Inflation - Tulsa Home Builders Edition

[SlugSlinger]

That's money and not materials.

Completely different deal.

I've hedged zinc dust before. eleven truck loads or 440,000 lbs. Hedging materials is different than hedging $'s. You also have to consider when you hedge, it's still a gamble.

Yeah, I was talking about covering the risk with dollars.

 

[beardking]

They're going to get, and are getting, worse in the near term. Is there an end in sight? Not currently. Will it end? You damn right it will, with a loud crescendo. It's anybody's guess as to when though. I think it will be sooner rather than later, like this year, cause I think the bottom is going to fall out of the market and inventory will out pace ability to pay (notice I didn't say "supply").

I'm done building specs, for the near term any way. I'll have another look in a couple months. We're just doing it to piddle and have something to do and make some extra money. We're not an assembly line builder. We build 2000-2300 sq ft specs and we'll finish out a barn or do a custom on the owners const loan. I don't build starter homes, and I don't build anything bigger than 3300 sq for a custom. We just aren't that guy. We have a scant few trusted subs that do quality work, or they don't work for us, and we build as nice a home (and a lot better than most) as gets built in the neighborhoods we work in. The last 4 we've built were bought by the first buyer that walked thru them after they were finished. The one before that was bought when we were at the paint & floor covering stage. That turned into almost a full blown custom, and it was a complete PITA. It got so out of hand that we had to collect almost $50k in nonrefundable change orders because what they wanted would never be recoverable if they failed to close. It was a nightmare. I'll never do a custom on anything other than a cost plus basis.

On a slightly different note @jakeman ,do you happen to ever have a need for someone to do CAD work for your homes? I might know a guy. (hint, that guy is me)

 

[dennishoddy]

I suspect most builders are not sophisticated enough or have the resource to hedge against price increases, but that is exactly what should have happened when there were market dynamics that started to indicate inflationary pressures.

At minimum they could have purchased some future contracts on lumber to help offset the potential increase.

The airlines would do this with fuel and it saved them a ton of capital when the prices went through the roof.


Any of the builders on here hedge for inflation?

I'm betting most don't. They can't afford to.
Edit: I have heard steel prices are coming down for metal buildings, and according to Zillow, our property prices have peaked out after over a year of climbing around $2000 a month. Yeah, I know it's zillow, but a buddy's mom is a top real eastate agent and she ran the same numbers.
When we had our 40X60 insulated building put up we had heard of many horror storied of materials delivered and months later the crew shows up to assemble.
We cut a deal with the assembler that when the steel showed up, we paid the driver. When the concrete was poured, we paid the concrete company. We let him use our tractor and any implements he needed at no charge, so basically, we paid him for his time and his crew's salary. They did a stellar job.

 

[Raido Free America]

This is one of the risk of doing business! They can't have it both ways, unless thay would give their customers a discount on the home price, if material went down between signing, and completion of the home, which we all know they wouldn't, I would take them to court!

 

[CODE_3]

This is one of the risk of doing business! They can't have it both ways, unless thay would give their customers a discount on the home price, if material went down between signing, and completion of the home, which we all know they wouldn't, I would take them to court!

I agree you signed a contract which is a legal binding document. That's why I tell my clients not to use the builders contract

 

[SlugSlinger]

I agree you signed a contract which is a legal binding document. That's why I tell my clients not to use the builders contract

We built a few years back with what started out as a great builder. During the construction, the original builder was bought out by a different builder. We signed a lump sum contract with the original builder, then the same contract again with the new builder.

During the construction, the new builder started adding cost for their overruns, like concrete and site prep. I met with the entire team including the original builder and the new owner. I told them the contract we both signed was a lump sum agreement and not a cost + and they just couldn't start adding costs to the agreement.

They told me they were losing money because of the amount of lot work that was needed. They were building on my property. I asked them if they had even been to the site before they provided the contracted quote. They all looked at each other and said no, which flat out astonished me. They shut up and ate their overages after that meeting.

 

[1Mudman]

Frustrated Homebuilders Asked To Pay More, Contracts Broken Mid-Build​

TULSA, Oklahoma - The pandemic has hit a lot of industries hard, including the construction industry.
The Home Builders Association of Greater Tulsa told News On 6, because of increase in the price of materials, a worker shortage, and supply chain issues, many homebuilders have had to raise the cost of homes.

One of those builders is Shaw Homes in Broken Arrow.

Over the past three months, dozens of complaints have come into our newsroom about Shaw Homes regarding contracts.

The majority of the complaints are about transparency.

Those who reached out to us, signed a contract for one price but were told several months later they would need to pay between $20,000 to $50,000 more or their contract wouldn’t be honored.

Amber Nguyen, her husband and two little girls signed on with Shaw Homes to build their dream home in February 2021.

They signed a contract for this home for $273,000.

"I had envisioned myself being there, but things have changed and I'm trying to envision a different scenario,” said Nguyen.

In September 2021, as their home was being built, Amber said Shaw reached out to her and said the house would now cost $40,000 more, but the company would make them a deal.

"They asked us to pay $28,000 more if we wanted to continue with that house," said Nguyen. "They mentioned the clauses that could indicate that they could get out of the contract for any reason, but it doesn't explicitly state in the contract anything about raising the prices."

