possibly can so we know exactly what we’re dealing with. It’s better to go in and pay somebody X amount of dollars to demo the whole place out, so you don’t have any surprises. When you can finalize your scope of work, you can finalize your construction costs. That way, you know exactly what you’re getting into.
Express Homebuyers has learned that lesson the hard way in the last couple of years. We became much better after we started demoing the place because if you try to do a scope of work without seeing everything, it’s really difficult. Even when you have a great relationship with the subcontractors, there are still costs there. So if you don’t like variables, try to finalize everything before you go into agreement.
Looking out the back of the house, Brad sees a nice parking pad back there. “Will we do a patio out here like on the last house we saw?” he asks. Jeremy says he’ll have to consider what the market will bear. “A lot of renovations we make are based on what the market will bear. We’ll discuss that and see if we have to make that addition.”
As Brad and Jeremy head upstairs, Brad asks if Jeremy is ever fearful about falling through floors when looking at stuff like. Since he’s been in this particular house before, he’s not afraid. But in new situations, he always tests the waters first, being careful where he steps.
Recording a Scope Walk
When doing a scope walk, Jeremy used to come in with a video recorder, go through, and talk through it, and go back and make some notes. But he found it a bit too cumbersome and it took longer to prepare the final scope of work. Now he simply uses the voice recorder app on his iPhone, pausing and starting as he walks through with the architectural plans open. He’s picking out all the details and seeing how difficult the work is. He’s thinking about to whom he can or should assign the work.
You need to finalize and figure out exactly what type of contractor you’re going to use, what the budget is, and what you can and can’t get away with. How much time it’ll take your contractors is another important factor. You could have somebody who is lower in cost, but they’re not familiar with what they’re supposed to be doing, and something that should take eight weeks, maybe turns into 12 weeks. Then you have additional holding costs. Sometimes it’s worth it to pay more up front. It depends on what your cost of money is.
Another thing Express Homebuyers learned in the last couple years is the importance of putting more time and effort in planning on the front end to make the process smoother. Sometimes it seems like you may be spending a more money up front, but in the end, you’re saving money because you’re not going back and forth with a bunch of change orders and the uncertainty of not knowing exactly what you’re getting from the contractor.
As Jeremy and Brad head downstairs to the basement, they discuss capitalizing on the square footage down there. It makes a lot of sense to finish it, since the space is already there. But they’ve had to make what are called test pits so they can know how far the slab can be dropped down to allow for additional headway. You can’t go below the footer.
In some places they’ll have to drop the slab and underpin the wall, which means they’ll have to pour additional concrete to extend that down into virgin soil so it will support the footer and hold the wall up. It’s fairly expensive, but probably worth it to get the extra square footage. Again, it depends on the value of the property.
Getting the ceilings in this house to be close to eight and a half feet or so will be a huge difference and could affect the sale price by $100,000 plus.
In the main area of the basement, it looks like they’ll only have to underpin the front wall. However, looking at a different section of the basement, it appears they’d have to underpin three of the walls and the additional expense may not be worth it. It’ll come down to playing with numbers and figuring out what’s going to work.
Out in the back yard, Jeremy notes there had been trash in the yard and they’d been issued a fine. It’s since been cleaned up, but what often happens with vacant properties is people come by and use it as a party place or sleeping place.
Brad points out at one of the neighboring houses, you can see they’ve built up and have a couple cool little decks out there and a spiral staircase. At this house, they’ll likely end up doing something with the fence. They’ll have to replace the metal stairs with wood stairs. The siding is another issue. And the house needs all new windows. None of these things are in the scope of work the architect put together, which is again why it’s critical to know how to do proper scope walk on renovation to reduce costs and change orders.
If you find this video helpful and want to get more valuable info about real estate investing, fill out the form below and/or subscribe to our YouTube channel at Express Homebuyers.
How to Do Proper Scope Walk on Renovation to Reduce Costs and Change Orders
Brad: Hey guys and gals, we’re at a house that we own. We’re going to be doing a scope with our director of construction, Jeremy.
Jeremy: Here we are at the house. We just got the plans back from the architect. It was a whole process to get through DCRA to get those drawn up, not to mention the fact of the cost involved of actually having them drawn up. It gives us an idea on what we’re doing.
We’ll go inside and take a little bit closer look at the plans. As you can see, there are a few things we can do to make it more aesthetically pleasing. We’ll go over some of those details a little later on, but obviously the railings don’t match. You have these awnings here. The roof may or may not be failing.
