Production Builders

Production Builders.

In my last blog entry I gave a very general explanation of how custom and smaller builders operate. We were talking about companies that build up to 30 houses a year or so. They are owner-operated, and have a small and nimble staff. For the most part, they are able to hold the details in their heads, and customers are quite involved in the week to week building of their home.

Now let’s imagine that to 30-home-a-year builder has the chance to expand to 55 homes. Along with this, they may open up an additional site. All of a sudden, the small and nimble staff can no longer cope. There are too may details, and each specific task takes more and more time. The builder then has to start using more sophisticated managing and filing methods. They also have to hire more people who have fewer tasks. The owner-manager soon finds himself driving all day from site to site, so he hires a site foreman. With the increase in the number of homes under construction, they begin building with stricter schedules. They may also have to consider hiring people solely dedicated to after-sales service issues. So now there are separate departments within the company.

In short order, the owner realises that he has office and site overhead expenses that can’t be supported by 55 homes per year. He also realizes that the sales and construction staff that is required to build 55 homes per year is efficient enough to build 155 homes per year. So he has to decide: does he get bigger, so the new set-up can work efficiently, or does he shrink back to the 30-per-year level.

This is why we see very few new home companies that build between 30 and 100 homes per year. Companies are small, nimble and more customized, or are bigger, more efficient and affordable, but less customized.

This is a tipping point issue that affects the home buyer and the whole home buying experience.

The primary differences are: the buying process, the degree of customization, and price.

For the bigger builder, the sales process follows predetermined steps for the signing of the Agreement of Purchase and Sale and the structure for deposits. Likewise, the process for selecting upgrades and custom changes are done according to firm cut-off dates. For the smaller builder, the process is often more informal.

Because the owner /manager of the smaller builder is often on site, the customer can visit the home during construction, and custom changes can be made on the fly. The bigger builder will typically offer a broader range of floor plans, but will not offer as big a range of customized architectural changes. Furthermore, because the sites are bigger, and the homes are built according to predetermined schedules, the bigger builder will not allow changes after a certain date, and site visits are restricted due to site safety ordinances.

For bigger builders, there is an economy of scale. The construction process is streamlined, and by moving from excavation to completion without any interruption, and according to a tight pre-determined schedule, the same house can be built at a lower cost than the one built by a custom builder.

This, of course, results in a lower price. For the customer, there is a trade-off. For the same home, you can buy it from a custom builder, and be directly involved in the all the choices that need to be made, right up to completion, with the opportunity to make alterations all the way along.. But your home will take longer to build, and will be more expensive that the one provided by the bigger builder. In some cases, it can be as much as 25% more expensive.

With the bigger builder, you have a huge array of choices to make with respect to finishes, but you will have to make all your final decisions before the onset of construction. You will not be able to visit your home while under construction, unless accompanied by a site foreman. And your house will be build a little faster, and at a lower price to you.

Of course, I’m speaking in broad generalities in this blog as well as the last one and for the record; Tartan Homes is a bigger builder, as we close anywhere from 150 to 250 homes per year.