Short version: get three written bids on any rehab you are financing, not one, and not five. One bid gives you no way to tell whether the number is right. Three gives you a spread, and the spread itself is the information. The lender is not going to tell you which contractor to hire, but they will read the bid you submit, and a bid that is a single line saying “full rehab, 65,000 dollars” will slow your file down or get your draw schedule written against you. The bid is a loan document. Treat it like one.
FMC Capital is a Pittsburgh-based brokerage and we place fix and flip and rental loans for real estate investors across Pennsylvania and additional states. This guide covers how many contractor bids to collect, how to compare them without getting fooled by the low number, and what an investor lender actually looks at when your bid lands in the file.
Why the lender cares about your bid at all
On a fix and flip loan the lender is funding two different things. They are funding the purchase, which is secured by a house that already exists and already appraises. And they are funding a rehab, which is secured by nothing yet. The rehab money is a promise that a certain amount of work will get done for a certain amount of money, and the only evidence the lender has that the promise is realistic is the scope and the bid you handed them.
That is why the bid drives so much. It sets the rehab holdback. It sets the draw schedule, because draws get paid against line items. It informs the appraiser, who is being asked to value the property as if the work described in the scope has been completed. And it sets the after repair value the whole loan is sized against. A vague bid produces a vague scope, a vague scope produces a soft appraisal, and a soft appraisal produces a smaller loan. Our guide to how lenders verify a rehab scope of work covers the verification side in detail. This article is about the step before that: getting bids worth submitting.
Three bids, and why three
One bid is a price. Three bids are a market. The point of collecting three is not to find the cheapest contractor, it is to find out what the work actually costs so you can tell whether any of them is priced sanely.
Here is what a normal spread looks like. You send the same scope to three general contractors on a full cosmetic rehab plus a roof and a panel upgrade. The bids come back at 58,000 dollars, 64,000 dollars, and 71,000 dollars. The middle two are within about eleven percent of each other, which tells you the real cost of that scope is somewhere around 62,000 to 67,000 dollars. The high bid is not necessarily padding, it may include a longer warranty or a crew that will actually show up in three weeks. The low bid is the one to interrogate.
Now here is the spread that should stop you. The bids come back at 34,000 dollars, 66,000 dollars, and 69,000 dollars. Two contractors agree and one is roughly half. That is almost never a bargain. It usually means the low bidder read a different scope than the other two, or left out a trade, or is planning to hit you with change orders once they are three weeks in and you have no leverage. A gap that wide is a scope problem, not a price problem, and the fix is to go back and find out what the low bidder excluded.
Four or five bids sounds more thorough but usually is not. You burn two weeks collecting them, good contractors stop responding when they figure out they are bidding against a crowd, and the extra data points rarely change the answer. Three is the number that gives you a spread without costing you the deal.
The one rule that makes bids comparable
Every contractor has to bid the same scope. That sounds obvious and almost nobody does it. If you walk three contractors through the house and ask each of them what they would do, you will get three different projects with three different prices, and comparing them is meaningless. You have to write the scope first, hand the identical document to all three, and ask them to price that.
Your scope does not have to be an architect’s drawing. It has to be specific about quantity, material grade, and inclusion. “Kitchen” is not a scope line. “Remove and dispose of existing kitchen, install ten linear feet of shaker base cabinets and eight linear feet of uppers, quartz counters, stainless appliance package, new sink and faucet, tile backsplash to underside of uppers” is a scope line. Do that for every room and every system, and now three bids on the same document mean something.
Specify who pulls and pays for permits, who hauls debris, and what allowance level you expect on finishes. Those three items account for a huge share of the difference between bids that look identical on paper. Whether your contractor needs to be licensed to pull those permits varies by jurisdiction and by lender, and we cover it in our guide to whether you need a licensed contractor for a fix and flip loan.
What a bid the lender will accept looks like
Investor lenders are not asking for anything exotic. They want a document that lets a third party verify progress. In practice that means:
- Line items, not a lump sum. Each line should be a task with its own dollar figure. A draw inspector cannot certify “forty percent complete” against a single number, but they can certify that the roof is on and the rough electrical passed.
- Contractor identity and contact information. Company name, address, phone, and license number where the jurisdiction issues one.
- A total that matches the rehab budget on your application. If your application says 65,000 dollars and the bid says 78,000 dollars, underwriting stops until you explain which is real.
- A timeline. Even a rough one. The lender is setting a maturity date and wants to know the work fits inside it.
- Signatures. A bid nobody signed is an estimate, and estimates move.
The line item structure is the part investors skip and regret. Your draw schedule gets built from it, so if your bid lumps 30,000 dollars of interior work into one line, you have just guaranteed yourself a single enormous draw that will not release until almost everything is done. Break it up and you get paid in stages. Our guide to the fix and flip loan draw request package shows what each of those submissions looks like in practice.
