Clear Estimates - Remodeling Contractor Construction Estimating Software

First Quarter Prices Released, New Labor Rates

Wednesday, January 13th, 2010

On 1/2/2010 we uploaded the most recent pricing data.

Also, new recommended Hourly Labor Rates (HLRs) have been posted. Click here to view them!

All subscribers should have received a notification email from RemodelMAX. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

Most Building Materials Subject to Minor Price Corrections

• Dimensional lumber prices increased 4%.
• Fiberglass shingle prices down 2%. Plywood pricing up 2%.
• Fiberglass insulation decreased 2%.
• Wood stud pricing stayed constant.

Here are some other relevant articles:

Not for the Fainthearted

By Patrick O’Toole
Qualified Remodeler
November 2009

The list of motivations for striking out onto one’s own and starting a remodeling business is long, but here is a good start. There is a desire to make more money. There is a strong desire to not let your ideas make someone else rich. There is a desire to chart one’s own course in life, not to be controlled by a course or business path that other people choose. There is a strong sense that you have hit upon a unique value proposition, perhaps a niche in the market that is underserved. These, among other motivations, lead many to start a remodeling business.

Onetime Qualified Remodeler columnist Michael Gerber famously called this moment an entrepreneurial seizure. The humor and the dark underbelly of Gerber’s phrase “entrepreneurial seizure” is that starting a business is not usually based on sound reasoning or even business sense. It represents a leap of faith that you will hit the ground running and never stop. This industry is filled with great carpenters who dropped their tool belts to market and sell jobs, to price them and build them. The hard reality of being in business means having to spend time doing things you may not enjoy or even be good at.

This leap-of-faith is often rooted in an overestimation of one’s own abilities. A lot of very talented designers and trim carpenters create businesses that are craft based. Among many of these, there is a sense that the excellence of their core skills will carry the business forward, and money will follow naturally. This does happen for a lucky few who are well connected to a network of paying customers. But today’s remodeling market is not as frothy on the demand side anymore. And the scope of jobs has shifted dramatically. More people are looking for house doctors and fewer are looking for a modern-day Michelangelo.

Successfully running a business requires a combination of skills that is not often found in one person. In 2010, the remodelers who will thrive will be the ones who see the challenges of the road ahead clearly and prepare to address those challenges ahead of time. Sales and marketing will be the No. 1 challenge for most remodeling firms. Take a day or two days this fall/winter to put a plan together that you feel will work. Then seek out expert opinions to tweak that plan. Lead costs are growing. You need to be sure that your plan is an efficient one.

Challenge No. 2 is really a group of challenges posed by a changing regulatory environment that have been in the offing for many years. How prepared are you to perform lead clearance testing on homes built before 1978 where children are present? Do you have a plan for communicating with your customers about lead-based paint given the April 10th implementation of the new lead-based paint rule? Have you identified a place to get the training you need? The new year will also bring with it new options and requirements with regard to providing health insurance to your employees. Some of you, who do not now offer it, may be required to do so. Is there someone on your team who is prepared to handle the issue of health insurance? Do you have a good insurance professional that you can rely on?

The new year will bring an improving market for remodeling activity, but it will also bring with it a set of challenges that will test your full range of business capabilities. Unfortunately, the fun and rewarding part of the business creating great solutions for customers will not be your sole focus for 2010. The one indispensible trait for successful remodelers will be overall business resourcefulness. The winners will listen to others. They will cast a wide net for business ideas and for people to help them navigate this challenging business environment.
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Indicator Points to Cyclical Bottom for Remodeling, Start of Recovery in 2010

The Joint Center for Housing Studies
October 15, 2009

CAMBRIDGE, MA – The declines in owner spending on home improvements will moderate through the end of 2009 and first half of 2010 according to the Leading Indicator of Remodeling Activity (LIRA), released today by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The indicator suggests the remodeling industry is turning a corner. Annual spending levels should start to rise in the beginning of next year causing year over year declines to shrink to 8.9 percent by the second quarter of 2010.

“Remodeling spending by homeowners shows early signs of stabilization,” says Nicolas P. Retsinas, director of the Joint Center for Housing Studies. “While the housing recovery has been erratic, a strengthening economy could produce spending increases on home improvement projects by the second quarter of next year.”

Some positive signs for the industry are emerging. “Favorable financing costs – for those households with access to credit – and a pickup in homes sales are producing more opportunities for home improvement projects,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies. Several factors, however, still impede remodeling growth. “A generally weak housing market with unstable prices, near record levels of foreclosures, and other distressed sales are discouraging households from undertaking nonessential remodeling projects.”
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Radical discounting is business suicide
Remodelers won’t survive long slashing prices

By Wendy A. Jordan, Contributing Editor
Professional Remodeler
October 1, 2009

Can remodeling contractors survive a strategy of radical discounting?

- Kitchen and bath designer, California

The short answer is no. If you slash prices deeply to generate business, you may see success in the short-term, winning contracts from bargain-hunting homeowners. In the long run, though, you are setting yourself up for failure.

Radical discounting is a topic that stirs strong emotions among established remodelers. I contacted several around the country, and they said it is business suicide for all but extremely large companies, and eventually those giants, too. As design/build remodeler Iris Harrell of Harrell Remodeling in Mountain View, Calif., put it, the only way to survive radical discounting is to stop doing it. Now.

Say you cut prices by 20 percent or more, which is one general definition of radical discounting. You’ve fried your profit and probably a good share of your overhead coverage. Even if the low prices draw new business, your company has only so much sales and production capacity. You’ll never be able to make up the lost revenue through increased volume.

