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Homes 101:
Building a New Home? Things you WANT to Know

Sales v.s. Operations

Posted On: April 5, 2017 | Posted In:

I was in a meeting last week at one of the manufacturing plants and was reminded of a business strategy I was taught many years ago. As I listened to the Director of Sales argue with the operations manager about over promising and under delivering I was reminded of the words of one of my greatest mentors.  He told me if your sales manager and your operations manager were not constantly complaining about each other your business was doomed.

The concept is really simple and it applies to all businesses.  The sales departments job is to bring in work, to get work, to keep people happy, to value the customers, to thank them for their business and make sure people want to do business with them again.  Operations side, the nuts and bolts of every business if left to their own, would minimize the work load, make sure everything was done to perfection and never push to do so much that standards were compromised. Either one of them on their own would destroy a business. But if they were constantly challenging each other they would bring the best of each other and get the best result for the business.

I own my own business now and in the beginning I had sales people, so that I could focus on making sure how we performed in the construction of the homes we sold were completed.  It was a good plan as most of my experience was in the field.  However, I constantly got told by customers that the salesman said we could do this, or we could do that when in fact we could not.  I quickly realized that I did not want to trust the future of my businesses reputation on the words of someone other then me.  So I let them go and moved into the office.

So when you come in here what you will find is the worst salesman in the world.  I say more stupid things then you can imagine.  I fail miserably at telling people what they want to hear, I do not hand out my business card at introduction and I do not write down your name to call you once a week until you submit to by. It does not mean I do not care, I need business to be successful, but what I have learned is this is not a sales business.  People do not get talked into building a home.  You do not fast talk someone out of the biggest investment they will make in their lives.  Strangely, this has worked out perfectly.

People seem to really appreciate that they are talking to the builder not a salesman, they love that I will not call them but will be here when and if they chose to continue this process, and they like to know that who is telling them “this is what we will do for you” is the same guy that is in the field making sure that it is what we end up doing. So I apologize in advance for what might look like a clumsy sales approach, but I never have to apologize for not doing what the salesman told you we would do.

I think you will like it.

The Pragmatist approach

Posted On: February 1, 2017 | Posted In:

I am a Pragmatist.  Sadly, that means I assume everyone is like me, which could not be more wrong. I go not buy out of emotions of any kind, I do not fall in love with things and have to have them, ever.  When I buy a pack of gum I am looking at how many pieces you get for what cost and is it any good.

If everyone were like me, then car dealers would not insist you go and drive the car while they look at valuing your trade.  The whole idea behind this sales technique is to get you to fall in love.  Who does not love the smell and feel and gadgets in a shiny new car.  Every car dealer knows that you will pay more for a car if you “have to have it”, so take the keys, go for a spin and we will crunch the numbers.

I love technology and new inventions, but I have a soft spot for tried and true.  Everything that goes into the construction of your house is your choice. I will build it out of Bamboo and super glue if that is the house you really want.  But I promise to advise you against it first.

Shinny new building product and techniques come out every day.  Some of them prove to be revolutionary but many are not.  Some of the products that are changing the industry in the south do not translate to the north.  Terracotta tile roofs are big in the south, but they do not stand up to snow conditions.  Panelized construction is huge in the inner city where labor rates are very high and labor is in short supply, but most of them are built in the north so they do not make a lot of sense to build ship in lift in your own back yard.

HGTV has made all of this really clear. People watch these hour long sales pitches on new product and techniques and then get frustrated when we advise against what they have been sold on.  But the conditions where you are building may be very different then where the TV project was.

The goal is to get you the best product, we will advise as best we can but in the end it is your house.

Let’s not fix what is not Broken

Posted On: November 26, 2016 | Posted In:

I have conversations every day with people who have the next new idea that will make their house better for less money. Most often they are inherently flawed ideas that stem from good intent. Here is a good rule to consider.  If you look around the building industry, and realize that all of the professionals that are in the business, have been for a long time all with the intent of trying to bring the best value to their customers all seem to be doing certain things the same way, chances are good that it is tried and proven.

Take Foundations for example, I have done wood foundations, block, ICF, and Superior Walls, but today I do 95% poured concrete foundations.  Look around building sites of all types and you will see that is the method pretty much everyone is using. Why? Because it is clearly the best foundation system for cost effective solid foundation with a great long term track record of success. No need to re-invent it.  Trust me, if someone comes out with a truly better mouse trap it will not take long for the industry to adopt it, but for now it has not happened.