There are little things like that that we need to address, that are probably going to be outside of the plans. We can go in and take a look.
Brad: You were saying in the car that’s where investors get in trouble is they get a great set of plans like that, pay an architect big bucks, and sometimes they just hand them over to the contractor and say, “Get this done.”
Jeremy: Correct, that’s what a lot of times will happen. Everybody will discuss what’s actually in the plans. That’s the two-by-fours, and we’re putting in this new structure for the inside, which you’ll see when you go in, but then it doesn’t say that we have to paint the whole front façade or we’re removing these awnings, or this fence needs to be painted, or this lattice underneath the front porch needs to be addressed, or all the light fixtures on the outside need to be taken care of.
There are a lot of details that get left out of the actual drawing.
Brad: Typically an architect doesn’t get involved with the petty things as a way to say, small things.
Jeremy: They’re not necessarily petty things. It’s just the details they don’t get involved with. What they get involved with is you can hire an architect to do several different things. Architects are expensive so you want to keep what they do at a minimum, and what they can do is provide plans in order to get permits to be able to start the process.
It’s better off to fill in the blanks on things that still need to happen in order to make the project go, just like what we’re going to do today, going through it. We’ll go through it kind of quickly and get some bullet points of things to be on the lookout for.
Brad: You need to have a really detailed scope. The more detailed scope, the less back and forth, and the less changed orders, the less money you’re going to pay.
Jeremy: Ultimately what you’re trying to do is you’re trying to finalize your costs, and you know what your construction costs are going to be once you enter into the whole project. You don’t want to know that I’m going to go into this, and it’s $100,000, and then come back and be like, “Oh wow, I didn’t realize this whole front porch needs to be torn out and redone. This is going to be a $20,000 change order.”
You want to control that cost at the very beginning.
Brad: Good relationships, expectations are set up front, just like when you hire a new employee. You should be doing an expectations dialogue before you hire them. You tell them what you expect of them and what they can expect of you. The same thing with a contractor, you should have clear expectations on everything they’re going to do, how you guys are going to work together, how change orders are going to be handled, and I guarantee you, the process will run smoother.
Jeremy: Ideally, if you’re doing multiple properties, if you do the finishes the same on your properties as well, it’s going to make things a lot easier for the contractors to narrow down their prices and really understand what it is that they have to do.
Brad: Kind of like why McDonald’s is successful, they do the same burger every single time. Who do you think that is out there, a D.C. inspector?
Jeremy: It could be the parking guy, who knows.
Brad: Getting ready to write you a ticket.
Jeremy: Probably so.
Brad: Have we done something in this house?
Jeremy: Yes, we’ve demoed this all out. We can go downstairs and look. We’ve done some, they’re called test pits. It’s going to be pretty dark so I brought my flashlight. It’s bright enough so you can see what’s going on. Usually in D.C., there is a lot of ceiling height issues.
You can see on this main level, there is significant ceiling height. This is probably nine foot, ten foot ceilings. You can see the exposed brick that we talked about briefly previously. We’re going to try to figure out a way to keep this exposed.
Brad: What do you do to restore that brick if that’s the right word?
Jeremy: There are a couple of different things you can do to it. Obviously there are some preparers. You can see this was a wall or something in there they used as a nailer. You can see the way they did it in D.C., back in the old days, you would actually run your wood material right into the brick.
You’ll see on the plans what we’ll end up doing is take this out, and there will be a ledger board that is put across there, and the ledger will actually be bolted to this brick.
Brad: Interesting. Whatever that piece of wood is on the bottom side…
Jeremy: That was just a nailer. There’s no real structural purpose or anything. Actually this whole wall here is coming out. The kitchen is going to be back in this area, kind of a U shape. I think this is going to be dining, and this will be living room over here, and then way back is a family room.
You can see if you look up, we’ve already demoed out a few things, old radiator system was still left in here and hasn’t been completely demoed out.
Brad: What’s the reason for not taking that out?
Jeremy: They just didn’t do it. They were trying to open things up. What we try to do is whenever we have the larger projects, we try to expose as much as we possibly can so that way, we know exactly what we’re dealing with. It’s better to go in and pay somebody X amount of dollars to demo this whole place out, so that way you don’t have any surprises.
You can finalize your scope of work, you can finalize your construction costs. That way, you know exactly, it’s always bake your money on the buy so you know exactly what you’re getting into whenever.
Brad: We learned that lesson the hard way in the last couple of years. Jeremy has worked with us before in other capacities. We became much better after we started demoing the place because if you try to do a scope of work without seeing everything, it’s really difficult.