Radical discounting carries another danger as well. It devalues your company. And once you start down that road, it’s hard to turn back. Jesse Morado is a remodeling pro who now runs a residential remodeling consulting firm, Renovation Coach, in Atlanta. He warns that repositioning yourself as a low-price company moves you into the market niche of bottom-dollar companies. It’s a whole different world where buyers fixate on price negotiation and don’t think about the workmanship, customer service and reliability. You will have to cut corners to save money perhaps reducing the number of workers on the job, providing less frequent production oversight, scheduling fewer dumpster pickups, doing less painstaking site protection, and so on. All this raises the risk that you will make more errors, fall behind, disappoint your clients and sow the seeds of negative PR. That’s a deadly price to pay.

Moderate price reduction is a different matter. Many remodelers are tightening their operations to lower their estimates a few percentage points. The difference is that they are calculating the price cuts around careful cost cutting that protects the quality of their remodeling product and safeguards their profit margin.

Morado says that by doing a line-by-line analysis of projects completed in the last year you may be able to identify a 25 percent savings without altering your margin. Look at the schedule: Is there waste? Can you shave off some labor hours? Could you save money, without hurting quality and control, by subbing out some aspects of production? And so on.

Over the past five years, Dave Bryan has systematically cut costs within Blackdog Builders in Salem, N.H. Today it costs $1 million less to run the $5 million-volume operation.

At Atlanta’s Small Carpenters at Large, Danny Feig-Sandoval is doing a company-wide cost analysis now. He’s looking not only for savings within the company; he’s asking suppliers and subcontractors to pass along savings. He’s also shopping other high-quality trades, which he figures may uncover better prices and keep him more attuned to competitive rates.

Belt-tightening may enable you to reduce your bids somewhat, but they are likely to be higher than the prices quoted by low-ball companies. So be it. You also can offer multiple options, including modest, economical designs, along with more full-bodied plans. For example, says Harrell, you could base estimates on grade A or good-quality-but-less-expensive grade B cabinets, depending on the homeowners’ priorities and budget.

Posted in Pricing Trends | No Comments »

Third Quarter Prices Released

Monday, July 6th, 2009

On 7/1/2009 we uploaded the most recent pricing data. All subscribers should have received a notification email from RemodelMAX. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

• Dimensional lumber continued to slip lower by 5% or more during the past quarter.
• Drywall stayed low and stable.
• Fiberglass shingles continued to climb at a steady rate with some areas up by 15% over the past 3 months.
• Plywood costs remained stable in many areas but also increased up to 5% in some areas.
• Brick costs decreased in most areas.
• Fiberglass insulation costs dropped across the country, in some areas as much as 20% during past 3 months.
• Wood stud costs stayed fairly stable, dropping by 5% or less in a few areas.

Here are some other relevant articles:

The Perfect Time to Grow Market Share

Bruce Case Explains Why Remodelers Need to Grab Market Share Now

Bruce Case, Contributing Editor
June 1, 2009
Professional Remodeler
Contributing Editor

If your sales have shrunk by 50 percent in the last 6 months, are you a bad business person? It depends. How many remodeling projects are being done in your service area within that niche?

Have the total available opportunities for remodeling also shrunk by 50 percent?

This is called market share, and it really matters. Market share is determined by dividing the number of your company’s projects by the total number of projects done by all homeowners in your target market, i.e. kitchens and bathrooms for upper-middle-class households. Market share tells you what percentage of the total market you have captured.

It seems sort of philosophical to bring all this up now when we are all fighting for the same jobs, dancing with the temptations to lower margins and trying to hold on to our team members. We should be beating the streets, trying to get every nickel we can and not worrying about data crunching or statistical analysis, right?

But now is precisely the right time to bring this up. Now is the time to gain market share on our competitors so we can help pay the bills in the short term. Competitors have cut back on their marketing budgets, our team members are more eager to participate in their communities (think home shows, parades, seminars, etc.) and we need to be as competitive as possible.

In the mid-term and long-term, market share will rocket our business to new heights. In the short-term, there is less demand for remodeling. Regardless of how much market share we garner we are still shrinking. In the long term when the economy bounces back, any increases in market share we gain now will multiply our revenue exponentially as the pool of remodeling demand grows.

Cash and corporate energy is tight. So if you buy into this concept of market share, what can you do about it? Here’s a sampling of our initiatives:

1. We spend some of our marketing budget on branding. These efforts, which typically are spent on more traditional forms of marketing (radio, print advertising, etc.), are not expected to generate direct leads. With these we want to build our brand; we want to plant the seeds that grow into future market share.

2. We spend some of our marketing budget on lead generation. These efforts have evolved as traditional marketing avenues have proven ineffective for lead generation. Today, our efforts include home shows, community events, open houses, seminars and, of course, past clients and referrals.

3. We want to hear how we are doing in the eyes of our customers and potential customers. We have surveyed past clients for many years. Three to four years ago we stepped up these efforts by investing in a third-party surveying firm to gather the feedback of our past clients and give it back to us in easily understood and indexed forms. About three months ago, we started surveying leads as well clients who have not proceeded. It is not to try to change their minds; it is because we are committed to gaining market share. We want to know if we left a good impression even through they did not proceed with Case.

4. A focus on market share means a focus on clients, not on projects. Our handyman services give us the ability to get our foot in the door with a prospective client, show our worth and earn that client for life. Our breadth of services (handyman, kitchens, baths, remodeling, design/build) gives us the ability to capture the majority of remodeling dollars spent by that client, assuming we exemplify excellence each step of the way.