The same tends to be true of other building product.  If you look around today for the first time in years, OSB sheathing on the outside of the framing has largely been replaced by Zip Wall (the green stuff you see on houses during framing.  It is a better product for site built construction that has weather resistance and gives a tighter seal to the house at a reasonable cost.  There have been many attempts to come up with a better sheathing that achieve this but Zip wall nailed it and it did not take long for it to appear everywhere in the industry.

Stick with what works, give some time for new products to become established and for the industry to find the pitfalls of them, when it is proven then jump on the bandwagon.

 

Perfect, high end, fast and cheap……..Sure no problem

Posted On: May 12, 2016 | Posted In:

There was a radio guy I used to listen too had a favorite expression.  Sometimes you just need to say it out loud to have it sink in.  If I were to summarize the conversations I have with most of my customers after I let them tell me what they are looking for (and I often do this for them) it would be the same for almost all of them. They would like a big but not to big house, they really want to just be done with it quickly without having to wait for ever for it, nothing to fancy but at least it should have all hard wood floors, a nice kitchen because they love to cook, an open floor plan with lots of natural light, they want it really well-built not some piece of junk but they have a limited budget. Summary, “Can you build me a perfect house, loaded with fancy things and do it really fast and really cheap.”  Read that again and this time read it out loud……..”Can you build me a perfect house, loaded with fancy things and do it really fast and really cheap.”   Now actually say the words out loud, they do in fact sound different when you say it out loud…..”Can you build me a perfect house, loaded with fancy things and do it really fast and really cheap.”

Of course I can…….is the answer any salesperson would feel obligated to give you.  Sadly, I am a builder and not salesman and with that, here is what I know.  The best subcontractors out there have earned the right to be discriminating and with that they chose not to work on jobs where they cannot make money and they take their time and will get it done when it can be done right.  Most people intellectually understand this, yet in the middle of a project that they just want done, it goes away.  The best materials out there are better, they install better, the work better, they wear better and they look better and they are a lot more expensive.   The world is full of products that attempt to be most of these things but they are either very expensive of they fall short in some way.  So does this mean it is hopeless?  No!!!  If you can have realistic expectations it is far from hopeless.

Modular home manufactures negotiate contracts with suppliers every year.  They go to companies that make Cabinetry, flooring products, Doors and windows as well as lumber suppliers and roofing and siding companies and try to set competitive pricing agreements with them.  They have all learned the lessons of cheap garbage products, ones that are difficult to install, fall apart easily and do not stand the test of time.  They have learned that Cheap usually cost you money in repairs and service calls.  What is interesting is if you were to go through 40 modular manufactures website, and look at the product lines they carry you will see the same names over and over again.  Why because they are the BEST VALUE.  In other words the manufactures have done the homework and research, product testing, market research and price negotiations for you.  Combine all these products and put them together in a controlled and inspected facility, which will allow the completion of construction to happen more quickly on site and well you are headed in the right direction.

Then hire a contractor who knows the sub-contractors in your area, has worked with most of them, fired many, lost a few to high prices and has weeded through to find the best value in workmanship and you are well on your way. The end result of combining a quality Modular home with a Solid General contractor is you get most of what you want.  It will not be perfect but it will be really solidly built, it will have the quality of products that you chose to pay for, it will be built considerably faster than the time it would take anyone else to build it right and it will likely save you a lot of money over building the same house another way.

 

That to me sounds like a really good choice.

 

 

 

 

Cost to Buy v.s. Cost to Own

Posted On: May 9, 2016 | Posted In:

You know for a long time I have said that you can buy more house on the open market then you can build new for the same money.  Sorry, that has not changed yet.

This is another way of saying. old house are cheaper.  But they may not cost you less to own.  Cost of ownership is a function of what you pay for it, plus what you spend to keep it up and live in it less the money you sell it for.  Let’s say you buy a house for $200,000 live in it for 10 years put about $40,000 ($4000/year) into improvements and maintenance and then sell it 10 years later and it sells for $240,000.   Add in annual taxes, heat light and power and interest expense on your mortgage and you might have lived there for a cost of $100,000 which sounds like a lot but really is pretty cheap.  Do the same math with a $1500/mnth apartment and you could be out more then double that.  If you are really smart and buy a house right, do lots of maintenance work yourself over the years and the market grows you could live for free if you sell your house for enough over what you bought it for.

