Ideas For Cutting Hard Costs.

wackman

With the slowing of home sales and looking at where things could be headed I've been thinking about the smart way to go and have come to the conclusion that a lot of builders have been making a lot of easy money even if they had sloppy ways of doing business and were living high on the hog. Now it's time to think lean and mean.

I'm trying to think of ways to shave my costs so I can charge less for my homes than my competitor, while still paying my subs what they deserve and I need to make my 20% margin.

I can't control what people will pay for my homes, I can ask $600k but I can't force someone to pay it. I can't force my subs to work for less.

What I can control is my actual hard construction costs. I've thought of some things that I can do to cut costs in mostly unnoticable ways that can add up in the long haul and I was wondering what good ideas this bunch of pros can come up with.

I'll start:

1. Frame interior non-load bearing walls 24" oc.
2. Use 1x10 belly bands rather than 1x12.
3. Use only plans with stacked walls rather than complex cantilever and point load plans.
4. Don't build overbuilt dormers on the sides of the house where they are hard to see.
5. Change the pitch of the roofs on the classic home plans from 9-12 to under 8-12 to create less sqs of roofing, to make it a walkable roof and smaller trusses.
6. Change cherry accent pieces such as hand rails to alder with a cherry stain.
7. Change wood balusters to wrought iron. The wrought iron is slightly more expensive but much cheaper to install (patching, sanding, priming, painting, etc...) effectively saving money.
8. In rooms with two or more lights in the ceiling change it to one ceiling fixture and a switched outlet. Stage with a nice lamp.
9. In areas where it's not a selling point eliminate energy star and earth advantage touches such as timers, windows, 92% efficient furnaces...
10. Plant smaller, younger trees for city requirements.
11. On old style porches use siding over the beams and covers rather than expensive wood work.
12. Use 18"x26" granite tiles instead of slab, especially in the baths.
13. Install soaker tubs as standard, jaccuzi tubs are an upgrade.
14. Only install AC and central vac ready systems if they are intalled for free by the vendor (in hopes of selling the system to the future HO).
15. Use wood columns rather than wood/stone.
16. Rather than regular wood decks, install outdoor living rooms (counts as heated sq footage).
17. Use nice shelving rather than cabinets for closets.
18. Only install crown molding in the entry and living room.

Ok that's what I've come up with so far, whatdya got?

Wack

wackman

Anyone?

DutchJohn

Wack,

I just posted a similar post under the business section a couple of days ago. Much of what you listed are great ideas but I would be careful about some of them. Depending on what type of builder you have branded yourself as you dont necessarily want to turn youself into something that you are not. I would consider what your customers see as value and what they do not. Cut out the things that you can and emphisize the things that are improtant to them.

I too am in the midst of a identity crises and confused about how to proceed in the current market. But I have come to the conclusion that I have gotten this far based on the products and freatures I have developed in my Brand. But the trade partners and suppliers that I use also have to recognize the improtance of the market today. Customers right now are being driven by discounts - not value. They will buy a painted cardboard box if I tell them it is 54% off. They are not thinking about what they will have at the end of the slow down when things start picking back up.

I would rather do 100% of the business Im doing now for 95% of the revenue than 0% of the business at 100% revenue.

Gordo

Sounds like we are going back to the 80's style of building. I am not picking a fight here, but the next thing that will be compromised is your sub pay out weather you want to or not.

To add to your list:
1.) Use the cheapest vinyl siding you can find. Use the least amount of nails. Do not flash windows. Do not use caulk.

In the end these compromises will come back to haunt you.

__________________
Looks like some pros were here.

Mike Finley

Honestly, in a perfect world there shouldn't be any changes to what you are doing, if you are running a tight company you should be always looking for continual improvement and the list of available things you could seek to do that you haven't already shouldn't be very long.

It's all about the pie. The pie gets smaller and you want your piece of it to remain the same you need to market and advertise more. When the going gets tough the weak marketers take it the hardest and are the first to notice the signs of the slow down.