We are constantly fighting for market share. With more market share, we have more of a base of clients. With more clients we are more stable. With stability comes more income potential short-, medium- and long-term for our entire Case team. All that means our business is truly a business; it has a brand, and it is valuable because of the awareness customers have about it.

Give your input and continue the dialogue on Bruce’s blog at www.housingzone.com/brucecase.

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Bruce Case is president of Case Design/Remodeling and COO of Case’s national franchise organization, Case Handyman & Remodeling. He can be reached at bcase@casedesign.com.

© 2009, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.

13 Ways to Get Referrals that Reward

More than ever, successfully tapping past client bases is the key to remodelers’ success

By Jonathan Sweet, Senior Editor
May 1, 2009
Professional Remodeler

With a sputtering economy and crashing home prices, it’s not an easy time to find new remodeling clients. But it is a good time to take a back-to-basics approach to marketing and work on mining your most lucrative lead source: past clients. This isn’t exactly a cutting edge idea, but it’s something many remodelers got lazy about over the last few years as business boomed. If you’ve done a good job, past clients offer a wealth of advantages over new clients.

“No. 1 is instant credibility,” says Dale Nichols, president of Artisan Remodeling in Granite Bay, Calif. “People know exactly what we’re capable of doing.” It’s also much less expensive to land new business from old clients than it is to grab new ones, Nichols says.

At the same time, it’s easier for a remodeler to work with a client she knows because you know all their idiosyncrasies, says Patty McDaniel, president of Boardwalk Builders in Rehoboth Beach, Del. “We’re familiar with the house, we’re familiar with the client,” she says. “We know what it’s going to take to make them happy and we can be more comfortable putting a number together.”

The most important part of getting referrals is doing a good job in the first place, but even after that, it’s important to reach out to those clients to make sure you stay top-of-mind. Here’s how several remodelers across the country are reaching past clients and rewarding them for their repeat and referral business.

1. Reward Testimonials

Black Diamond Builders e-mailed all of its past clients asking them for testimonials. Anyone who responded got their name entered into a drawing for a dinner for two at a local restaurant. It offered several benefits for the Lake Forest, Calif.-based firm, according to owner J. M. Steele. Besides giving Black Diamond fodder for its marketing efforts, it also makes sure the company is on the minds of past clients for referral or repeat business. Giving them a chance to relive their successful remodel brings them positive vibes and memories, Steele says.

2. Stretch That Referral Reward

Lots of companies give out gift cards to thank past customers for referrals, but Thompson Remodeling in Grand Rapids, Mich., wants to make that reward last a little longer. Instead of giving out a $50 or $100 gift card for an expensive dinner somewhere, Thompson spends that money on cards for the local coffee shop. That way, says President Ben Thompson, the client will get multiple uses out of the card and think of Thompson every time they use it.

3. Make Them Part of the Team

Like many remodelers, Larry Murr tries to keep in touch with his past clients through things such as Christmas cards and periodic letters. What makes the approach Murr uses for his company, Lawrence Murr Inc., so striking is how honest and open he is with his clients about his company, the market and the current business environment.

Consider the most recent letter from the Jacksonville, Fla., design/build firm: “First of all we are still in business, but business has been very slow,” he writes. He goes on to discuss decisions in the company to reduce salaries and cut staff as the company adjusts to the market. He also talks about the challenge the company is facing from new, low-price competition. Murr has received a positive response to the letter, with many clients calling about jobs and saying they were glad to hear he was still in business. Clients were reassured that the company was taking steps to survive the downturn, Murr says.

But it’s not all negative. Murr also uses the letter as an opportunity to keep clients informed about his recent CGP designation from NAHB and the opportunities afforded by the new energy tax credits.

4. Work on the Honey-Do List

Every homeowner has little projects that need doing, so Synergy Builders decided to capitalize on that by offering handyman services in exchange for referrals. Any referral that leads to an appointment is rewarded with two hours worth of labor. Once the homeowner has accumulated at least half-a-day they can redeem that for work on their home.

The West Chicago, Ill., design/build firm sends out mailings promoting the program to not only past clients but also to any other homeowner the firm has had contact with over the last few years even those who didn’t hire them. The program not only drives referrals, but often also leads to additional business from the referring clients who may need more work done, says CEO John Habermeier.

5. Send Them Sailing

East Meadow, N.Y., remodeler Alure Home Improvements has a PartnerPoints program that allows clients to earn points toward a Caribbean vacation. Homeowners earn a point for every dollar they spend on remodeling, plus a point for every dollar referred customers spend on their first project with the company.

Clients can also earn additional points by attending events at Alure. With 200,000 points, they get a free trip, this year to Puerto Vallarta, Mexico. So far, the company has already sent 58 couples on vacation. Points never expire, so clients can earn their trip over time even with smaller projects.

6. Don’t Let Them Forget Your Face

Gehman Custom Remodeling uses a variety of methods to get face time with its past clients. The Harleysville, Pa., company calls past clients on the anniversary of their project to arrange a walk-through to make sure there are no warranty issues during the five-year warranty period. Gehman staff also ask if they can take after-photos of the project as another way to spend some time with the homeowners. Those photos are then used to produce photo CDs and albums that the homeowners can share with their friends and co-workers. Hand delivery of the albums also gives him more face time with the clients, says President Dennis Gehman.

These visits result in at least some small additional work for the clients about 25 percent of the time, Gehman says. It also reinforces the idea of the company as one that cares and keeps them in the clients’ thoughts when people ask for referrals.