Jeremy: Even while you have a great relationship with the subcontractors, there are still costs there. I’m one of those guys that I don’t like variables so I try to finalize everything before we go into agreement. As you can see back here, there are hardwood floors.
Those are probably all going to have to come out. There’s been some water coming in. You can see all this stuff is rough out here. I didn’t look in great details at the plans but I’m sure there’s a lot of framing that’s going to have to be done out here.
Brad: This is the exterior. That’s probably where the water is coming from.
Jeremy: I don’t think this is actually on the second level. I know it’s in the basement and main level but I don’t know for sure if this actually goes out to the other level. There’s a nice parking pad back there.
Brad: Will we do a patio out here like on the last house we saw?
Jeremy: I don’t know. I will have to talk to Greg. We collaborate a lot on what’s going to work and what’s not, what we’d have to do in order to get the price we need in specific areas.
Brad: A lot of renovations we make are based on what the market will bear. We’ll discuss that and see if we have to make that addition.
Jeremy: If we don’t have to, we’ll just put pavers down and lead them to the parking pad. That will be ideal.
Brad: When you do your scope work, you’re telling me you come in with a video recorder, record a lot of stuff in there.
Jeremy: I used to do it with video and go through, and talk through it, and go back and make some notes, and have that for everybody’s information but I found for me, doing it the way that we do it now, it’s a little bit too cumbersome for me. You get sidetracked and it takes longer to prepare the final scope of work.
I do it just with a voice recording. On your iPhone, you have a voice recorder app, and I just do that. I pause and start. It take something that if you walk through this thing and you’re very detailed, it may take you an hour to go all the way through this thing, and you’re picking out all these certain details.
If you just do it on a video recorder, it’s a five minute recording and you can fly through it a little faster. You get sidetracked on the video, at least I have. We’ll go upstairs and see what’s going on up here. There was some reconfiguring.
Brad: Are you ever fearful about falling through floors when you’re looking at stuff like this?
Jeremy: I’ve been here before so I’m not fearful of this but typically, whenever I would come up here, I would test the waters before.
Brad: When I look at that right there, it’s a little hard to see. Can you shine a flashlight on it? I would be like, “Whoa, not sure I want to step on that.”
Jeremy: There are certain areas for sure. Back here, you definitely wouldn’t want to.
Brad: This is where we were down below. Water I guess is coming in, probably through the roof. All of that will have to be ripped out.
Jeremy: Yes, all new roof. I don’t know about the main roof but certainly this back covered area.
Brad: What will we do with this structure?
Jeremy: With this structure, I think all of this is going to have to be reframed out here.
Brad: Will it be part of the bedroom or living area?
Jeremy: I think this is actually going to be a master suite. Then there’s going to be a master bath in this area, and I think there’s going to be two additional bedrooms, and a hall bath back here. I know we have to take out some of this brick. These are actually structural walls.
I think a wall on the main level here is actually load bearing.
Brad: What again will we do with that?
Jeremy: This up here we’re probably just going to cover up. I think on the main level, we might try to save it but I think – I don’t know. I got to get with Greg to see if we need to save this up here, if we just frame it over and put drywall over the top of it.
Brad: If I’m not here, what you’re doing right now is walking around with a voice recorder.
Jeremy: Yes, what I typically do is have these plans open. I would take a look and see how difficult is the work that we’re actually doing. Then you can kind of assign. There are different people that can do different things. The more you can do, the more it costs.
If it’s somebody who can just pull out the old cabinets and put in new cabinets, that’s going to be a specific cost but whenever you’re talking about doing a bunch of structural framing and maybe potentially dropping a basement slab, and all new ground works for the plumbing, you’re talking about a different skill set. That’s going to cost a little bit more.
You have to finalize and figure out exactly what type of contractor you’re going to use, what the budget is, and what you can and can’t get away with, really, because obviously cost is a huge part of this whole thing. In addition to that, time is also very important as well because you could have somebody who is in a lower cost.
However, they’re not familiar with what they’re supposed to be doing, and something that should take maybe eight weeks, maybe it turns into 12 weeks. Then you have additional holding cost, and those types of issues that you’re up against as well. Sometimes it pays to pay more up front. It just depends on what your cost of money is.
Brad: Okay, yes, that’s something we learned in the last couple years as well. We started putting a lot more time and effort in planning on the front end to make the process smoother. It seems like you may be spending a little bit more money but in the end, you’re saving money because you’re not going back and forth with a bunch of change orders, and not knowing exactly what you’re getting from the contractor.
