In the chaos and hysteria that followed the bubble-burst last fall, there was a good deal of panic and a lot of shoulda-woulda-coulda talk. Well there’s no preventing what has already happened. We can, however, begin to do something about, as well as make absolutely sure that we learn from past mistakes. The building industry has a proven cyclical nature; a nature that many builders failed to recognize during the lucrative boom that preceded the equally destructive fall.

In order to help builders avoid another crash, or at least find a way to weather the next drop (assuming an impending rise), Builder Online has compiled a list of lessons for builders to take away from the current recession. Designed to illustrate some rare recession successes and prepare for a smarter boom the next time around, the six lessons are summarized below:

1. Build Smarter. Think energy efficiency, renewable energy, and smaller, lower maintenance homes. These will be key attributes of the recession-era home for the eco-conscious consumer and a government likewise determined.
2. Limit Land Holdings. Some builders were buying up every site in sight during the boom, many of whom have been left holding their hats. On the next go round builders should be thinking twice about purchasing land before its true value is known.
3. Find New Cash Streams. Banks have folded their arms and zipped their books shut in the wake of mass failures. Therefore credit is rather hard to come by these days, so some builders have been searching outside the banking arena, even overseas, or signing deals to finish projects acquired by lenders via foreclosures.
4. Respond Quicker to Market Conditions. The general excuse for recession-weary builders is that they were caught completely by surprise when the housing bubble went bust. Some builders recognized the coming storm early and began downsizing. Others are reacting with inventive programs such as mortgage protection and new marketing schemes, or reenlisting the age old tactic of keeping in close contact with former clients.
5. Value Workers and Trades. Layoffs have been rampant, and those employees remain with builders have had to take on a wider number of tasks and learn new skills in the process. Hence the value of cross-training employees, as well as appreciating subcontractors and suppliers to a much higher extent.
6. Diversify. Some builders get stuck in the stigma of single-family, new home construction during a time when new homes aren’t being built. Those builders who have diversified into multi-family and commercial building, including remodeling, are generally doing better during these hard times.

For the complete article, including more detailed explanations for each of the above lessons, check out 6 Lessons for Builders from the Housing Bust.

Many homeowners who received remodeling bids a year ago are finding that the same project today would cost thousands less.

Take for example Michael Perkocha and Tina Stott from Oakland, who just purchased a bungalow for $630,000. Last year they were getting quotes in the $250,000 range and decided to postpone remodeling because they couldn’t afford it. This January they got quotes ranging from $102,000 to $170,000 and ended up going with a contractor whose bid was $129,000. That’s a $121,000 savings!

Such deep discounts allowed them to upgrade their flooring from laminate to oak and upgrade their countertops from Formica to granite. They’re also able to add crown moldings and energy efficient windows.

Besides saving a huge chunk of money, the work is almost complete at three months, opposed to the six months they had figured on, and they’re under budget. These are huge marketing points for contractors: big savings, ahead of schedule, and under budget.

At the beginning of the year, Jack Schocker decided it was time to remodel his vacation condo in Sarasota Florida. He got estimates for replacing a couple cabinets in the kitchen that were damaged by water from the condo next door. After talking with one of the contractors he realized that for less than $30,000, he could completely redo the kitchen and remodel two bathrooms. He and his wife were going to redo everything anyway in a few years down the road. So, even though they hadn’t planned on a total redo so soon, with prices so low they decided to take advantage of the times and do the big remodel.

The word is getting around and making homeowners think, labor costs are down by 10 to 20 percent, prices for materials like lumber, steel, and copper are down, contractors are readily available, and the job gets done faster…hmm, maybe remodeling now would be a smart investment.

Homeowners who are remodeling this year are able to spend less, get a higher level of quality, and enjoy their new remodel much more quickly, and this is what contractors need to get across to homeowners. If you’re bidding a small job like Jack Schoker’s replacement cabinets in Sarasota, it pays off to mention that you can completely redo their kitchen at XYZ dollars.

Resource:

http://www.nytimes.com/2009/04/23/garden/23renovation.html?pagewanted=3&_r=4&emc=eta1

There’s a first time for everything, and this isn’t it.

It is important to remember, no matter how bad a recession gets, that this is not the first go round. Veteran contractors — those who’ve been at it for 20-30 years — have been through times like this. And they’ve stuck it out. It is the reason they call it “building” years in the business. We cannot always coast as we did before the housing bubble popped, but it is important to stay active regardless of the market.

The building never stops, but if there is a shortage of homes to build then it is time to work on building the business. Most longtime remodeling contractors will tell you that a big portion of their client list and their friend list is interchangeable. Lean times are great for building a relationship, building trust with clients.