7. Publish a Coffee-Table Book

Quality Design & Construction in Raleigh, N.C., is publishing a high-quality, hardcover, before-and-after photo book of its past projects. The book will also include articles on tips and trends in remodeling. The full-service remodeling company is going to send out copies to previous clients whose projects appear in the book so they can display them in their homes and hopefully show them off to potential future clients.

The firm is also going to try to drive more vendor referrals as well by customizing versions of the book, says Vice President Peggy Mackowski. For example, the local plumbing supplier will get a version with fancy fixtures on the cover. That way, when customers are visiting these suppliers, they’ll get a chance to see the work Quality Design & Construction does, Mackowski says.

8. Go Digital

Myers Constructs in Philadelphia is taking full advantage of modern communication to keep in touch with its past clients. Myers is using LinkedIn and Twitter to keep in touch with past clients and asks them to pass the firm’s information to their friends on the social networking sites, says COO Diane Menke.

The company sends monthly e-newsletters, each focused on a single topic to keep it short and sweet. Besides that, employees send occasional “hello” e-mails to check on clients, ask how their pets or kids are doing and generally keep in touch. They also send messages anytime there is press about the firm. It’s all about contacting past clients regularly, Menke says.

9. Cold, Hard Cash

It may be simple, but you can’t argue with the value of money. Atlanta Design & Build has a Referral Rewards program that gives clients up to $300 when they refer a project. Rewards are given out on a sliding scale of $100 for projects less than $20,000; $200 for projects $20,000 to $75,000; and $300 for the largest projects.

The Marietta, Ga., company is also reaching out to past clients, sending them letters telling them that now is a great time to remodel because suppliers and vendors have reduced costs in the face of declining demand.

10. Let Them Brag

Cipriani Remodeling Solutions recently launched a contest for the best “Before and After” project that encourages past clients to send their friends and families to the company’s Web site.

The Woodbury, N.J., company sent out e-mails to each client that contain their before and after photos and asked them to forward those e-mails to everyone they know. Anyone who gets the forwarded e-mail can follow a link in the message that takes them back to the Cipriani Web site to vote for the project as the best “Before and After.” The top vote-getter will get $1,000 from Cipriani and Cipriani is exposed to potentially hundreds of new customers. It’s an extension of a program the company has been doing for years, putting together polished “Before and After” e-mails for all of its clients that they encourage them to share with their friends and families.

11. Keep ‘Em Charged Up

Everybody knows that you’re supposed to change the batteries in your smoke detectors when you change your clocks for daylight-saving time. Renaissance Remodeling wants to make sure its clients don’t forget that and don’t forget the company, so twice a year the Boise, Idaho, firm sends out batteries along with an update of what the company is doing.

Prior to starting this three years ago, the company had only completed a handful of projects for past clients, says Principal Chad Vincent. Now, the company gets calls and e-mails from past clients every time the batteries go out and repeat and referral business has drastically increased.

12. Open House

Advanced Kitchens in Atlanta has staged open houses at past clients’ homes where the company invites neighbors to come see the completed work. This gives the company an opportunity to explain how they work and the clients a chance to talk about their positive experience. In honor of St. Patrick’s Day, the company also invited past clients to find the hidden pot of gold on its Web site. That helped increase site traffic as clients searched across multiple pages on the site. Everyone who found it was entered into a drawing for a glass vessel bowl.

Those actions, along with newsletters and other outreach efforts, have helped the company draw 75 percent of its business from repeats so far in 2009, says President Ed Cholfin.

13. Party Time

Talmadge Construction owners Jeff and Adele Talmadge throw a barbecue every summer at their home for their clients, trade contractors and employees. It’s a chance to reward everyone for their business and good work during the year and for the clients to get back in touch with project managers they have bonded with during their remodel, says Adele Talmadge. The clients like to brag to each other about their project; how much they loved working with the company’s architects and field staff, and how well it went, she says.

Posted in Pricing Trends | No Comments »

Fourth Quarter Prices Released

Friday, October 3rd, 2008

On 10/2/2008 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

OIL PRICES MAKING THE BIGGEST IMPACT

• Roofing prices continue to rise fueled by oil increases.
• Gypsum wallboard price declines have stopped but prices remain low.
• Steel costs continue to climb as scrap metal prices continue to rise.
• Concrete prices are beginning to rise in many areas perhaps based on higher delivery costs.
• Lumber prices continue to stay steady with a small dip in plywood prices in some areas.

Here are some other relevant articles:

Solutions: Tightening It Up

Q+A: Construction costs are rising; homeowners are becoming more conscious of the money they’re spending. How is this affecting your business?

by Hayden Alfano
July 21, 2008 – From Remodeling Magazine

James Madsen
James Barton Design-Build
Apple Valley, Minn.
Big50 2008

It’s made us look at our company a lot harder. As part of that, we’ve had to take a long look at our trade partners. We’ve changed some vendors who aren’t priced competitively in this new market. We basically told them, “If we have to tighten things up, you have to, too.” Many trades have brought down their prices a bit because they just don’t have as much work.

We’ve also been helping our clients to prioritize their projects if they feel that the price tag for the full job is too high. Let’s say we’ve designed a $150,000 project for them. If they’re worried about doing a job that large, we’ll break it into two phases. We’ll do the biggest chunk now, then plan to do the remaining $40,000 when the market comes back.

