Saturday, January 31, 2009

Remodelers to Restorers?

While at a recent conference of the Restoration Industry Association (RIA), I heard several contractors complain about remodelers and home builders attempting to get into the insurance restoration business. With head-shaking disdain, they remarked that the restoration business isn’t as simple as builders think.

And they’re right.

But that’s not what some would have us believe. Shortly after the conference I found a web site advertising a book that would teach contractors the SIX EASY STEPS to becoming an insurance restoration contractor, including how to achieve (a remarkably precise) 87.62% bid success rate, with HUGE PROFITS. BIG, FAT, WONDERFUL 20% to 40% PROFITS!

Hmm. A few of these “easy steps” remind me of the first half of comedian Steve Martin’s joke about how to become a millionaire and never pay taxes: “First… get a million dollars.”

“Easy” step #1 is to “Establish a relationship with the proper insurance company 'insider', known as an adjuster.” Well, fine. Go ahead and establish that relationship. But it helps to have knowledge of the special procedures unique to restoration work. “Easy” steps 2 through 6 are to analyze the damage (yes, maybe along with five other contractors), perform the repair cost analysis (do you know how to use the standard estimating software, Xactimate?), obtain an "approval of sheet" from the insurance adjuster (which I assume is an agreed scope and price), set up the contractual relationship (which now involve the interests of three parties), and then “proceed with the repairs.”

Let’s isolate just one of those “easy” steps. An insurance estimate is scoped and priced much differently than a remodeling job, and Xactimate requires special training to use. If you’re a participant in an insurer’s program, they will pay your cost based on Xactimate’s pre-set values + 10% markup (not margin) for your overhead + 10% for profit. Pause for laughter. Money is made in this business, to be sure. But could you make money in your business if you used that formula, literally? Well, there are ways, but those were the subject of ethics roundtable debates at the aforementioned RIA conference.

Now, perhaps I’m being cynical. Maybe it is easy to just dive into emergency response and restoration services for water, smoke, and fire damage. All you need are trained and certified technicians, and the capability of providing 24-hour response. Your staff will need to know how to deal with traumatized homeowners in the middle of a crisis. And they’ll want to use tools and equipment that are specially designed to perform the work required by the emergency – take water damage, for example: equipment that can dry a structure quickly; vacuum units and specialty extraction tools (for carpets and cushions); air movers and dehumidifiers; meters to test moisture content. And there are special procedures and documentation required to prove that the structure was dried properly and returned to a pre-loss condition that won’t promote mold growth.

But wait, there’s more! Other services include content inventory and pack-out, fire damage demolition, smoke mitigation, mold remediation, gray and black water mitigation, and even (shudder) trauma scene cleanup. With fire damage repair, for example, you have to do the correct amount of demolition. Too much and you’ll be doing work for which you won’t be paid. Too little and you could have odor and structural problems. Then you have to properly handle the fire odor problem. But I’ve made my point: Restoration work is a completely different animal.

Different, until you get to the “put-back” or rebuilding step. This is where the remodeling industry intersects the restoration industry. Put-back means what it implies – replacing the structure and finishes to their original state: framing, insulation, drywall, trim, flooring, painting, and so on. Margins are typically lower than for mitigation work, because put-back requires management and technical skills that cost more in the marketplace. This would obviously dilute a restoration contractor’s blended margin if he carried the fixed costs necessary to perform that kind of work. Therefore, many choose not to pursue it. But it’s also the type of work that matches a remodeler’s skills and resources.

Given the state of the remodeling industry right now and for the foreseeable future, this may present an opportunity for you to subcontract for a local restoration firm that does not currently perform the put-back portion of insurance claims work. The difficulty will be in convincing them that their company’s good name will not be tarnished by your failure to perform acceptably. That’s a hot-button issue, as their business relies on maintaining a satisfactory reputation among the insurance adjusters who feed them work. One bad job could undo years of good will.

So if you can demonstrate why there would be no risk in subbing to your company; or if you’re willing to become an employee, there might be an opportunity for steady work through this protracted slowdown. After all, fires and burst pipes don’t care about the economy.

P.S.: The second half of Martin’s joke is “Then say… ‘I forgot!’

1 comment:

Christopher G. Hill said...

Great overview of the remodeling/restoration industry. Care to come over to Musings and guest post on the topic?

Thanks for the insight Rick.