The first contractor I ever worked for had no sign on the side of his trailer. No T-shirts. No advertisements in the newspaper. The only place he’d ever placed an ad was in his church bulletin. He believed firmly in word of mouth and building a rapport with homeowners. He will drive (and has driven — I was there) 25 miles to fix a screen door. He loved and trusted his craftsmanship and let it carry him through tough times. Even after 30-plus years as a contractor, and despite one of the worst economic crises ever to face our country, he still works.

Rising above the bottom line.

Most successful remodeling contractors have learned that their bottom line is not the bottom line. In other words, they never take on more work than they can do well, and they see less work as more time to hone their skills. And over the many years of thick and thin, they’ve managed to become masters at their trade, steady and prepared for downturns because they’ve seen them before (we all have or we all will), and believe in high quality at a fair price.

This may sound like common sense, but many contractors panic during difficult times. Perhaps forced to compete heavily for work, they become obsessed with the bottom line. They begin offering the lowest prices thinking that quantity is more important than quality. One of two things usually happens: One, they cannot do the work for the price stated, losing out on profit and ultimately their business. Or two, they are forced to provide lower-quality work, which results in more callbacks and repairs, which often results in lost profit and endangered or extinct business.

The long haul.

Many young contractors are struggling right now but, as the late Douglas Adams wrote on his Hitchhikers Guide to the Galaxy, “Don’t Panic.” Only each contractor knows what is truly best for their own business, and sometimes it is smart to cut losses, but there are advantages to building years in the business. From diverse and sharpened skills to community involvement, a long life as a contractor can be very rewarding. Just remember that this is construction and you must love to construct, as any old timer will gladly tell any one of us, possibly for a long time.

Our natural inclination in times like this is to look for ways to cut costs. One way to do this is to target unnecessary or unproductive programs or services. Even though green-related ventures may not yet be your top producers, don’t give them the boot quite yet. Your company can benefit from more eco-friendly practices in more ways than you might imagine.

First of all, if you are looking for ways to cut expenditures, how about recycling and reusing wherever possible? Look for ways to reduce the amount of materials used; in other words, conserve and reuse. Not only can instilling some more eco-friendly practices into your daily routines help your bottom line, but offering green building to your customers may potentially help your business to grow.

There is an emerging trend amongst younger homebuyers that consider green living of the utmost importance to them, and they need a builder who is knowledgeable about and able to accomplish LEED standards.

So, not only can you save money by implementing more eco-friendly practices within your business, but you can tap into a growing market and have the potential to grow your business, recession or not. Sustainability could very well be your best defense against this recession.

The town also flooded with contractors. Anyone with a hammer and a pick-up truck was in the business. But when things started to collapse (last I heard the number of homes on the market was up roughly 1000 percent), many contractors were left holding their hammers. That’s when the undercutting started. Bids dropped like Wile E. Coyote off a cliff.

Suddenly we were losing work, right out from under our noses, because everyone was trying to cut costs. For a time, quality of work gave way to quantity of work, often awarded to the lowest bidder. Not surprising, this only complicated things. Just a few months later we found ourselves being hired to finish work left incomplete by low-balling contractors who were either fired or just disappeared.

The moral of the story here is that underhanded bidding is not only unfair but unhealthy as well. Unhealthy for business, unhealthy for everyone involved. Even in a time of recession, the traditional rules of bidding still apply and contracts are not won, nor is work retained, simply through low bids.

Now, of course competition is high, demand low, and everyone has to lower their prices, but good contractors know the business and know reasonable prices. It is these contractors that work with each other and form a community of builders that will weather such times as these.

It doesn’t take long, as illustrated above, for low-balling, high-risk contractors to be weeded out. The essential fact remains: The best way to win a contract is by establishing a good rapport with the homeowner. And that still comes from being honest, knowledgeable, and diligent in your craft.

I spoke with the general contractor and owner of a construction company recently. He spoke about how he is giving out his personal cell number and answering all calls. In a fairly rural area, he is willing to drive a couple of hours each direction to give estimates if it leads to more contracts. He has a crew to keep busy, and he knows they depend on him to generate business for their own livelihoods. Not only must the small business owner carry the burden of their own finances in this economy, but those of their employees as well. As this contractor realizes, he must be available at all times to potential clients to make sure he doesn’t lose any prospective jobs.

Using this same company as a firsthand example, they have also increased the amount of services they provide. They have implemented high-tech software to facilitate plan drawing and design, created a website integrated with local real estate companies, and volunteered their services at a few high-profile community events. This progressive approach to advertising has helped their reputation and made their company name more recognized throughout the community.

The key to customer satisfaction is quick follow-through and reliable service. If someone experiences a problem with a job you’ve done for them, the longer they have to deal with the inconvenience, the more resentful they become of you.

If times are slow for you right now, resist the temptation to charge more for your services. Homeowners know there are a lot of hungry contractors out there, and they have their pick of the cream of the crop. Remember, customer satisfaction is the key to repeat and referral business.