Here's another one, when you based your company on picking the low hanging fruit and suddenly the orchard has a rough year the pickings are going to be slimmer. It's not so much about riding your bike to the orchard instead of the car to save money, it's more about learning how to climb the tree and reach more of the fruit.

marc

Saw a bubper sticker the other day..........

Please god, give me one more building boom
and I promise that I won't piss it away

john elliott

I've read through Wackman's post a couple of times, and can't see anything like the stuff you are suggesting. All he is considering is using less expensive options here and there and you have turned that into something else, especially the bit about not flashing windows.

Sounds like you are picking a fight after all

John

__________________
Ed the Roofer said "John too, in his crass and blunt demeanor.............."

john elliott

Interesting mix of metaphors there. Although if he wants the apples in order to make apple pie.....

John

__________________
Ed the Roofer said "John too, in his crass and blunt demeanor.............."

Gordo

Stir John,

Please do not start something here. I realize he is not 'suggesting' but that is and will be the next progression of events. When you start shaving costs by reducing the number of 2x4 or dimensions of your lumber, then whats next? Nails and caulk!

Once cost savings cannot be realized through cutting materials....then the subs go on the chopping block. Hey, we are seeing the 80's repeat itself. Only thing missing is high interest rates which are on the way due to our recent elections.

Now how would you reduce hard costs?

__________________
Looks like some pros were here.

snapper21

Have you weighed the savings of your efficiency to the margin you're trying to hit?
Just seems you're fighting a dragon with a butter knife.
When saving, every bit counts, but I don't know if I'd change my roll for that bit.

Good luck!

__________________
Just the thought of not trying is a stroke of ignorance.

john elliott

That type of argument is fallacious- you can read more here
http://www.nizkor.org/features/falla...ery-slope.html

I'm afraid I don't know enough about US building techniques to be able to offer Wackman any useful ideas, or I would have already done so


John

__________________
Ed the Roofer said "John too, in his crass and blunt demeanor.............."

Mike Finley

It's a dangerous game scrambling for ways to save money by cutting costs, when those savings are changing your product that you sell.

Some of the things listed I would think would be more effective if you segmented your target audience into something like a good, better, best product offering. Like I said it's dangerous to do blanket cost cutting. Implementing a tight ship should be a good companies focus during good or bad times.

Things like just seem like a no-brainer and once again should be part of your everyday business plan anyways. There is only a certain segment of the market that cares that the woodwork is really cherry, the majority doesn't know the difference and lives on if it looks like cherry what's the difference?

joasis

Lets see...now I have posted how i do my spec homes, and i don't come close to wackman on the "touches" and I agree with the cost concept...except I will not stud walls at 24"......the reduced cost across a typical plan doesn't work out. I don't do 9/12 roofs either. I do basic ranch style homes, with patern K trim, no trim or stools on the windows, paint grade everything, 13 seer equipment, code as needed on everything. Builders grade windows, cabinets.....and when I sell a house, I make some money. It Ain't a custom, but I'm not in the custom home market...and lots of guys still miss the idea of a 100k home being worthwhile. My build time may be 4 - 6 weeks and we are sold and out. Sometimes less.....the point is there is a market for homes for people who don't have 80k a year income, and guys making 35k would love to have a new home and will be happy with 4/12 roofs, brick, and painted cabinets.

__________________

Gordo

Joasis,

This is where the market is going here. The entry level homes are where the profit is. Case in point: I saw a buddy of mine yesterday at the Depot. He has been sitting on a semi-custom spec across from the Cheasapeake Bay.......he cannot get rid of it. He also has a lot next to that is not selling. In another area of town he has five lots he will be building entry homes (200k in our market) similiar to the ones you describe. The homes around them are selling like hot cakes.

Another builder friend is sitting on a 1.8 million custom we trimmed out back in August. I think he is losing his shirt on that one.

__________________
Looks like some pros were here.

Gordo

I agree with you John.

__________________
Looks like some pros were here.

wackman

Gotta love it. I know a bunch of builders already saying crap like that.

