Most real estate professionals rely heavily on word of mouth when they look for new vendors. A referral from a trusted colleague is a powerful thing, but it paints a narrow picture of someone’s qualifications.
Verifying vendors through third-party sources
There are a variety of reasons you should continue adding to your bench of vendors, even when you have "your guy." Here are the ten most important things you should verify with third-party sources to make sure an unfamiliar service provider is reputable, reliable and a good fit for your real estate project.
Keep in mind that many contractors and subs won't check every box in the list below, and that may be perfectly fine. But, it's better to have that conversation before work begins than in the middle of it when something goes wrong.
1. License information
→ License number
→ Date issued
2. Insurance information
→ Policy number
→ Insurance type
→ Effective date
→ Expiration date
3. History of bankruptcies, liens and judgments
→ Filing Location
→ Legal type
→ Legal action
→ Liability amount
4. History of collections and late payments
→ Agency phone
→ Closed date
→ Amount disputed
→ Amount collected
5. History of UCC filings
→ Filing number
→ Secured party
6. Bonding history
→ Bond number
→ Bonding company
→ Effective date
7. Company family linkage
→ Previous company names
→ Parent company information
8. Years in Business
9. Citations and Violations
→ Certificate of insurance
→ General liability
→ Worker's Compensation
→ Builder’s Risk Insurance
→ Auto Insurance
Remember, the quality of the insurance underwriter is almost as important as the amount the service provider carries. The same holds true for bonding; be sure to review the underwriter and their rating.
There are several online sources to access this data. If you decide to use one regularly, it's worth understanding where they get the data and what level of accuracy they guarantee.
Using public data from your local Department of Buildings
Many cities and municipalities make building permit and job filings available to the public. It's not always easy to find your way around these databases, but, if you're persistent, you can uncover useful information about a vendor's project history and client network. Here are some of the things to look for in your DOB data:
• Is the service provider listed on permits for projects they claim to have worked on? If possible, see if they closed out the job or if they were replaced before the end of the project.
• Which owners and operators have they worked with in the past? Are those companies similar to your company in size, methodology or culture?
• Can you see evidence of repeat business from the same customers?
• Has the vendor worked on projects of similar type and magnitude to yours? What is the range of project sizes they have done?
Some of the most important information you need in order to feel comfortable working with a new vendor can only be found by picking up the phone. Honest Buildings' Senior Customer Success Specialist Ashley Noble recommends jumping right into reference calls to get better sense of the vendor and how well you would work together. Her top questions when doing a background check are:
• Did they complete the project on time and on budget?
• Did they have open violations on their job site?
• Would you work with them again?
Ashley also recommends taking references with a grain of salt. Vendors will likely offer references only from customers who will place them in a positive light. That doesn't mean the information isn't accurate, but there's a chance it might be a bit biased. If you know other customers not on the vendor's reference list, try to contact them. Just remember, any bad reference you receive may be also be biased and based on circumstances outside of the vendor's control. References are an important aspect of the review process, but they are only one aspect.
Last, but obviously not least, spend time with the service provider. If you're lucky, your new vendor will be another 'go-to' one day.