Duke York
York Enterprises
Tacoma, Wash.
Big50 2007

We’re doing a lot more bidding this year. Our sales department is going gangbusters; it seems like two or three bids come across my desk per day. Homeowners seem hesitant to commit, however. They are initially curious about what a remodel might cost, but are slow to pull the trigger because of the economy.

That initial interest is a good thing; it indicates that there is still a market for remodeling. But because fewer homeowners than usual are actually signing contracts, it’s important that we get in front of as many of them as we can.

Historically, we’ve been almost exclusively residential remodeling. Now, we’re diversifying a little bit and adding to things we offer customers. We’ve recently started a service department aimed at retired home­owners who want or need assistance doing things like cleaning gutters. We also offer preventative maintenance to previous clients at a discounted fee.

Ken Kumph
Premier Builders
Georgetown, Mass.
Big50 2004

Two things have really helped our business during these difficult times: Sharpening our processes and procedures, and strengthening our relationships and company image.

We’ve reduced our staff over the past year. We now have a dedicated group who really “gets it,” and I would not want to lose a single one of them.

We all get together monthly for a “big picture” meeting to review policies, define job descriptions, and work on the business. We’ve also taken the time to modify and tighten our estimating, sales, and job costing processes.

Showing clients and associates the value we provide for them has been crucial to our continued success. Performing quality work with a high level of customer service is a given, but it’s important to take everything up a notch. Our presentations are more professional and personal. We are staying in contact with past clients, and we’ve become more heavily involved with industry organizations and events.

Jack McGrath
Jonathan McGrath Construction
Longwood, Fla.
Big50 2003

Some of our potential clients have asked if they can get a better deal given that business is slower. We explain to them that our backlog and that of our trade partners is much smaller, which works in their favor in that their project gets done faster.

We also tell them that in some cases we may be able to negotiate a better price during the building phase, but not while we’re in the midst of design. People love to think that they can get a deal, so this has helped get them off of the fence and into a contract.

We’ve renewed our focus on cutting down on waste, reducing mistakes, and eliminating slippage. Doing so has saved us and our clients valuable dollars, as we consistently come in under budget.

We prefer this approach to price-shopping our trade partners and other vendors. We need loyalty now more than ever, and we need to be loyal to them in return. When they submit a price, we know it’s complete, and we know the job will be done to our high expectations. If we need a trade to lower their price, they know we are asking so we can get the job and we’ll all have work. Mutual respect goes a long way.

Stormy Forecast

Outlook is cloudy, but prepared remodelers can weather the storm
Jonathan Sweet, Senior Editor
August 1, 2008 – Professional Remodeler

While 2007 had its rough moments, 2008 seems to be the year that the housing downturn really hit remodeling.

Fundamentally, the remodeling industry follows the trends of homebuilding. While the troughs are not as deep and the peaks not as high, new construction is a good predictor of remodeling activity.

Not surprisingly, that means it’s been a tough year, and 2009 expects to be even worse, at least in the early going. Even many of those markets such as Seattle, Portland and Texas that had been relatively strong as the rest of the country suffered have had struggles this year.

“We’re really getting caught in the housing downturn,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard.

Existing home sales and home prices are the two best statistical predictors of remodeling activity, Baker says. With the precipitous decline in both categories, it’s no surprise that remodeling activity has fallen.

“It’s unlikely we’re going to see much of a turnaround until we begin to see a turnaround in the broader housing market, or at least those key features of it begin to turnaround,” Baker says.

Growth by 2010?

The National Association of Realtors predicts that existing home sales will increase to 5.7 million next year. That’s a 6.6 percent increase from the nearly 5.4 million the group projects for this year and a slight increase over 2007, but still well below the 7 million recorded in 2005. It’s also worth noting that a year ago, NAR projected 6.1 million in sales for 2006 and 6.3 million for 2008. As for home prices, NAR forecasts a 3.7 percent increase for existing homes in 2009.

Harvard is predicting a continued decline in the market in 2009. The Leading Indicator for Remodeling Activity released in July projects an 11.1 percent decline for the first quarter of 2009 compared to first quarter 2008. (The LIRA uses a four-quarter moving rate of change, so the 2009-1 number, for example, is based on activity in the second, third and fourth quarters of 2008 and the first quarter of 2009.)

2009 could see a turning point, Baker says. That is the point when the rate of decline slows, but the market still isn’t producing positive growth. Sometime in 2010, we could expect to see a return to a positive market, he says. That would be the first growth in the LIRA since the second quarter of 2007.

“We should be back into the growth range in 2010, but it’s too early to say when,” Baker says.

The LIRA only measures improvement activity in owner-occupied homes, not maintenance and repairs, which typically remain fairly stable.

“If you have a repair project, you’re unlikely to defer that even if the economy is bad,” Baker says. “In most cases, those projects go ahead as they would independent of the economy.”

The LIRA also doesn’t track improvements to rental housing, an area that has been underinvested for years. While increased investment isn’t showing up yet on a large scale, there is great potential for the next decade, Baker says.

Harvard’s LIRA, which uses four-quarter moving totals to track remodeling volume, is predicting a drop to $122 billion for the year ending in the first quarter of 2009 down 11 percent from a year earlier and a drop of more than 17 percent from the market peak.

Tighter credit standards and increase in foreclosures are putting pressure on the rental stock, as people who were homeowners rent again and people who a couple of years ago would have bought homes stay in the rental market.

“What’s muddying that trend now is that just as these households are coming back to the rental market, a lot of these housing units are, too,” Baker says. “We’ve got houses that were built for owners turning into rentals, condos turning into apartments, so we’re seeing an increase in both the supply and the demand side.”