Running the numbers on a bid spread
Bids are not just a cost question, they are a leverage question, because the rehab number feeds directly into how much loan you get and how much cash you bring.
Take a house you are buying for 120,000 dollars. Two of your three bids land around 65,000 dollars for the rehab, and the after repair value supports 265,000 dollars. On a structure of ninety percent of purchase and one hundred percent of rehab, the lender funds 108,000 dollars toward the purchase plus a 65,000 dollar rehab holdback, for total loan proceeds of 173,000 dollars against a 265,000 dollar after repair value. That is about a sixty five percent loan to after repair value, which is comfortable. Your cash into the deal is the 12,000 dollar purchase gap plus closing costs and reserves.
Now suppose you take the 34,000 dollar low bid instead because it looked like free money. The lender sizes the rehab holdback at 34,000 dollars, so total proceeds drop to 142,000 dollars. That looks like less debt, which sounds good, until the work turns out to cost 65,000 dollars anyway. The extra 31,000 dollars now comes out of your pocket, in cash, mid project, at exactly the moment you have the least of it. The financed version cost you interest on 31,000 dollars for a few months. The unfinanced version cost you 31,000 dollars of liquidity and possibly the deal. Model both versions on our deal calculator before you decide which bid to submit.
There is a second-order effect too. Interest on a fix and flip loan typically accrues only on money you have actually drawn, so a larger holdback you draw slowly does not cost what investors assume it does. That mechanic is worth understanding before you decide to underfund a rehab on purpose, and we cover it in our guide to Dutch versus non-Dutch interest on fix and flip loans.
How to read the three bids you got
Line them up side by side, trade by trade, and look for the lines that are missing rather than the lines that are cheap. The most common omissions are debris removal and dumpsters, permit fees, temporary utilities during the rehab, and anything behind a wall that nobody could see on the walkthrough. A bid that quietly excludes all four will look about fifteen percent cheaper than an honest one and will not be.
Then ask each bidder three questions. When can you start, and are you committing to that date in writing? What is your payment schedule, and does it match a draw structure where you get reimbursed after work is complete rather than paid up front? What is not included in this price? The third question does more work than the other two combined, and the contractor who answers it clearly is usually the one to hire.
Reference checks matter more on rehab than on almost anything else, because the failure mode is not bad work, it is abandonment. A contractor who walked off two jobs last year will walk off yours, and the consequences land on you and your maturity date rather than on him. We wrote about exactly that scenario in our guide to what happens if your contractor walks off a fix and flip mid-rehab. Call the last two clients and ask whether the job finished on the original number.
When you are the general contractor
Plenty of experienced investors self-perform or act as their own general contractor and hire trades directly. That changes the bid conversation but does not remove it. Instead of three general contractor bids you are collecting bids by trade, and the lender still wants a line item budget that a draw inspector can verify. Most programs allow it with some conditions, and the ones that do usually want to see prior projects and will not release labor draws for your own time. Our guide to being your own general contractor on a fix and flip loan walks through what the lender checks and where the limits usually sit.
The trap for self-managing investors is that trade bids never add up to a general contractor bid, because the general contractor number includes coordination, supervision, and the overhead of being the one responsible when a trade no-shows. If you strip that out of the budget and then discover you do not have time to supervise, you are short both money and management. Budget your own time honestly or budget a project manager.
What happens after the bid is accepted
The bid becomes the budget, the budget becomes the draw schedule, and the draw schedule becomes the thing you live inside for the next several months. Changing it later is possible but it is a formal process, not a phone call, and it can affect your holdback and your timeline. Our guide to fix and flip loan change orders covers how mid-rehab scope increases actually get processed.
The other document that comes out of the bid is your term sheet, which is where the holdback, the draw mechanics, the rate, and the maturity all show up in one place. Read it against your bid line by line before you sign, because that is the last cheap moment to catch a mismatch. Our guide to how to read a fix and flip loan term sheet walks through what to look for.
Bottom line
Three bids on one written scope, compared line by line, with the low bid interrogated rather than celebrated. Make the winning bid itemized, signed, and matched to the rehab number on your application, and it will move through underwriting without friction and give you a draw schedule you can actually get paid on. The bid is not a formality you produce to satisfy a lender. It is the document that decides your holdback, your draws, your appraisal, and your margin, which is why the two hours you spend writing a real scope is the highest paid work on the whole project.
Working on a rehab and want a second read on the bids before you commit? Send the scope and the numbers through our contact page or call 412-990-2941. You can model the deal on our deal calculator, and see how we structure these on our fix and flip and bridge loan page. FMC Capital, NMLS #1840537.
FMC Capital is a Pittsburgh-based licensed mortgage brokerage, NMLS #1840537. This article is for educational purposes only and is not a commitment to lend, an offer of credit, or construction advice. Bid requirements, draw mechanics, loan terms, and program guidelines vary by lender, property, and borrower and are subject to change. All figures are illustrative examples, not quotes.