Marjie O'Connor: The Buzz on Building

Benefitting from Foreclosures

I've seen several items, including video on our own site, that offer information for builders and remodelers who want to buy foreclosed houses and resell them at a profit. From a financial point of view, it makes a lot of sense — as long as you're willing to take a risk. But I have to admit that the idea of buying the home of someone who had to give it up involuntarily seems a bit ghoulish to me. It reminds me of vultures circling patiently. (There are probably builders who are seeing vultures, too. It's a scary time.)

]]> Still, once a family has lost their home to foreclosure, someone has to take it over. Mortgage companies are not real-estate companies or developers; they don't want to hold onto these properties any longer than necessary. In fact, part of what makes foreclosures attractive as investments is the fact that they're often available for less than the amount owed on the mortgage — and a lot less than market value, even with today's current prices.

When I was house-hunting in December 2004, I saw one house that was a foreclosure. It was beautiful, but the seller had put a lot of work into it. The previous owners had stripped the place of everything that wasn't nailed down — and a lot of things that were. Fortunately for him, prices were healthy enough that the additional investment probably didn't hurt him too much, but I bet he'd be a lot more careful now.

What do you think? Does the idea of taking advantage of someone else's financial crisis seem ... well, kind of bloodthirsty to you? Would you be uneasy buying a foreclosure? Or do you look at such situations as an opportunity to make lemonade out of lemons from someone else's tree? I'd like to know, at least partly because my brain tells me that my emotions are being too squeamish. And partly because I'd like to hear from builders or homeowners who have been able to find the silver lining in the clouds over the housing market.

But another reason is that with any luck at all, we won't see another market like this for a very, very long time. Maybe it's a chance to make hay before the sun shines again.

Is the End of the Bust in Sight?

Yesterday's news that sales of existing homes increased in February offers another bit of hope that the housing market is starting to recover -- or at least stabilize. Other indications include the Housing Market Index from the National Association of Home Builders, which held steady. Although only one in five respondents thinks that the market is getting better, that's an improvement from the 18% who felt that way in December.

]]> There's no doubt that this is good news, but just how good is it? Apparently it depends on where you live; the market appears to be best in the Northeast, but it's still slipping a bit in the West.

There are some legitimate reasons to be hopeful, though. The inventory of unsold existing homes has dropped; mortgage rates are still low; and pent-up demand can be pent up for only so long. Do prospective buyers think that prices are as low as they're going to go? Apparently some of them do.

Despite that, though, the number of new houses started dropped 6.7% last month, according to the NAHB. David Seiders, NAHB's economist, attributes that to potential buyers being nervous about the economy overall. It's easy to understand being cautious about taking on a new mortgage when you're worried about your job.

What are you seeing where you live? Has activity in the housing market picked up at all? Or are you still looking at long lag times between listing a house and selling it?

Green is Everywhere

Last week brought the announcement of yet another certification program for professionals in residential construction. This one, called ReGreen, comes from the American Society of Interior Designers. It follows the release of NAHB's National Green Building Program last month at the International Builders' Show. Other green programs include Green Certified Professional from the National Association of the Remodeling Industry and, of course, the LEED residential program from the U.S. Green Building Council.
.
.

]]> Why so many different certifications? I asked that of some people at the International Builders' Show, sponsored by NAHB. The answers were some variation of "The NAHB program is easier for builders to understand and implement."

Besides, with so many people claiming to be going green and the rise of greenwashing (the practice of claiming to be a green company despite minimal commitment to green practices), it's hard to know who knows what. Does installing Energy Star appliances make a builder green? Well, it's a start, but there are a lot of other considerations, too.

That's why I'm glad to see all of this activity. If I were planning to build a green house, I would want a builder who really knows his stuff -- someone I could work with, knowing that he had the same vision as I had. I know plenty of other people feel the same way; I've heard from some who are frustrated at not being able to find a builder or remodeler who is truly knowledgable about green building.

What's your experience? If you're a green builder, do you plan to get one of the available designations as evidence of your expertise? If you're a homeowner, would you feel more comfortable building a green house if you knew your builder had some kind of certification? Or would you be okay with someone who seems to know his stuff, even without certification?

And where do you seen the green movement headed? Is it absolutely the future of home building, or is it a trend that's doomed to fizzle because no one is particularly interested in green homes?

The Narrowing Window of Opportunity?

