Monday, June 6, 2011

PLAIN TALK ABOUT $ PER SQUARE FOOT


Costs “per square foot” are like the 10-day weather forecast: they exist because there is a huge demand for them and the fact that they are usually woefully inaccurate is hardly ever factored.

To use a favorite Bushism, “there’s a lot of misunderestimating going on.”


When comparing costs per square foot it is critical to make sure you are using an apples-to-apples comparison. On the top of the equation ask yourself what costs are included. Does it include landscape, hardscape, permit fees,  cost of money, sales tax and contingency?  Then you have add other things like impact fees, design and engineering fees, etc.

If a modular home is what you are building, a lot of these items are included in the factory’s costs to the builder.  One of the biggest benefits of building modular is that the builder can quickly give you a price on the home alone and then start pricing the other things if you agree that the house is in the price range.

On the bottom of the equation, what exactly, is the area measured? Just livable spaces, or are the garage, mechanical, storage, covered areas, deck and patio areas also included?

Manipulate these numbers for any project and you can easily have a 100% swing.


And that’s not accounting for what I call the Pinocchio effect; sometimes the most telling metric would be the builder’s nose length, measured before and after they spout out these numbers. 

5 comments:

Anonymous said...

Agreed. However that is the first question most people ask. One must have a great answer. First impressions mean alot. Is the answer give me some money so i can design and then quote. Sometimes yes and sometimes no. Kowing your customer and competitors is essential.

Great post coach. Hopefully you will have some duscussion.

Anonymous said...

I also agree. I try to work with builders to get the cost of the modular home I sell them as low as I can without losing quality. Then I see some of them playing all sorts of pricing games with their customers just like the ones you talk about and I wonder why they beat me up so bad when they are just shooting prices out their butt.
Most of my builders work for days getting all their costs accurate and watch as the buyers shop it at other modular builders who just look at the quote and beat it by 1% and get the job. This is a loss for both my builder and me who worked hard and fair on trying to do the best for the buyer.
I've had builders with quotes from one of my builders actually call my company and ask for a quote on that exact house. And my sales manager gives the lead to another sales rep who quotes the house and gets it.
Damn, this is a crappy business sometimes. I hate my sales manager but I need this job.

Anonymous said...

Anonymous 6:02am - the problem you have is NO LOYALTY from the builder you were quoting. This is a VERY BAD sign if that is a builder you call a member of your distribution network. If that is the case you need to designate him/her for replacement ASAP.
If the example was a builder you were trying to recruit - well the result is real world events. A builder who has not committed to you and your company will shop you to death. The only way around this is to set criteria BEFORE you quote. Now in thi market I know this is tough as you need to get any business that is out there; but, if you set up some criteria I think you will be happy with both short term and long term results.
In the meantime keep beating the bushes hoping a bird flies out.

Modular builder in VA said...

I'm a modular builder in VA that gets shopped all the time. I try my best to make people understand what I offer and tell them that a lot of builders don't include everything like I do.
Then I lose them to another builder on price alone only to hear through the grapevine that they are having to either cut stuff from their house or come up with more money because the other builder underpriced their home.
I feel sorry for them but I try to warn them. The biggest problem is that they are now off the market and committed to a less than honest builder and I have no shot at getting their business.
With the way house building is going right now, maybe I should start cutting corners and start lowballing my houses to get business. But I couldn't look at myself in the mirror if I did that.

Isaac said...

I agree that this is a major problem. Most manufacturers use the total area of the mod floor decks for square footage and for obvious reasons do not include site-built garages in the calculation.

Some of our prospective clients who have bids from conventional contractors are quoted square foot prices for the floor area that you can walk on (without walls), plus many times the garage is included in the price of the home but not in the square footage calculation. Specifically in California with strict F.A.R. (Floor Area Ratio) requirements that restrict the square footage, it is in the interest of the client and contractor to look like they are building as small of a unit as possible.

Like a lot of other things with the modular industry, confusion breeds from this situation and we lose customers because we are not the majority of construction voices and we don't talk the same language that that prospective clients are hearing from the majority. In most other areas of the business world a period of rapid growth in the future would only be possible if the sub-industry standards align with what is generally accepted in the rest of the marketplace.