In the long term, though, the trend still looks positive for remodeling growth in the rental market because of increasing demand and more than a decade of underinvestment in upkeep.

Staying Strong

If companies want to survive the downturn, it’s necessary to change things. Owners should look at every aspect of the company, from sales and marketing to production and staffing. Being willing to make changes is the difference between success and failure.

Sun Design Remodeling Specialists in Burke, Va., is one of the few companies that can point to a healthy increase in business this year. The design/build firm expects to hit its goal of a 14 percent increase in revenue over last year, says vice president Bob Gallagher.

Even so, the company has had to adapt its sales and marketing efforts to focus more on building relationships with potential clients.

“The sales process has become a courting process,” Gallagher says. “We got very accustomed to signing design agreements at the first meeting. Now, we’ll be meeting with people three to four times before they sign.”

The reluctance to pull the trigger on a project has been a problem for Normandy Builders of Hinsdale, Ill., as well despite leads approaching record levels, says vice president Andy Wells.

“We’re seeing a lot of people still, but closing ratio has gotten worse,” Wells said. “Wait and see is kind of the attitude.”

Sun Design is seeing a reluctance by many clients to make the decision, taking more time before signing anything.

“I think people generally have a sense that it’s a market where they don’t have to rush,” Gallagher says. “We are seeing some apprehension in people getting off the fence.”

The company’s sales team has also rededicated itself to a consultative sales approach, focusing on what made the company successful originally. The process has to be more about the “why” (why they want to remodel) than the “what” (what they want done).

“We have rediscovered it more clearly than two years ago,” Gallagher says. “We need to hear them on an emotional level and prescribe solutions.”

The Sun Design staff is also emphasizing networking and branding in its marketing efforts, to become more personally connected to people. That means attending events the company wouldn’t have in the past such as a local wine festival to get out in front of potential clients.

“The point is when the market changes and the thing you’ve done for years doesn’t work, you can dig in your heels and be stubborn or you can find some alternatives,” Gallagher says.

Job size has also gotten smaller. Normandy Builders is seeing a shift away from large additions toward smaller kitchen projects, which Wells believes has been caused by the drop in home sales. The two types of projects actually represent two different sets of clients, he says.

“Some people would have moved, but now they can’t sell their house, so they’re remodeling their kitchen instead,” Wells says. “The bigger additions came from people who moved into a house and decided they were going to remodel. I think the clients who would have done the addition are now doing nothing instead.”

Earlier this year, the company started making cuts to be more efficient and position the company to succeed when the market comes back. That meant watching every dollar, avoiding big purchases, consolidating some jobs and laying people off.

“We had to lay off some people we really liked, but you just have to do it,” Wells says. “We had to recognize that right away, because if we waited too long to make those decisions it could hurt the company.”

Layoffs have also been a necessary survival tactic for Feinmann Inc., an Arlington, Mass., design/build firm. President Peter Feinmann let 25 percent of his staff go. The company has also been chasing more leads. Typically, Feinmann would visit 40 to 45 percent of the leads that come in. This year, it’s closer to 80 percent.

“We want to be in front of as many people as possible these days,” he says.

The company also cut prices to get some work this year, something Feinmann says was possible because he had reinvested past profits back into the company over the years.

“We didn’t have to make a lot of money this year; we just had to be maintaining what we were doing,” he says.

The company closed three or four jobs this past winter by cutting margins, yet still maintaining profitability. Making those tough decisions allowed Feinmann to avoid more layoffs.

“At that point, it was that job or no job, and I was better off getting the work at low margins than not getting them at all,” Feinmann says. “So we were very aggressive this winter selling jobs with the specs and prices that we could make a decent amount of money to keep the energy of the company flowing. Some people didn’t do that, and they got in trouble.”

The other big change has been focusing on smaller projects and being more efficient in those projects, Feinmann says.

“There are less larger projects, so we need the smaller projects to keep us going,” he says.

Smaller job sizes have also been the theme for Los Angeles-based Custom Design & Construction this year. A couple of years ago, the company had jobs in the $500,000 to $600,000 range. Those projects are now closer to $400,000. The company is taking on the same number of projects this year, but revenues are down about 25 percent.

“It used to be if someone wanted to spend $500,000 and we designed a project for them that was $600,000, and they fell in love with it; they’d do it,” says President Bill Simone. “Today people are holding hard and fast to what their intended budget is. That’s it, and they’re not going to exceed it.”

One significant competitive advantage for the company has been that it can carry the financing for its projects. In today’s lending climate, that has helped close many deals, Simone says. (For more on the company’s financing program, see the Innovators article in the January issue of Professional Remodeler or click here.)

Where Do We Go From Here?

A big part of making it through the downturn will be having realistic expectations for the recovery. It’ll likely be quite a while before the industry reaches its 2005–2006 highs because of fundamental changes in the residential construction industry and that’s probably a good thing.

“I’m not sure the peak is something we should really be looking for, because when the market was at it’s highest level, it was driven by a fairly thin slice of the population, spending a lot on fairly high-end home improvement projects,” Baker says. “That’s not something I consider a very healthy market and probably not something we want to replicate.”

Much of that growth was driven by unsustainable increases in home sales and prices. Instead, we should look for a return to the healthy market of the 1990s, Baker says, when the industry was growing, but not being driven by a very small upper-end clientele.

“It should be a much healthier industry with more broad-based activity and more and more households undertaking home improvement projects,” he says. “We’re looking for a good mix of projects to restore a healthier industry.”

