21 Mar Implementing New Custom Home Building Processes
Greg: All right Jason, we’re back. Another week, another podcast.
Jason: Greg, it’s always a pleasure to see you again.
Greg: Last week we were talking about the Design Summit or the conference, I’m not sure what we call it, that Southern Living put on and that you were invited to. You mentioned some of the processes that you learned about and that you were getting geared up about. I was hoping you might explain a couple of those to me.
Jason: We’re constantly looking for ways to improve the building process and improve our customer satisfaction. We do run a service business. Although we build beautiful houses and it’s muddy, it’s messy, it’s still at the end of the day is, “How do we make our customers happy?” We’re constantly looking to refine the process. As part of my Builder Ten Group which is a select group of ten builders, hence the name Builder Ten, that are part of Southern Living, we meet at least monthly and then I’ve actually become quite good friends with several of the guys and we talk not daily, but every week or so. There’s a couple of guys that have really changed their process based on … Let me back up just a second.
When a typical customer builds a house with a builder, they usually will sign a contract and get a set of allowances. Say you’re going to get a $50,000 cabinet allowance, you’ll get a $10,000 tile allowance. You get $4 a square foot for flooring, for tile and maybe $2 a square foot for carpet and the list goes on and on. When somebody signs a contract, they’re looking at the pretty house, they’re just excited. They’re ready to get going and a lot of times they may not think about, “$50,000 that’s plenty. I don’t have to have any detail behind it. I know I’ve got a good builder and he’s going to take good care of me.” What happens a lot of times is the customer goes in and starts to select their cabinets or maybe they have a $5,000 appliance allowance and they go in and they’re like, “I want a Wolf range or a Thermadore range. I want a Subzero fridge.” They had a $5,000 appliance allowance and they’re picking all their appliances, they’re at $50,000.
Jason: All of a sudden the project can turn south and they can get bitter towards the builder and say, “You know what? You knew I wanted nice appliances.” It’s like, “I did. I gave you a $5,000, you can get a nice GE Profile appliance package in that.” They’re like, “That’s not what I wanted.” What happens from that point is one, you’ve got an unhappy customer. You’ve got a $45,000 change order that either you’re going to have to add on to your mortgage or if you’re fortunate enough you have in savings you pay that. It just changes the structure of the process and becomes more adversarial between the buyer and the builder.
Greg: Changes the experience. When you’re talking about process it sounds like you’re talking more about the personal experience and the personal process as opposed to how the house is actually constructed.
Jason: That’s right. What happens from that point is you start to lose a little bit of trust of your buyer at that point. The relationship may start to fizzle. That was just an example. The process is the builder signs a contract with the customer. They haven’t picked out or made any selections yet. The builder goes and puts a foundation in the ground and starts framing and at that point the customer goes and starts making selections. From my experience what happens is they go and make a cabinet selection and they may change it. All of a sudden, 2, 3 months go by, you’ve got electricians in the house, you have plumbers in the house, you don’t have a finalized cabinet plan and then you dry wall.
What happen,s you go on, you put the appliances in and the layout’s changed from the time you wired the house. You end up with more change orders, you got to cut dry wall and it’s just really an inefficient process. That’s kind of a long way to get around what I’m going to say about the process that we’re going to start implementing is when before we sign a contract, we will do a pre-construction contract. When somebody comes to us, we’re going to find out what their budget is or what their budget range is. Design a house to fit in that range and then before we actually sign the final contract, we will send our customer out and we’re going to go ahead and pre-select cabinets, appliances, flooring, tile before we actually start construction.
What happens from that point is, I’ll be able to guarantee you exactly what your house is going to cost before we start construction. There’s no question about the end of the process 9 months to a year later that you’re not going to have the overruns. You’re not going to have the miscues of cutting dry wall, moving gas lines… What happens is you start to deteriorate the quality of the finish when you make changes. Also, your timeline gets increased. Anytime somebody makes a change, no matter what, it always affects something else. It’s a chain reaction. Even if it’s simple as moving a light but then you got to cut dry wall and you got to get the painter back. It’s a snowball effect.