Ever since the housing slowdown hit, the bright spot in the construction industry has been nonresidential building. Until very recently, it has been booming with the same enthusiasm as we saw in housing a couple of years ago. More than a few smart home builders moved into that market to even out the turndown in their usual work flow, getting involved with light commercial projects such as strip malls, doctors' offices and restaurants.

]]> But uh-oh -- here comes a slowdown in that market, too. A press release from Associated General Contractors of America warns that the bloom is fading off that rose. AGC economist Ken Simonson cites rising material costs as one reason and labor shortages as another.

He also expects the brunt of the slowdown to hit exactly the kind of projects that those enterprising home builders have taken on; he expects big utility and public-works projects to continue. So while the developer may postpone the new mini-mall down the street, it's likely that the street itself will still be widened according to plan. Unfortunately that's one kind of construction that most home builders and remodelers don't know much about.

If you're a builder or remodeler, what have you been doing to prop up your company until new construction picks up again? Have you tried any light nonresidential construction? Multi-family projects? Any builders tried remodeling?

And what kind of results have you gotten? Do you think it's a good addition to your company's bag of tricks, or is it something you'll quit as soon as that wolf leaves your doorstep?

The Cost of Doing Business

I had lunch today with Bob Gatton, a good friend who also writes for HGTVPro.com. Somehow we got to discussing how little attention some business owners pay to the numbers involved in running a business. Since Bob knows a lot of people in the home-electronics biz, he has seen some sad situations: technophiles who open a company to install home theaters, for example, but who really don't understand how to run a company.

]]> They're not very good at estimating, so they lose their shirts on some (maybe most) jobs. They don't really know how to market the company, because they don't keep track of how their clients find them. They base their labor costs on how long it would take them to do the work, forgetting that employees are rarely as enthusiastic about saving time and money as the bosses. They just love all the cool equipment and want to put it in people's houses -- for money. They're just not real sure how much money.

If you're a builder, you undoubtedly can relate. You've probably spent hours putting together a "free" estimate for someone who either decided not to follow up on the project or to use another contractor. Lots of builders and remodelers are like Bob's friends: They got started in the business by doing the field work, but they never got the education about good business practices that helps them through the rough spots -- like 2008, for example.

By the way, you might want to check out something that's getting great reviews from people who have tried it: a free cost estimator available through HGTVPro.com. (No, I'm not getting paid to plug it; I'm just passing along the recommendation from other builders.)

What do you think is the biggest deficiency in business knowledge among contractors? In my experiences at seminars and conferences, I've seen an awful lot of people attending courses on determining mark-up. They know they're not doing it right, but they're trying to learn how. Sales workshops are perennial favorites. So are classes in using software such as QuickBooks or something that helps with scheduling.

Even better, where did you get your education about running your own business? The School of Hard Knocks? (Really expensive tuition there, I hear.) From a friend in the business? By reading a lot of books? Or are you still wondering where to turn for such information? Let me know. Maybe we can help you out.

Integrated Supply: Coming to a Distributor Near You?

During the first half of the 15 years I've spent writing about the residential-construction business, I worked for a magazine called Supply House Times. Its audience is wholesale distributors of plumbing and HVAC materials, as well as industrial piping for non-residential applications. I was the industrial PVF girl, but I learned a lot about the PHC (plumbing-heating-cooling) side of the business, too.

]]> In fact, one of the advantages I had covering PVF (pipe-valves-fittings) was watching the development of "integrated supply" in that segment of the business. It's a complex process, but defined simply, integrated supply is one supplier providing everything the customers needs to run their plants -- piping, abrasives, fasteners, tools, janitorial supplies -- anything besides the materials used in actually manufacturing their products. One supplier covers the entire maintenance/repair/operations (MRO) line of products.

The advantage: The customer gets only one invoice and pays only one invoice for MRO materials. That saves them a lot of money; any manufacturer that has been in business for any length of time knows exactly how much it costs to process an invoice. (The numbers I saw back then generally ran about $75 each, mostly the cost of the personnel needed to shepherd an invoice from accounts payable through accounting and into the archives.)

My point is that the concept of integrated supply could help cut costs for builders, too. I suspect it's on its way, too -- an idea that hit me when I discovered that Wolseley, a British conglomerate that owns Ferguson -- the largest distributor in the PHC business -- also owns Stock Building Supply, the largest building-materials distributor in the U.S. The result is that between the two companies, they can supply just about everything necessary to build a house -- from the concrete for the foundation to the knobs on the cabinets to the shingles on the roof. And they could do it all with only one invoice to the builder.