© 2008, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
Read the full article here: Stormy Forecast

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Third Quarter Prices Released

Wednesday, July 2nd, 2008

On 7/1/2008 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

MATERIAL COSTS BEGIN TO SLOWLY RISE

• Plywood prices rebounded up 2% during the past quarter with lumber prices gaining 1%. Both still remain below 2007 levels.
• Gypsum wallboard declined 1%, leveling off at a record low.
• Steel costs are raising rapidly with some areas showing a double digit increase during the last quarter.
• Concrete prices remain steady matching 2007 prices.
• Asphalt roofing costs are on the increase as oil prices rapidly rise.
• Even with a continue drop in new construction activity, most material costs will show increases during the next quarter due to transportation costs rising in response to oil prices. Materials that utilize oil in their manufacture, such as roofing and asphalt, will suffer significant price increases.

RECOVERY ON HOLD UNTIL 2009
Source: Joint Center for Housing Studies
Source: REMODELING Magazine
Publication date: May 1, 2008

By Hayden Alfano

The latest release of the Leading Indicator for Remodeling Activity has even the most optimistic industry observers down on the market’s chances to bounce back soon.

The LIRA, published by the Joint Center for Housing Studies at Harvard University (JCHS), forecasts the size of the remodeling market four quarters out. The most recent data points to a 4.8% decrease in home improvement activity over the course of 2008.

In previous LIRA releases, JCHS officials had tended toward the conservative when it came to commenting on the immediate future. They minced no words this time around, however, a bad sign for those who had hoped for a quick rebound. “It looks unlikely that we will see any improvement in the remodeling market until 2009,” Kermit Baker, director of the Remodeling Futures program at JCHS, said in a press release. “Currently, the second half of this year is shaping up to be weaker than the first half.”

Nicolas P. Retsinas, director of JCHS, had a similarly bleak outlook. “Spending on home improvements continues to be sluggish,” he said, adding, “The fall-off in pending home sales suggests a long and slow recovery.

DO IT DIFFERENTLY
A changing market requires adjustments. What are you doing differently?

Source: REMODELING Magazine
Publication date: June 1, 2008

By Mark Richardson

By now, most of you recognize that the residential remodeling market is not what is was a few years ago. I also think you know why. The more important issue is what you are doing about it.

As I speak to remodelers all over the country, I find that most of them are not doing anything at least not anything different from what they did in boom times. They are talking a lot about the lousy state of affairs, but they are playing the game almost exactly as they did in the past. No one has a crystal ball, but all the indicators show that for the rest of the year, things may get worse before they get better. It’s a market that will put many companies out of business unless they adjust.

Just as remodeling in the cold and snow of winter requires a different approach from doing the same job in the heat and humidity of summer, a down market requires a different approach from what we have all been used to.

Put the following ideas into action or use them to jump-start your own thinking. Depending on how soon and how well you adjust, they might help see you through the next year or two. They might even straighten out some bad habits that may have developed during the remodeling frenzy.

Sell down, not up. In this market, prospects will still call you for projects that will grow beyond their budget. Instead of relying on the clients to stretch their budget, make sure they proceed with some fraction of the original scope. Once the project is under way, their confidence will build and their emotional attachment will grow, and you may be able to Introduce additional components that make sense. In the worst case, you have at least gotten a potential “do nothing” client to do something.

Sell risk. Your prospects may not mention risk, but the topic is whirling around in their heads as they make the decision to proceed. Weave this into your discussions early. You might point to projects that are less economically risky to tackle, such as repairs, kitchens, and bathrooms. Name-brand products create confidence and may make the project feel less risky. Steer homeowners who want to tackle some of the work themselves to those parts of the project that they can confidently handle. Being cooperative and encouraging will allay their fears and lead them to a decision to proceed.

Focus on past clients. Lead flow is a good indicator of market change. These days, as the number of leads heads downward and the cost-per-lead climbs upward, and past marketing methods fail to perform as expected, the most predictable source of new business is past clients. Don’t assume that a past client is a client for life. Homeowners today treat remodelers much like retail stores. They may
regularly frequent Macy’s out of convenience, but if Bloomingdale’s does something to attract them, they’ll switch in a heartbeat.

CLIENT ADDICTION

In this market, you must create more than just happy, satisfied clients. You need clients who are addicted to you, who are vested in your success, who will do everything they can to create new business for you.

Creating this kind of client is not something you can accomplish overnight. It’s a total team sport that is tied to a mindset not just a single set of actions. But what you can do right now is to embrace the concept that your client base is a valuable resource that can create predictable results in an otherwise tough and unpredictable market.

Again, I provide these ideas to get you thinking. What are you going to do differently during the next year? Are you willing to see the gains you made over the last five years vaporize? How might smaller returns affect key team members? Will you risk losing them?

Market conditions like these can be difficult, but they can also be times when opportunities hatch. They can help you regroup and get better and stronger. They are times when you can work to position your company to blast to new heights when the environment improves.

Mark Richardson is president of Case Design/Remodeling Inc.; mrichardson@casedesign.com.

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Second Quarter Prices Released

Wednesday, April 2nd, 2008

On 4/1/2008 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

1st Quarter Material Trends

• Concrete prices have fallen since last December’s peak.
• Gypsum gained 2% during the last 2 months, but prices remain extremely low.
• Plywood and lumber continued a slow decline in price during the 1st quarter.