Jeremy: This is really dark down here. Be careful as you’re walking down, low bridge again. As you can see, it’s a little bit different down here. We both have to duck. We’re a little bit taller than most but still, it’s kind of low. We want to capitalize on the square footage down here because it’s free square footage basically.
You don’t have to put an addition for it, so why not finish it? What we’ve done is they’re called test pits. We’re trying to find out the actual location of the footer on the walls. That way, that’s going to dictate how far this slab can be dropped down to allow for additional headway.
Brad: You can’t go below the footer.
Jeremy: Correct. You can see here, that’s down about two feet or so, 20 inches. It’s a significant way but if you go up here and look, this one I think was the original one. You can see here in the front, this is the footer, and you can see down below where the bottom of the footer is. It’s literally right below the slab in the front. That’s not great.
Probably what we’ll end up having to do, depending on if it dictates it or not or justifies it or not, dropping the slab. We’ll probably have to underpin this front wall at least.
Brad: What does underpinning mean?
Jeremy: Basically what it does is it supports the footer. In order for this slab to go down past the bottom of this, this is actually holding the whole front of this wall up. In order for this slab to go down, if we were to go down below that 20 inches like the other one, it would be clearly below the bottom of this footer, and it wouldn’t be serving its purpose.
Basically what you have to do is this may be 18 inches or so, what you’ll end up having to do is go in in section, and pour additional concrete to extend that down into virgin soil.
Brad: That’s expensive I assume.
Jeremy: It’s fairly expensive, yes.
Brad: But worth it to get the extra square footage.
Jeremy: In my opinion, it is. It just depends on the value of the property.
Brad: How high will the ceilings be once this is all done?
Jeremy: We’re going to try to maximize that all the way over here on each side. I haven’t measured it but it’s probably going to be close to eight and a half feet or so, which will be a huge difference.
Brad: It could mean a difference of $100,000 plus on the property or more.
Jeremy: Correct. You can see the footer on the back is down lower as well, so it’s no problem there. The good thing is it appears to be just on that front wall. I had the guys come back out and do additional ones back here because I wasn’t sure if this was the same situation, because you can see this is an additional structure. It looks like it’s not down as far.
It looks like the footer only went down another eight or ten inches below here.
Brad: Some basis to quench their thirst.
Jeremy: You fight it off, you definitely fight it off. You can see this is the main area which looks like we probably only have to underpin this front wall. However, if we want to continue this over into having any type of space back here as well, there are 20 inches that we talked about before. It may not be justified to have to underpin all three of these walls for the additional expense. We’ll have to play with that number and figure out what’s going to work and what’s not going to work.
Brad: This is the addition that was put on where it was leaking. We do a lot of cleanup in this yard obviously.
Jeremy: We need to get pictures of that because we actually had a fine. I need to get that back to Kate to make sure we don’t get charged for that.
Brad: What do we get fined for, for trash being back there?
Jeremy: Yes, there was trash in the yard. What will happen with these vacant properties is people just come by and they’ll use it as a party place or sleeping place.
Brad: We’re going to turn this eyesore into a gem, improve the neighborhood, improve the property values. The neighboring houses, you can see they’ve built up and have a couple cool little decks out there, spiral staircase.
Jeremy: Back here, we’ll probably end up doing something with the fence. I don’t know. We’ll have to figure out what we’re going to do with the stairs, again, with the siding is going to be another issue.
Brad: Have we ever built garages that didn’t exist or is it just not worth it from a cost benefit standpoint?
Jeremy: In D.C. we haven’t. I’ve done it before but not in D.C. Greg knows, I don’t know exactly what the dollar amount is with value.
Brad: What will we do with those stairs?
Jeremy: We’ll probably take those out and put in wooden stairs.
Brad: We’ll take those out and rebuild wooden stairs. Obviously it will look a lot better.
Jeremy: All new windows, which is another thing not on the plans to put in all new windows. That’s a pretty big swing. There are a lot of windows here. You’re thinking, “Here is the whole scope of work you have to do. The architect put everything together,” well, in fact, they really didn’t. They have probably 80% of the work in here.
Brad: All right, ladies and gents, I hope this was helpful. If you find it helpful and want to get more helpful videos about real estate investing, just fill out the form below and/or subscribe to our YouTube channel at Express Home Buyers, YouTube.com/expresshomebuyers. We’re out of here.