 

Now if you bought a new house for lets say $260,000, clearly a lot more money then the cost of buying the older house.  But for the first 10 years your cost of Maintenance and improvements should be next to nothing so lets say $10,000.  Theoretically a newer house should be more energy efficient so the cost of heat, light and power should be lower. Now when you go to sell it, it is likely a relatively new home compared to the old home.  With that it likely more modern with a layout (floor plan) that is closer to what people are looking for today so it’s market value is considerably higher.  If this is true and again assuming you made good choices you could sell this house with the same 20% value increase for $312,000 with lower operating cost and living expense and might well find yourself getting paid back with a net positive 10 years later.

 

So while the up front Cost to Buy was higher the Cost to OWN is much lower.

 

All of this comes from my own experience.  My wife and I bought our second house a number of years ago and it was at the time the most popular house design on the market.  The classic center hall colonial on  a great lot in  a great neighborhood.   However, 10 year later we listened to a realtor tell us how no one wants a L/R and a Family room as well as a D/R with an eat in kitchen anymore.  Additionally the rooms were small and cut up and now everyone wants a big open great space with less rooms.  Our closets while they were the huge double door closets with lots of space, they were not walk in.   Because of these things and despite all the time and money we had spent keeping the house like new and modern it was still a floor plan that was very hard to sell, worse yet, it did not carry high market value.

 

We bought this house used at a time when it was the end of that designs run.  The needs of people are every changing and with it what holds value changes too.

Windows are like Sneakers…………

Posted On: October 6, 2015 | Posted In:

I am a runner and I have been for many years.  When I first started running I went out and bought a pair of Nike’s like you see in all the adds, the ones the professional athletes all use because they are the best. Six months into my running career I had my first injury and sought out the advice of an industry professional. My issue? I had the wrong shoes. 15 years later and hundreds of running shoes trial and error and I love shoes from a company called Mizuno.  You have likely heard of them but most would assume they are a second rate company smaller and without the technology of the big boys.  Yet, if you went to a road race you would see that many more seasoned athlete are running in shoes from companies like Mizuno, Saucany, and Asics then the big brands like Nike, Adidas and Under Armor.

As we go through the process of designing and spec-ing a house we are going to build for a customer the conversation eventually comes to windows. Everyone asks for Anderson, some say Pella or Marvin.  Why? because these are companies that have branded themselves as manufactures of quality products that we are all familiar with.  Yet if you go to builders job sites the brand you will see most builders using are from a company called Plygem. Why? because as a professional builder who has to offer a quality product we can stand behind without driving cost up this window is the industry standard.  Is is sexy? No! Can you brag about the manufactures name? No!  Is it a better window at a more reasonable cost.  Ask anyone in the industry and you will get a resounding yes.

Modular builders are always fighting the stigma of be second rate construction quality because for the early years of the industry they were.  However, today the modular industry is in many ways driving the choices the site built industry is making.  They look at what the Mod guys are using, they know they did all the research to determine what the best value is and they just follow their lead.  I believe some people feel that if they tell their friends they built a modular home but it has Anderson windows they get Street Cred for that.  When was the last time you were in a beautiful home and went over to read the label you can barely read in the lower corner of the windows to see if they were a fraud?  You don’t, you look at a beautiful well built house and think, Damn! this is nice.

Don’t get stuck on name brands, the simple business concept of most huge companies is that if they do an effective job branding their products they can charge extra without increasing the real cost of making the product and improve profits.  Don’t pay extra for things that do not have any real added value.

House Poor- safer than Life Poor

Posted On: July 27, 2015 | Posted In:

House Poor- safer than Life Poor

 

I talk to people every day about what they want to spend on a house.  I think the most common statement today is, “We don’t want to be House Poor”

At first I thought, “well that is smart”.  Unlike in the early 2000’s when everyone over extended, housing bubble, mass foreclosures, values dropping, you know the story, people are being smart and not spending more than they can afford.  However, the conversation usually continues with statements like, “our bank approved us for a lot more” but what we want it a payment lower than typical apartment rent.  We would like to own a house with a payment of $900/mnth including everything. Excuse me!!!

First, sadly in today’s world that is just not going to happen.  Take out a couple hundred dollars a month for taxes and perhaps Mortgage insurance and you are not going to buy and own a house for a mortgage lower than your truck payment.  Sorry, I would love to help you, but it is not realistic.  Additionally I learn that the bank, in today’s very conservative, post housing bubble restraints has approved them for a far more realistic $1500/mnth but instead they are going to stick with renting.