In this time of crunched margins, builders are looking for ways to cut costs (or they should be). Establishing a streamlined supply chain with a really good distributor is a great way to do it. You have one point of contact if, for example, the plumbing hardware doesn't arrive before the plumbers need it or the custom-ordered tile for the kitchen is delivered before the framing is finished. (Yes, it's very possible for deliveries to be too early. Where will you store it?)

I know most builders already have relationships with their suppliers. But how could it save you money if you only had to make one phone call to order everything you'll need for the next two weeks? Or the next month? Forget about that $75 invoice; think about the time you'd save.

Does integrated supply sound like something that would work for your construction company? What kind of concerns would you have about doing business this way? What advantages do you see -- or disadvantages? Let me know; I'm interested in finding out where this might wind up.

The Whole World is Going Green

If you were at the International Builders' Show in Orlando last week and did not notice a huge emphasis on green building ... well, it reminds me of the joke, "If you remember the '70s, you weren't really there." Green was everywhere: products, workshops, buttons -- even shirts. (Thursday was Green Day, and many attendees were sporting NAHB polo shirts in the unmistakable shade of newly sprouted grass.)

]]> Of course, a lot of this was driven by the new NAHB National Standard for Green Building, which is "almost ready for prime time," as NAHB says. The organization is proud of this program; a lot of hard work has gone into it.

A big chunk of my work at the show was interviewing some of the industry's movers and shakers. No matter how those conversations started out, sooner or later they all came around to green.

Geoffrey Mouen, architect for the Tradewinds show house, kept energy efficiency in mind through the entire project -- from choosing the site to speccing the products.

Fernando Pages, who built the first PATH Concept Home last year, talked with me about affordable housing and quality, but he emphasized that almost by definition, quality construction and affordability have to be green.

Dick Titus, executive VP of the Kitchen Cabinet Manufacturers Association, is very enthusiastic about that group's highly successful Environmental Stewardship Program. So are KCMA members, it seems; in only 15 months, 90 companies have signed on.

If you're a builder, what do you think are the most important issues that the new guidelines should address? Green building covers a lot of ground, after all; which aspects give builders (and homebuyers) the biggest bang for the greenback?

If you're a homeowner, what kind of standards would you like to see? Is there something about your house that you wish had been done greener? More insulation, maybe, or higher-performance windows?

I have my own long list of "Why didn't the builder do this in my house?" points, of course. If enough builders adopt the new standards, maybe future homeowners won't have to worry about such deficiencies.

Meanwhile, I'm thinking retro-fit.

Off to the International Builders' Show!

It's that time of year again. I leave tomorrow for the International Builders' Show in Orlando, where I'll get to see old friend and make new ones. The thing that has me really psyched, though, is the emphasis on green building this year — even more than last year.

]]> In fact, Thursday, February 14, is officially Green Building Day at the show. (You thought it was Valentine's Day, didn't you?) I'll spend a good part of the day in the HGTVPro.com booth, observing some interviews with people who know a lot about green building, including Bill Asdal, CGR, a remodeler who renovated a 100-year-old farm house into a zero-energy house, and Mike Luzier of the NAHB Research Center, who will discuss the new NAHB green-building standards. Those interviews will be on HGTVPro.com Weekly later this year, as well as on the website.

I'm also looking forward to seeing the many new products related to green building. The number of green products seems to be growing exponentially these last couple of years. I guess that means green is here to stay — at least as far as those manufacturers are concerned.

What about you? Are you doing anything to go green? Adding more insulation to the homes you build or remodel? Sticking with Energy Star appliances? Installing solar-energy systems? I'd love to find out what's going on beyond the walls of the Orange County Convention Center, so add a comment to this blog.

I'll see you when I get back!

Modular Houses and Insurance

I learned something from some of the comments to my previous blog about Systems-Built Houses. It sounds like people who own them sometimes run into trouble getting homeowners insurance because insurers assume that a "manufactured" home is a trailer and therefore not very durable. I didn't expect that at all, but considering the huge gray area in defining manufactured housing, I guess I shouldn't have been surprised.

]]> I'm really intrigued by this now, especially since so many modular houses are being built in the areas devastated by Hurricane Katrina. It will be hard enough for those people to get insurance on their new homes because of the location. Will they have to deal with misconceptions about the quality of construction, too?

How did those of you who have run into this problem solved it? Did you have to provide some kind of documentation from the manufacturer? Get a house inspection by a licensed inspector to verify the strength of the home? I'm eager to hear any and all stories — and I know some homeowners out there are, too.