Remodeling Activity Projected to Remain Sluggish
Harvard’s Joint Center for Housing Studies

CAMBRIDGE, MA – Tighter credit standards and falling consumer confidence are expected to depress remodeling spending through 2008 according to Harvard’s Joint Center for Housing Studies. The Leading Indicator for Remodeling Activity (LIRA) reports that homeowner spending for home improvement activity will continue to decline, falling by an annual rate of 2.6% through the third quarter of 2008.

“Fewer home sales and falling home prices are dampening interest in spending on home improvements,” notes Nicolas P. Retsinas, director of the Joint Center for Housing Studies. “While remodeling expenditures are likely to continue to slump in 2008, there will remain a need for basic home improvements for an aging housing stock.”

“An expanding economy has helped cushion the remodeling market,” remarks Kermit Baker, director of the Remodeling Futures Program of the Joint Center. “Absent a more serious national downturn, remodeling activity is expected to see only modest declines in 2008.”

Foundations for Future Growth in the Remodeling Industry is available at www.jchs.harvard.edu 

Remodeling Activity Declines Slightly
National Association of Home Builder’s

Remodeling activity showed pressure from the housing downturn during the fourth quarter of 2007, according to the National Association of Home Builder’s (NAHB) Remodeling Market Index (RMI). The current market conditions indicator decreased to 40.9 from 46.2 in the third quarter. And the future expectations measure declined to 37.9 from 43.3 in the previous quarter.

The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that the majority of remodelers view the market conditions as improving.

“While the housing downturn has impacted the remodeling market to some degree, it is on a much smaller scale than the rest of the market” said NAHB Remodelers Chairman Mike Nagel, CGR, CAPS, a remodeler from Chicago. “Home owners realize the importance of maintaining their property and making necessary repairs to support the value of their homes, so we expect this type of work to start to pick up again.”

Nationally, the RMI components for major additions and alterations during the fourth quarter declined to 42.28 (from 46.89). Minor additions and alterations also decreased to 41.76 (from 47.07) except for an increase in the South region to 49.81 (from 43.68). Maintenance and repair remodeling work declined to 38.11 in the fourth quarter (from 44.31).

“The decline in the remodeling market is far less than in the new home market and generally consistent with our remodeling forecast,” said NAHB Chief Economist David Seiders.

The RMI “special questions” section during the fourth quarter asked remodelers about business conditions during 2007 and their expectations for the entire year of 2008. Forty-three percent of respondents reported an increase in billing in 2007, while 25 percent reported that billing stayed at the same level as in 2006. With respect to 2008, 51 percent predict a dollar volume increase and 27 percent predict maintaining the same volume for the entire year. These results suggest that while remodelers see slower conditions in their business during the short term, the long-term prospects look good with a remodeling market recovery by the end of 2008.

For more information visit www.nahb.org/remodel

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First Quarter Prices Released

Friday, January 4th, 2008

On 1/2/2008 we uploaded the first quarter material pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

• Drywall prices continue to drop due to lack of demand in the new housing sector, sinking 17% this year.
• Common dimensional lumber prices have been stable with a modest rise during the summer ending the year with no increase.
• Studs finished the year with pricing 5% below last year.
• Plywood prices tumbled during the 4th quarter, climbing just over 2% during the year.
• Concrete prices have remained steady during most of the past quarter, having increased over 5% during the year.

Also, the 12/17/07 Forecast for Material Pricing from the Engineering News-Record was cited:

The housing market is projected to continue its decline during 2008. Lumber and cement prices are forecast to remain flat while plywood may drop 5% in price. The bottom for drywall is not in sight yet with a 20% decline in price projected for 2008.

Harvard’s Joint Center for Housing Studies new report, Foundations for Future Growth in the Remodeling Industry, identifies key sources of future growth in the remodeling industry.

From the JCHS Housing Review Spring 2007

Over the last decade, the U.S. home improvement market nearly doubled in size, reaching a new high of $280 billion in 2005. After years of exceptional growth, the remodeling sector has returned to a more sustainable pace. Under investment in the owner-occupied and rental stock, a growing desire for energy-efficient retrofits, continued strength in high-end discretionary improvements, and projected increases in both the number of homeowners and per household expenditures ensures solid growth in remodeling activity in the years ahead.

Homeowner spending on remodeling is expected to increase at an inflation adjusted compound annual rate of 3.7 percent between 2005 and 2015, generating 43.6 percent growth for the decade. Also, with new construction slowing from its record pace and improvement and maintenance activity strengthening, the remodeling share of residential investment is expected to reach a new high of 47.0 percent by 2015.

In recent years, home improvement expenditures have become concentrated at the high-end, with almost a third of spending on upper-end discretionary projects by 2005, up from only a fifth in 1995. In 2004-2005, the top five percent of households spending the most for home improvements accounted for 61 percent of all remodeling expenditures, up from 45 percent a decade ago. Though spending on high-end discretionary improvements will continue to lead overall growth, several other economic and demographic forces are currently in place that will ensure favorable and more balanced growth in remodeling activity in the coming years.

In the short run, the aging housing stock, rising demand for energy-efficient retrofits, a strengthening market for high-end rentals and the rapidly rising number of senior, minority and non-family homeowners will all support sustained growth in replacements and system upgrades. With the slowdown in the housing market, homeowners are finding that in many cases mid-range versions of projects now have a better payoff than upscale versions. Furthermore, much of the housing stock, including homes all across the price spectrum, has had only modest improvements in recent years, and these under invested homes are now prime targets for replacements, upgrades and discretionary projects.

Foundations for Future Growth in the Remodeling Industry is available at www.jchs.harvard.edu

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