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A scope of work (SOW) is the detailed document outlining every planned renovation item, its associated cost, and the contractor responsible. Hard money lenders require a SOW to underwrite the rehab portion of a fix and flip or construction loan. A complete, itemized SOW moves deals through underwriting faster. A vague or missing SOW is one of the most common reasons fix and flip files stall.
The SOW answers the underwriter's core question: what exactly is being renovated, for how much, and by whom?
It is not a general budget estimate. It is a line-item breakdown of every renovation category with specific costs for each. The lender uses the SOW to:
A good scope of work is organized by renovation category with specific line items and costs:
| Category | Line Item | Cost |
|---|---|---|
| Demo | Remove existing kitchen cabinets, flooring, bathroom tile | $3,500 |
| Kitchen | New cabinets (semi-custom), countertops (quartz), appliances | $18,000 |
| Bathrooms | Replace vanities, toilets, tile in master and hall bath | $9,500 |
| Flooring | Remove carpet, install LVP throughout (1,800 sq ft) | $8,100 |
| Roof | Replace shingle roof, 2,400 sq ft | $13,000 |
| HVAC | Replace gas furnace and central AC unit | $8,500 |
| Electrical | Panel upgrade to 200 amp, add outlets in kitchen | $4,200 |
| Paint | Interior and exterior paint, full house | $5,500 |
| Landscaping | Grade, sod front yard, plant beds | $2,200 |
| Contingency | 10% buffer for unforeseen costs | $7,250 |
| Total | $79,750 |
Every line item has a category, a description specific enough to be inspected, and a cost.
"Kitchen — $20,000. Bathrooms — $10,000. General repairs — $15,000. Contingency — $5,000. Total — $50,000."
This tells an underwriter almost nothing:
Vague SOWs create underwriting questions. Underwriting questions create stips. Stips delay closings.
The SOW should identify who is doing the work:
First-time borrowers who plan to self-manage (owner as GC) face more scrutiny on this. Lenders want to know the renovation is being managed by someone who can actually execute it. An unlicensed "handyman" doing a $75,000 renovation is a red flag for most hard money underwriters.
A contingency line item — typically 10-15% of the total renovation budget — is one of the most important elements of a well-built SOW.
Renovations run over budget. Discoveries behind walls, permit complications, contractor delays, material price changes — unexpected costs are not the exception in renovation, they are the norm. A SOW without a contingency line is a budget that will be exceeded.
Lenders generally accept contingency line items as part of the holdback because they understand renovation reality. A borrower who does not include contingency is either inexperienced or optimistic in a way that creates risk for both parties.
The borrower prepares the initial SOW based on their renovation plan and contractor conversations.
The general contractor should review, validate, and ideally sign off on the SOW before submission — their bid becomes the basis for the line items and cost estimates.
The appraiser uses the SOW to understand what work is being done, which informs the ARV analysis. A well-prepared SOW makes the appraiser's job easier and increases the likelihood of hitting the projected ARV.
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