What If Repairs Cost More Than Expected?
Rehab projects exceed their original budget on 70-80% of projects. The typical overrun is 10-20% for moderate renovations and 20-30% for heavy rehabs. This reality affects every player in the deal: flippers, landlords, and wholesalers who provide the initial repair estimates.
How repair overruns affect wholesale deals
As a wholesaler, you provide repair estimates in your deal package. If your buyer starts the rehab and discovers the actual costs are significantly higher than you estimated, several things happen:
- Before closing: The buyer demands a price reduction. Your assignment fee shrinks or the deal dies.
- After closing: The buyer completes the rehab at a loss or reduced profit. They blame your analysis and stop buying from you.
- Reputation damage: Buyers talk to each other. One deal with severely underestimated repairs can tag you as unreliable in your entire market.
Most common surprise costs
| Surprise | Typical Extra Cost | How to Catch It |
|---|---|---|
| Foundation issues hidden by cosmetic fixes | $5,000 - $20,000 | Look for uneven floors, cracked walls, sticking doors |
| Mold behind walls or under flooring | $2,000 - $10,000 | Musty smell, water stains, humidity |
| Electrical not up to code | $3,000 - $8,000 | Old breaker panel, aluminum wiring, ungrounded outlets |
| Plumbing re-pipe needed | $3,000 - $10,000 | Polybutylene or galvanized pipes, low water pressure |
| Termite or pest damage | $2,000 - $8,000 | Soft wood, sawdust piles, mud tubes on foundation |
| Roof worse than expected | $3,000 - $10,000 | Multiple layers, sagging decking, interior water stains |
| Asbestos or lead paint | $2,000 - $15,000 | Pre-1980 homes, popcorn ceilings, 9x9 floor tiles |
| Permit requirements | $1,000 - $5,000 | Check local building dept requirements for scope of work |
| Sewer line replacement | $3,000 - $10,000 | Slow drains throughout, old clay pipes, tree roots |
How to protect yourself and your buyers
1. Always include a contingency
Add 10-15% to every repair estimate as a contingency line item. On a $50,000 estimate, that is $5,000 to $7,500. Present this openly in your deal package. Buyers respect transparency, and the contingency makes your total estimate more realistic.
2. Be conservative, not optimistic
When in doubt between a $5,000 and $8,000 estimate for a line item, use $8,000. Buyers who expect $55,000 in repairs and spend $48,000 are happy. Buyers who expect $40,000 and spend $55,000 are angry.
3. Disclose what you cannot see
Include clear language in your deal package: "Repair estimate is based on visual inspection and publicly available data. Hidden conditions (behind walls, under flooring, underground) may exist. Buyer should conduct their own inspection."
4. Use category-by-category estimates
A single number ($45,000 in repairs) is less useful than a detailed breakdown by category. When you list kitchen ($12,000), bathrooms ($8,000), flooring ($5,000), and so on, your buyer can evaluate each line item and adjust based on their own contractors and experience. Use repair estimation tools that break down costs by category.
5. Know the property age red flags
Properties built before certain dates have predictable issues:
- Pre-1978: Lead paint possible
- Pre-1985: Asbestos in various materials
- Pre-1990: Polybutylene plumbing (failure-prone)
- Pre-1970: Galvanized plumbing, outdated electrical
- Pre-1960: Foundation design may not meet current standards
What your buyer should do
Even with your best estimate, your buyer should always:
- Get contractor bids before closing. Walk the property with their contractor and get written bids for the scope of work.
- Budget their own contingency. Smart flippers add 10-20% on top of their contractor's bid.
- Inspect thoroughly. Hire an inspector or bring an experienced contractor to look for hidden issues.
- Factor per-square-foot costs as a sanity check. If your detailed estimate works out to $15/SF but the market averages $35/SF for that level of rehab, something is underestimated.
When overruns kill the deal
If your buyer discovers (before closing) that repairs are significantly more than estimated, they will typically:
- Request a price reduction. They want you to absorb part of the difference by reducing your assignment fee.
- Renegotiate with the seller. Ask if the seller will lower the contract price to account for the additional repairs.
- Walk away. If the numbers do not work even with adjustments, the buyer drops out and you need to find a replacement or terminate.
Option 1 is the most common resolution. Be prepared to reduce your fee by $2,000 to $5,000 to save a deal. A reduced fee is better than no deal at all.
Bottom line
Repair overruns are inevitable. Protect yourself by including 10-15% contingencies, using conservative estimates, disclosing limitations, and providing category-by-category breakdowns. Your credibility as a wholesaler depends on the accuracy of your numbers. Slightly overestimating repairs builds trust. Significantly underestimating them destroys it.