We are in the process of purchasing a home through am FHA 203k loan, which is a home rehab loan. We had a FHA rehab consultant go through the home and tell us what had to fixed and we also added things we wanted done while the contractor was there. That part went pretty well.
As part of the process the FHA consultant provides an estimate of what the cost should be for the repairs. He sends a list of the repairs with the estimate. Along with that list he provides a similar list that does not include his cost estimates which we are to submit to the contractor. Eventually, the contractor came back with his estimate and we were shocked.
For the sake of a demonstration, I will give some fictitious numbers to give an idea of our frustration. The consultant’s estimate for the cost to make all the renovations was $1,000. We had some hope, which turned out to be false hope, that the contractor would somewhere close to $1,000. We thought there would only be a variance of 10-20%. in the contractors estimate. We were wrong. He came back at double what the FHA consultant came at.
And it gets better. We sent a copy of the contractor’s list to the FHA consultant to see if his cost estimates were reasonable in the real world. He responded and said the contractor’s estimate was reasonable. We were like, What? How can the FHA consultant approve a contractor’s bid which was twice as much as his estimate? Why did he not give us the real numbers in the first place?
It made no sense, until we learned that the FHA guy got his original numbers from a book provided from the government, I suppose. Well, that explained it right there. The government doesn’t work with real world numbers. They work with fuzzy math.