In Portland Oregon there are UGR's (urban growth rings) and they're air tight! They just won't let us develop outside these rings as an anti-sprawl measure, which I feel is good. It's forcing us to make the less desirable areas nicer instead of the typical inner city=poor, suburbs=wealthy. It's also made competion for this land fierce and costs for land here are around 50% higher than the national average (as a percentage of building costs) but home prices aren't as high as our bigger city neighbors like Seattle and Cali.

I have a clause in my sub agreement that has a mandate that if prices by my subs are raised then they must be shopped to be sure things stay on the level, as work slows down the subs will cut their own prices, just as I will cut my sales price, so I won't be hitting anyone over the head for lower pricing. All the big boys out here have stopped most new home starts and some of the biggest have pulled out of the state completely, I know DR Horten has.

I won't be lowering the value of my homes, just raising the perceived value. Those wrought iron balusters seem more expensive to most buyers but actually they're not. The cherry stained Alder hand rails rather than cherry, Etc..

I heard about a study done where a builder took a model home and put a price tag on all the different upgrades and nicer touches in the house and then took a bunch of former buyers and interested buyers and gave them each $25k monopoly money and said "what would you buy". It was pretty informative, basically they barely notice the extra nice things that us tradesmen marvel at like great window wraps, old fashioned box beam ceilings, tankless water heaters and super quiet fart fans. They mostly spent their money on counters and appliances. No one bought the dental course moldings or smooth wall finished rock.

So if I can run a tight ship (I always think that can use work, no matter how well running I get it) and cut some costs with out sacrificing the soul of my product, plus let a new crop of subs take a stab at bidding to really see if my current subs are competitive, then I should be just fine.

I'm not underwater in any of my land and I'm not offering any incentives yet, but then, none of my homes are sitting either.

My cousin is a builder (140 homes this year) he's about to start giving away brand new BMW 525i's or some sort of Lexus with the purchase of his higher end homes that are sitting. He's smart though, he's aiming at their emotions and not just practical lowered price incentives, we'll see if it works.

And Gordo, I even flash the windows under the porch roof, always have and always will.

Wack

Gordo

Good job Wack. Keep up the quality. Just don't get to the point where you have to give away Hummers to sell your homes.

__________________
Looks like some pros were here.

sheeter

I agree with Mike Finley, put more into marketing and advertising. I'm not sure how things are in your area, but in North Carolina, The Home Builders Association puts on a "Parade of Homes" each year. They accept entries in every catagory and the winners for each class are showcased in our state wide newspaper. Their are many builders who have opened their own design center, where clients pick and choose what they want in their new home. These builders typically offer about 6 floor plans to choose from and have a shell sitting on a lot. When a prospective client shows meaningful interest, they start finishing the inside based on what the customer is looking for. We also have a big Home Show every year held at the state fair grounds where manufacturers set up mock-up kitchens, baths, and living areas. Area builders also set up booths with pictures of homes, floor plans, etc. The one thing that I do know is that builders are branded by what class of homes they build and the quality they put into it. The reality of it is that every house you build, once sold and occupied, is a direct reflection of you and your company. Put a little more into marketing, people will pay for quality if they know that it is what their getting.

__________________
Sheeter
"It's hard to be humble when your good"

wackman

Hopefully.

I don't have a ton of inventory to unload and my overhead is pretty low compared to him so I don't expect to be giving away anything.

Plus I have a trick up my sleeve for getting the really good infill land, which hasn't really slowed at all here. I grew up in the area where it's most coveted and have a personal relationship with a lot of people here. Some call me before anyone else so if it's good I can slide in under the radar, give them a fair price, and get a great lot or two, other builders don't even know it was for sale till it's gone.

One of my main marketing plans is I build a nice big elaborate sign in front of the home, not just a little real estate sign but a 4' by 6' nice reflective graphiced sign in a frame that is similar to the columns on the homes with 3 piece crown molding at the top and stone at the bottom. They really set my homes apart because I put them there before construction begins and take names on a list during construction then let everyone on the list make the first offers. I don't usually presell till it's near completion. It's worked well so far and I've had some great write ups in the paper.

Marketing definetly helps but my cousin has spent over $150k in the last 4 months on marketing and he's only had 5 sales during that time, before the slow down he was having that many every 3 weeks. I can't afford that.

Wack