Systems-built Houses

It's hard to find information about systems-built houses. For one thing, it's not the catchiest term in the world, and it's not common outside the construction industry. If a homeowner wants information about a house other than stick-built, he's likely to search for "manufactured house," ending up with a lot of info about what used to be called trailers.

]]> I know this because the first time I tried to find information about "pre-fabricated" houses on the Internet, that's exactly what I got: lots and lots of photos of double-wides. When I changed the search term to "modular house," however, I had much better luck.

While "pre-fabricated" houses have had a bad reputation over the years, maybe it's time to take another look at them. Today's systems-built houses cover the gamut from starter homes to mansions. It's very hard to tell that they essentially were built in a factory miles from the site on which they now sit.

And manufacturers of modular houses are quick to point out that their products have to be better than a stick-built home. After all, it has to withstand a journey on a flatbed trailer from factory to homesite. (The thought of trying to move my house gives me a chill. As some of you regular readers know, it was built to code. In other words, it's the lousiest house the builder could legally produce.)

I've about decided that, in the unlikely event I ever build a house, it will be modular. I follow the reasoning of the manufacturers; it makes sense to me that the houses would be stronger structurally.

But I haven't discussed the topic with any builders. So what's your take on the quality of modular houses? Do they live up to the standards their manufacturers tout? Or are they closer to funny-shaped double-wides? I'm looking forward to hearing from you pros. You're the people who really can spot quality construction. Throw in your two-cents worth.

Tools We Can't Live Without

Everybody in the construction business has some favorite tools that they'd hate to give up. And with the advent of electronic communication, the list of favorite tools has expanded to include such things as cell phones, BlackBerries and laptops. For many contractors, a cell phone is their main business line.

]]> Since I don't build stuff, I can't list my favorite tools for the jobsite. However, I think that if anyone tried to take away my computer, I'd be likely to turn quite vicious. Computers certainly revolutionized media -- and just about everything else. I think that at some point in the distant future, the microchip will be recognized as one of civilization's great inventions -- right up there with the discovery of fire and the wheel. And the printing press, which was named the most important invention of the last 2,000 years. (Think about it. Where we be without books, manuals, etc.?)

But when I get busy on home-improvement projects, I reach for my cordless drill a lot. It took me a while to find one that was smaller and lighter than my husband's -- one I can use with one hand. I'm hearing more about manufacturers coming out with other tools for female users, and I'm looking forward to seeing some of them next month at the International Builder's Show.

What's the one tool you'd hate to give up? Or the top two or three? And why do you find them so essential to your job? I'll be interested to see how the list shakes out.

How Important is Quality to Home Buyers?

I got a thought-provoking comment on one of my blogs from a while back. While the comment doesn't relate directly to the topic of that blog, it raises a valid point -- one that I've heard before. The comment comes from Lou Marlin:

"I have remodeled all my life, built homes from the ground up, and designed several for friends and family. My son and I decided to use my knowledge and his to become contractors. We built our first house, which is on the market now. What I found out is people don't necessarily want good; they want cheap. We built this house with the best materials, and the way you would want one if it was for yourself. Well, that didn't impress anyone. They want cheap, not good. It has a nice lot with mature trees all around the property but cheap stands out! I have learned a lesson from this house."

]]> I hate hearing stories like Lou's. Here at HGTVPro.com, we're very big on quality issues, such as best practices and green building. We have about how to convince people that quality is in their own best interests and that quality really doesn't cost more in the long run. (To read some of them, click here and here.)

But, of course, the final decision lies with the customers. One builder told me that people would rather have stylish granite countertops than the most energy-efficient options he offered, even though he explained that in the long run, a high-efficiency HVAC would more than pay for itself. No wonder Lou and other quality-minded builders are frustrated!

I know from personal experience, too, that a lack of quality can be a big problem for homeowners. I live in a production-built house that would have benefited enormously from a few relatively inexpensive changes: deeper overhangs, more efficient HVAC, more insulation, and thicker subfloors are just a few that come to mind. (And no, I didn't lose those because the builder decided to upgrade elsewhere. I'm still stuck with very cheap laminate countertops and vinyl flooring. Typical McMansion: big house, lousy quality.)

What's your experience as a builder? In this demanding market, are prospective buyers looking for better quality? Or do they want a bargain price on a house that may look good but won't perform well? Just how much lipstick can you put on a pig before it becomes attractive?

And if you're a homeowner, what are your thoughts about this? Would you be willing to pay for quality construction instead of square footage? Would you look for energy efficiency instead of Brazilian cherry floors?