Since the 1930’s the federal government has been creating programs to promote home ownership.  HUD, FHA, USDA, VA loan programs are all created to make home ownership accessible. The reason for this is that smart people learned a long time ago that the best way for people to manage their life financials intelligently is through home ownership.  Think of it as a forced savings program.  You are going to make a payment every month so someone why not make it an investment in your future.   I am going to make the huge leap and speculate that the people who do not want to be “house poor” are not taking 20% of their paycheck each week and sticking it into a retirement account.  Instead they are paying rent and putting it in someone else retirement program.  Do the math, pay $900 a month over 30 years (assuming it never goes up which we know it does, a mortgage does not) and you have given $324,000 dollars to someone else. I am sure they will thank you.

Now go the other way and buy a house. Lets say you buy a $200,000 house at today’s interest rates with 20% down and your mortgage rates and your payment is $775/mnth add $300 for taxes in my area and you are now paying $175/mnth more than the rent. But roll it out 30 years, pay it off, figure most houses increase in value 100% over 30 years and now you have a $400,000 debt free asset, or savings account.  That is a $724,000 swing over renting over 30 years. All because you don’t want to not be able to go out to eat dinner when you want to or some other form of entertainment.  Strangely these same people always seem to have $800/mnth in vehicles payments which is another huge waste of money. But I digress.

Today’s banking requirements for Mortgages are very conservative.  At an average of 43% DTI the government and banks have a pretty good idea what you can realistically afford after normal life expenses and they will no longer loan you enough to see your fail. But no, they are not accounting for your social life.

If you are going to make monthly payments for some place to live, why put it in someone else pocket so that you can go out and have dinner if you can be putting a large portion of it into your own pocket. We have become very fond of complaining about the division of wealth in this country, but I think some of us are responsible for it ourselves.  We gripe about the wealthy apartment owners who take all of our money but we are unwilling to give up the toys to allow ourselves the luxury of owning our own place.  Meanwhile we have all of our money tied up in depreciating assets like toys and vehicles while they have it all tied up in investment properties. Who is at fault?

Get house poor, pour your money every month into a mortgage payment that keeps you from wasting it somewhere else.  Someday you will be the one with the resources to loan your kids money to buy their first home. What could be more rewarding?

Three types of Modular Builders

Posted On: May 11, 2015 | Posted In:

I think sometimes it  can be nice to hear what others have to say.  I would like to think we are a chameleon and can do all three of these but this is good information

 

Three Types of Modular Builders

Allowances- the new Bait and Switch

Posted On: April 13, 2015 | Posted In:

I warn people in my office about the par ells of price shopping.  This industry is like no other and shopping pricing is a lot like looking at online menu’s for restaurant pricing then finding out it was all a-lacarte.  You have gotten that dinner check before? Wow! Sticker shock.

I used to get people who would come in with a quote and I would send them back to the builder that gave it to them with a list of all the items that “NEED” to be included in order to get a Certificate of Occupancy and the price would double.

My industry has always been clever though.  The new tool of day for Bait and Switch pricing is the allowance.  It fools the banks as well as the customers.

It is normal in a construction contract to have a few allowances.  Simply put this is a number put in the contract (included in the price) for some items that have not been settled on yet.  Let’s say a customer is ready to go to contract but has not picked out the exact appliances they want yet.  They have looked enough to know they will likely spend around $3000 but they are hoping to get a holiday sale.  We include $3000 in the price and list it as an allowance.  If they only end up spending $2500 they get the $500 back or if they go over they pay the balance. Fairly safe.

How would you feel about a price to build your entire house but everything is in as an allowance.  Site work, septic, Clearing, Driveway, Foundation, Set cost, Finishes, Taping and painting, siding installation, Garage Construction, porches and decks, heating system, electrical, plumbing everything.  Then you go to a bank, get a mortgage for the contracted amount, but when the house is finished you get bills against the allowances for an extra $30,000.  Don’t Laugh! it is happening every day  now.  The good news is your house is all done, the bad news is you don’t get the keys until you pay for the allowance adjustments.

Suddenly the guy who gave you and estimate including everything that was $20,000 higher is not looking so much like he was trying to stick it to you is he?

Why? Well there are two reasons.  The first is simply that most of the people in this industry are not builders by trade, and they have no idea how to estimate a project cost. The second is, it is a way to make it look like the price is lower, say everything is included, document that, and still have the price have no solid foundation.

If a contractor allows $8500 for site work or $5000 for finishes, would you know if that was enough?  Sounds like a fair number right? So if the site work ends up being $10,500 and the finishes run $7500 they were not “way” off right? But if you go through the entire list the total number is WAY off.  On an open ended contract like that, how many times do you think the cost runs under?

My advice to everyone. Do not sign a contract that essentially says you will be required to pay an undefined amount ever. Even if it has a price on the top.

 

 

 

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