Greg: You and I were talking about this in an earlier conversation that a change order might mean one thing to a buyer and it might mean something else to you. I’m much closer related to a buyer than I am a builder. To me a change order is an example, I want to move a door or I want to add, you were talking about kitchen cabinets, I just want to change a little something. It seems really straightforward. It’s a door, just move it 3 feet to the right or whatever it would be. You’re explaining to me that that 3 foot move or that new door here, it’s not as simple as I would have thought. The change order becomes a bigger project than a lot of people expect.
Jason: Yeah, alot of times when I price a change order to somebody that may think it’s outlandish. At the end of the day, I’m just trying to cover my costs. At lot of times it doesn’t even do it because it’s that snowball effect. Say again, you want to add a door to the outside and you go to Lowe’s and see a door that’s $500, yet I’m going to charge you $2,000. Why is that door $2,000?
Greg: I saw it for $500 yesterday.
Jason: You’ve got to install it, you’ve got to paint it, you’ve got to trim it, you’ve got to insulate around it and then if it’s going to the outside, now I’ve got to run a light socket so you have a light when you open the door to the outside. The grade’s a couple of feet, I’ve got to put steps out, then you’ve got to have a walkway. All of a sudden, it’s that snowball effect. The goal in what I’m trying to do is … You’re not going to be able to select every single item prior to getting started, but if we can get 90 to 95% of those items selected, you sign off on your cabinets, you sign off on your flooring. The customers that I’ve talked to about this new implementation of the process are thrilled about it because they can sit back, know their selections are made. They’ve already picked their paint colors and they can just sit back and watch the house be built.
Greg: I’m curious to know what that will do to the build time, will that make it a longer build or do you think taking a little bit longer upfront to get everything picked out well will make for a smoother build? In the long term the entire process will be shorter, the same or longer?
Jason: You will add a little bit of time on the front-end to make those selections, but your build time is actually going to decrease because so many times, even as customers go through or even people go through neighborhoods sometimes and they’ll see houses sit and they go, “That builder takes forever. That house is sitting. It’s not this…” The vast majority of times it’s because the homeowner hasn’t made the right decisions or they changed their minds so the builder …
If you don’t order the front door, you can’t decide on the front door, you can’t brick around the front door, you can’t insulate around it, you can’t finish your front porch. Again, it’s that chain reaction type event to where you pick all that stuff before you start construction, all of its ordered, lead times as construction activity increases, especially in the Spring time. There’s a lot of construction activity, there’s not a whole lot of workers going around so the more lead time you can provide… The custom cabinet shop we use takes 10 to 12 weeks to make cabinets. If I can pinpoint my delivery day because I’ve already made my selections, it’ll decrease my build time because I can schedule it more importantly.
Greg: During the process, it’ll increase the efficiency, it’ll decrease the amount of time. Are you expecting the people won’t have to make any change orders or just the amount they make will go down? They’ll say, “I thought I liked that front door but I want a different one but at least now I understand the price.” It’s a different kind of change.
Jason: We are custom builders. We still want to give people the options. If we’re building a 10,000 square feet house something comes along they want to change it, they can still change it but the vast majority of those decisions will be made. Then if we need to alter minor things in the process, we can.
Greg: It’s the framework you’re looking to change and really put into place early to make sure it’s a smoother process for the whole entire build.
Jason: Yeah, that’s just it. If you have a smoother process, the builder’s happier, the subcontractors are happy. Even though they get paid to come back and change stuff, most of my subcontractors don’t like to redo their work. They’d rather do it right the first time and they don’t want to charge me a trip charge to come back and add a gas line or move a gas line. They want to get it right the first time.
Greg: That sounds really cool. I’d be interested in talking to you once you start putting this in place. I’d like a report back and maybe we can hear from a client or two about how smooth it was and what a pleasure it is working with you.
Jason: I think that’s a great idea. We’ve got a couple of these new process clients, I don’t want to call them guinea pigs because I’ve got proven guys that have been using it, we’re using some of their processes. It’s just a matter of time. We’ll have some of those happy clients in their brand new Artisan Signature Homes.
Greg: That sounds perfect. We’ll do a podcast from the house and talk to them and make an episode out of it.
Jason: Sounds great. Thanks Greg.
Greg: Talk to you later.
Jason: Bye bye.