Once the scope of work is defined, (consultant’s mandatory items and borrowers desired items); the consultant is to generate an unbiased cost estimate without the use of a contractor. The consultants SOR should be based on “Industry Standard Pricing” for their area and not be specific for any one contractor. Reason being that if contractor A doesn’t perform and needs to be replaced, there has to be enough money involved to get contractor B-C or D in to complete the job. The consultant can use a pricing schedule that he has developed or can develop the costs of repair from a cost estimator publication. The borrower can choose whatever contractor they are most comfortable with and the lender will make sure he’s properly licensed and insured. 

If contractor bids are available, the consultant will review the bid to make sure the numbers are legitimate, however; bids should never be copied or mirrored. The consultant has to provide his own bid without the use of a contractor estimate. Bids should not be too high or too low for the work being performed. 

Most software consultant’s use will generate a duplicate of the Specification of Repair or SOR report that does not print the dollars. That report can be given to the contractors to bid on. The benefit of using this report is that all contractors will be bidding on the exact same things(apples to apples) and the borrowers will get the bids back faster because the contractors won’t have to do all the typing. Using this type of document will also guarantee that the contractor’s bid will mirror the consultant’s scope of work and nothing will be left out. 

In all rehab loans, whatever the borrower pays to the consultant or for additional testing, including floor plans can be reimbursed to the borrower because they are financeable fees. Most consultants follow the FHA allowable fee schedule which is a sliding scale based on the amount of rehab being performed. 

Consultants can charge for mileage based on .58cents per mile round trip for anything that’s more than30 miles from their place of business. Almost all consultants get paid at the time of inspection however, there are some that will take a base fee and bill the balance to the closing. That’s strictly a business decision. 

The current FHA fee schedule is as below. 

• A fee of $400 is acceptable for a property with repairs less than
• $7,500; $500 for repairs between $7,501 and $15,000; $600 for repairs 
• between $15,001 and $30,000; and $700 for repairs between $30,001 and
• $50,000; $800 for repairs between $50,001 and $75,000; $900 for repairs 
• between $75,001 and $100,000; and $1,000 for repairs over $100,000.

It should be noted that none of the other rehab loans have a fee schedule so; the consultant is not limited in his or her fees in those other loans. Most consultants around the country are changing 1% of the total construction budget if the construction budget is over $100,000.00. Most consultants are following the FHA fee schedule for budgets of less than $100,000.00. Almost all the lenders require the same reporting and documentation as required by FHA for the conventional or VA rehab loans. 

Once the consultant’s reports are completed, the lender will give them to the Appraiser. The appraiser will take into consideration all the repairs that are proposed and that will enhance the value. Rehab loans are based on the after improved value and not the “as is” value. 

After the loan closes, the consultant becomes the inspector for the lender and he will visit the property to inspect the contractor’s work that has been completed. He will review the quantity of work completed and the quality. The consultant will then authorize the payments to the contractor by way of generating a Draw Request. The payments for the draws are built into the loan so the borrower is not out of pocket for these inspections. The process of draw inspections continues until the final draw. Currently, FHA limits the draw fees to no more than $350.00 however, you may charge less. 

What should be noted is that the consultant or inspector is not a Project Manager. If there is a dispute between the owner and contractor, the consultant has no responsibility or authority to rectify any issues. He’s there to inspect the work and authorize the release of the funds for the benefit of the lender. However, most consultants will attempt to resolve the issues. It should also be noted that the consultant has no fiduciary responsibility to the borrower as the contract between the consultant and the borrower has been completed when the borrower accepts the consultant’s final documents. The consultant has the responsibility to the lender as an inspector to be their eyes and ears on-site and their risk managers. 

During the construction process, the consultant\inspector has the responsibility to notify the lender of any issues identified. As per the guidelines, it is the responsibility of the lender to monitor and manage the construction process.