It’s very simple but apparently highly effective. It incentivizes the builder, and avoids arguments.
I got this tip from a book. A book I’d highly recomend to any property investor. It contains a lot more nuggets of wisdom than just this one.
The book is Trump Strategies for Real Estate: Billionaire Lessons for the Small Investor
On page 172, he shares one of Donald’s negotiating strategies for getting projects done on time.
First, Donald negotiaties a good price for the project. Say, the builder wants $100,000, Donald says he’ll pay only $60,000.
They finally arrive at a price of say $70,000.
Donald then tells the builder, “I’ll tell you what I’ll do, if you complete the work early, I’ll give you an additional $500 for every day you finish before the 90 days we agreed on. But, the maximum I’ll pay you is $85,000.”
So, Donald gets a good price regardless. Donald would be glad to pay the builder the $85,000. That means the project is completed way ahead of schedule. After all, time is money.
The builder will probably work his butt off to get his hands on that extra $15,000.
If the builder uses all the allotted time, then Donald gets the project at a relatively low price of $70,000.
Either way, Donald wins.
I like this strategy better than the one I used recently.
I wrote into the contract a late fee penalty clause. The project was overdue and I had to listen to a bunch of reasons why it was late. And, I had to enter into discussions about what the final penalty would be and then collect. Not pleasant.
I would have rather have the house completed early and pay a bonus.
I like Donald’s way better.
How about you?