And most important, do you think there is a way to get quality and affordability in the same package? I suspect there is; I just wonder if anyone else believes it.

What's Hot and What's Not

One of the things I like the most about the start of a new year is the flurry of predictions about what we can expect in the next 12 months. For the second year now, HGTVPro.com has published Realtor Mark Nash's take on trends that will continue, as well as those that have just about run their course.

]]> A lot of Nash's trends are familiar: outdoor spaces that live like indoor rooms; energy efficiency; and destination bathrooms that go far beyond the old "necessary rooms." But a couple of items really caught my eye.

One was the increasingly popular pet shower. Now, I have friends who had one built in their new home, but their dogs are Newfoundlands, which can weigh more than 150 lb. -- definitely too big for the laundry-room sink! I had no idea, though, that so many people want doggie showers in their homes.

Another surprise appearance on the list was floating homes. We're not talking houseboats here; these are full-sized houses that sit on stationary barges. While researching this kind of house, I came across one that has 2,500 square feet on two stories -- and a big hot tub on one of its decks. Floating houses seem to be particularly popular in the Pacific Northwest. (Remember Tom Hanks' digs in Sleepless in Seattle?) And no lawn to mow!

What about you? What trends do you see coming along? Are your customers looking for particular features? Have you lost any sales because you didn't have some unusual feature in your house? With the new-construction market still gasping, what special touches are you using to help convince buyers that your house is the house for them? And have you seen or heard anything about other trends that seem to be on the horizon?

Let me know. As I said, I love this stuff!

Who Loves the U.S. the Most?

This is a topic I've discussed before, but I just read an interesting commentary in Time magazine about immigration. The author, Michael Kinsley, makes an interesting point: Everybody is in favor of obeying the law. What we should be worrying about is whether or not the law makes sense -- and changing it if it doesn't.

]]> And he asks a very good question: If it's the illegality of illegal immigration that bothers us, how would we feel if the limits on immigration were raised to, say, twice what it is now? Would we say, "Sure, no problem. As long as immigrants come into the country legally, it's fine with me."

I doubt it. The influx of immigrants has had a big effect on the job market, which is relatively healthy at the moment. But if the country goes into recession, that could change. Would our attitudes toward immigration change, too? Would we see a bigger threat to our own jobs?

Then think about these statements from Kinsley: "To characterize illegal immigrants as queue-jumping, lawbreaking scum is seriously unjust. The motives of illegal immigrants ... are identical to those of legal immigrants. In fact, they are largely identical to the motives of our own parents, grandparents and great-grandparents when they immigrated. ... Ask yourself, of these three groups -- today's legal and illegal immigrants and the immigrants of generations ago -- which one has proven most dramatically its appreciation of our country? Which one has shown the most gumption, the most willingness to risk all to get to the U.S. and the most willingness to work hard once here? ... Who loves the U.S. most? On average, probably, the winners of this American-values contest would be the illegals, doing our dirty work under constant fear of eviction, getting thrown out and returning again and again."

That's what really got me thinking. My great-great-grandfather came to America, and I bet being here meant a lot more to him than it does to me. Don't get me wrong: I love the U.S., and there is nowhere I'd rather live. But I didn't have to leave behind everything I knew and everyone I loved to get here. I only had to "pick" the right parents.

What do you think? Does the determination of so many people to get into the U.S. indicate a passion for the American way of life? Or just a better way of life than they have at home? Is it any different from what motivated the immigrants of earlier generations? I don't think so.

Housing Crunch is Less Painful in the Long View

I got a press release today from the National Association of Realtors that contained some good news on a couple of fronts. First, the NAR reports that the median price of existing houses for sale has actually risen in most of the markets they surveyed. And second, the value of existing homes is still holding up quite well when you look at the big picture. In other words, unless a homeowner bought at the peak of the housing bubble, he or she will still do just fine with appreciation over the long haul.

]]> That doesn't make the current pain go away for builders, but it should offer some reassurance to people who bought a house in, say, 2004 or 2005. I fall into that group, and I was very glad to see my gut instinct validated. I'm not planning to sell my house for several years yet, so I'm pretty sure I'll recoup at least what I paid for it.

And it should help you remodelers out there reassure prospective clients, too. While they might not get the same payback in equity for a remodeling project that they could expect a couple of years ago, they're still making a good investment, especially if they plan to live in the house for a while. They'll get to enjoy the results of the project and get most of the money out of it when they finally do sell.

What are you hearing from your customers? Do they believe that their homes are still a great investment? Or are they hesitating to sink money into improvements?