Creating A Bulk Buying Process To Ensure Property Repair Savings

Written by Steve Meyer
on December 13, 2012 No Comments
Categories : Required Reading

12906_house_gold Creating A Bulk Buying Process To Ensure Property Repair Savings REQUIRED READING: Servicers and investors count on their field service partners to help maximize the value of real estate owned (REO) portfolios with new approaches that are both creative and cost-effective.

As part of the REO property repair process, field service companies save servicers and investors significant dollars by establishing agreements with national suppliers to purchase quality products at lower costs and create an efficient bulk-buying process for contractors.

For example, field service companies can negotiate pricing with a national supplier to obtain the builder-grade carpeting that servicers and investors prefer to have installed in their REO properties. Through these negotiations, field service companies can assure that their clients save significant amounts of money on a national scale. Â

It is not uncommon for field service companies to pay upwards of $22 per square yard for carpet when contractors purchase carpeting from their own local suppliers. By purchasing the same carpeting under their field service company's national supplier agreements, contractors can achieve potential savings of 20% to 25%.Â

As thefts of heating and air conditioning systems increase, field service companies have found it necessary to establish national relationships and leverage better pricing for these products as well. Similarly, obtaining roofing material is another area where contractors need help acquiring quality supplies more efficiently. This is necessary if there is a leak or other damage that can potentially get worse because the contractor needs to get the repair done quickly.

Working through national suppliers, contractors save time and money because they can get products more quickly. This is because under national purchasing agreements, contractors can obtain supplies almost immediately. Even when items need to be ordered, carpeting can typically be delivered within three days, and appliances often can be installed within 48 hours.

The big-box retailers, like Home Depot and Lowe's, also help contractors streamline the REO repairs process with ‘pro-desks.’ Contractors can call in or order online, and the store will prepare the order for special pick-up in a designated area of the store – often at the door. Stores sometimes offer discounts for ordering products this way. These efficiencies have helped reduce many of the challenges contractors have experienced in planning their work days because of supply delays and the need to make numerous and unplanned stops at local suppliers to obtain items needed to complete repairs.

In lieu of…

An important area where field service companies can help save significant dollars is in the selection of alternative materials to repair REO properties and put them in marketable condition. Â

Copper plumbing may be the best example. In properties where copper plumbing has been stolen, field service companies and their contractors can replace it with a plastic-type product called PEX. Not only is PEX a deterrent to thieves and vandals because it cannot be sold at salvage yards, it costs less and installs more quickly. As a result, servicers and investors have begun to request PEX over copper plumbing in many of their REO properties.Â

An alternative to lath and plaster material in older properties is drywall. Drywall is easier to work with and less expensive to use. Similarly, off-the-shelf cabinetry is often used to replace custom-made items.Â

The decision to utilize these alternative products, however, also depends on the type of home being repaired or renovated. In higher-priced homes, for example, custom cabinets and copper plumbing may be wiser investments to assure that the property can command a higher price and compete against similar homes that may be marketed in the area.

Also, when utilizing alternative materials, field service companies and their contractors must be familiar with local requirements, deed restrictions and other ordinances that may dictate the use of specific materials to maintain quality standards or historical preservation.

The price is right

Verified pricing is another way field service companies can streamline their REO repair processes. Implementing flat-rate pricing for repairs eliminates bidding wars. With flat-rate pricing, field service companies have already established a negotiated price with their contractors and do not have to spend time getting multiple bids and hoping for the best price, whereas the price has already been validated as fair and reasonable.

Verified pricing also reduces the time it takes to obtain bid approvals. The alternative is to have multiple vendors bid on each repair, which delays the process and still does not guarantee a reasonable or best price.

Industry cost estimators help verify pricing as well. The U.S. Department of Housing and Urban Development (HUD) uses the RepairBASE brand of cost estimators. Field service companies should use similar cost estimators, or several of them, to be consistent with what HUD and other investors and servicers will pay for the repairs, and to verify that a contractor's pricing is consistent with the local market.

There are several software packages available that allow a company to verify that construction pricing is reasonable and appropriate for both the scope of the work and the area where it is being performed. The companies that offer this estimating software collect data from a number of sources to ensure the pricing is verifiable.

By using these cost-estimating programs and national suppliers, working under national bulk pricing agreements and having access to pro-desks, contractors get the best pricing on the quality products that servicers and investors prefer. This streamlined process creates savings in time and money and helps to assure that high-quality supplies and appliances are used to repair REO properties. This, in turn, allows contractors to handle large volumes of REO properties in a more efficient manner. Ultimately, this proves to be a win-win situation for all parties involved.

Steve Meyer is assistant vice president of high risk and hazard claims for Safeguard Properties, headquartered in Valley View, Ohio. He can be reached at (800) 852-8306.

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