Who recommended that contractor?
We are asked all the time to recommend a contractor. Banks and loan officers are as well. They don't typically do that because it seems that if something goes awry someone always wants to sue the messenger. Lenders tell me they are forbidden to recommend a contractor but have a good one they would like me to recommend. LOL, okay, sure, you betcha.
Personally I haven't had a problem recommending a contractor over the years and it has never backfired on me as most of them are quite good to work with. If they aren't then we don't recommend them in the first place.
What do we look for when we recommend a contractor?
1) Financial stability - Can they get the work started with their own funds? This is a requirement of the FHA 203k and Fannie Mae HomeStyle Renovation programs as they are "reimbursement" programs. Some of the work is completed and we "reimburse them" with a draw progress payment for that work. During the validation by the lender they will check to see the contractor has at least 10% of the project cost in cash or credit so they can get the project started.
This is always an issue for contractors new to the process. We tell them over and over there is no up front money for this project and once the loan closes they want to know when they will get money to begin. They only hear what they want to hear it appears.
2) References - While the bank has a "validation process" we tend to use our experience with the contractor as a reference. We have about 180 licensed contractors on our "approved list" and add a few more of them each week. If you have a good one we are happy to add them to our approved list, till they prove unworthy. In that even they are removed. HUD doesn't have an approved list of contractors but we do have a "Banned Contractor List" where we will no longer work with a contractor. That is usually a short list. I have only one contractor I won't work with any longer. He started four jobs and couldn't finish any of them without issues and three we had to replace him. He was never our recommendation, he just happened to come with a project after the borrower or owner had searched and found him.
The contractor will be required to provide 3 references that will actually be verified.
3) Reliability - are the getting the project completed on time and rarely dip into the contingency reserve or do they start dipping into the reserve from the first draw inspection. Ther are a good many contractors that look at the contingency as theirs and they go to work to get it with the first draw inspection. Sometimes it could be justified but most lenders don't want to pay it out on the first draw. The guideline says it can be paid out if it is for health, safety or of necessity. Otherwise we'll wait till 90% of the original scope of work has been completed before they will release it.
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