Amanda McIntrye, her husband and their two young daughters found themselves in the same situation.

They signed on with Shaw in October, 2020 for an agreed upon price of $388,000.

The price increase was $100,000 but Shaw offered to meet them in the middle.

The McIntryes would need to pay $58,000 more, making their home now $446,000 dollars.

"We wanted to know where they were getting their number,” said McIntyre. “Why the $56,000? Because that was a lot, which they said $100,000, but they were going to meet us in the middle. But we just wanted to know how they got that number and it was based off what houses are selling for right now, not what their costs went up."

Kristen Holland said eight months after her slab was poured, she was asked to pay about $60,000 more.

Kara Highfield, a first-time homebuyer, told News On 6 after 10 months, she was asked for $35,000 more and that she would lose the free kitchen upgrade incentives.

Cassandra Jones wrote into our newsroom and said after six months, she was asked to pay $39,000 more. When she offered $20,000 more, she said the company told her no.

The families were under the impression that up-front pricing, as advertised on Shaw’s website, meant the price they agreed upon was the price they would pay.

"It felt like somebody had kicked me in the gut,” said Nguyen.

“I hated to do do that. I’ve never, ever done it,” said Glenn Shaw, owner of Shaw Homes. “I’ve built houses and I’ve lost money on them. I did not want to change the price of contracts, but I really had no choice but to do that.”

With a hot housing market in 2020, Shaw was hoping for his best year ever. On average, Shaw Homes builds up to 250 homes a year.

In 2020, the company was on track to build 460, but ran into trouble when the cost of material and labor started going up.

“We went to 85 of 85 customers and of those, 41 said, ‘we understand, we expected it and we’ll stick with you,’” said Shaw. “The others we refunded every dollar that they gave us and again, I knew it was going to be a difficult thing for us from a marketing perspective, but frankly I had no choice.”

Shaw said he absorbed as much as he could, losing hundreds of thousands of dollars before making the tough decision to increase contracts.

"I just think it was a general response,” said Nguyen. “I still would like to know the facts and the information like how did they decided $28,000, I don't know. I would like to see the breakdown of the costs and that would just make me feel better. I understand they're a business and they have to protect themselves, but seeing the breakdown to show the honesty in it, because they're stating they're losing money on these contracts. I would just like to see that.”

"They said they don't have an itemized list, that they wouldn't provide one, that this was what they're offering and we had two options. So, and we asked about it a second time at our sit down meeting and nothing, they just said ‘no,’” said McIntrye."I mean if they can prove that prices are that then we would consider, but I don't think prices went up $100,000."

Shaw told News On 6, he is not able to share an itemized breakdown of cost of homebuilding.

“I wouldn't share our cost information with anybody, customer or other builders or vendors,” said Shaw. “I could understand somebody wanting to know, I would want to know myself, but it was just not a practical exercise for us to be able to do that.“

Shaw also said, “If I was sitting in their seat, I would be upset with me because I've really made their lives inconvenient at the least,” Shaw admitted. “I would have a hard time going through what we asked people to go through.”

Jeff Smith, with the Home Builders Association of Greater Tulsa, said the challenges facing Shaw Homes are being felt across Green Country.

"The accounts and concerns you've received I think are all valid concerns,” said Smith. “I think unfortunately they're common concerns in our industry over the last 18 months and there's not one builder in our community, or I would say nationally, that hasn't dealt with the same issues."

Smith added, “I would certainly hope they would offer a detailed explanation of where that price is coming from. It's not required in the contract that they do give you that information but it's good customer service. And the general rule that they're going to let you know exactly where those funds are going to. And that way you can make the decision on your own. Is this something I want to stick with, a contract with an increased price, or do I want to get my earnest money back and go find a different home."

Finally, Smith told News On 6, "The repercussions from a builder going out of business, far outweigh the repercussions of having customers under contract that you have to increase the price of their home."

Those explanations are not enough for home buyers like Amber Nguyen.

"I think if they are going to have the possibility of this happening to someone else, they need to have trust in their contract and they need to do that by explicitly stating that there could be an increase in price due to unforeseen reasons," Nguyen said.

McIntrye and Nguyen are both in new homes and stress they would never go through the homebuilding process again, without hiring a lawyer from the beginning.

Shaw told News On 6, after a painful few months, he hasn’t had to increase prices and hopes he won't have to again. Although, he admits he doesn't know what the future holds.

It's important to know you can always file a complaint with the Home Builders Association of Greater Tulsa or the Better Business Bureau.

https://www.newson6.com/story/61e89...s-asked-to-pay-more-contracts-broken-midbuild

A contract is a contract and the cost of goods going up and especially wood and construction items didnt just happen. It started 2 and half years ago. Shaw is a big construction company and should have the leverage to control some of the increase. Profits were up by 50% the past year. Im not byeing these crooks scalping citizens. Sue them!

 

[harley128]

Exactly how can Shaw control the price increases ?

 

[SlugSlinger]

Exactly how can Shaw control the price increases ?

They can control prices by mitigation of risk. They can include price escalation in their lump sum contracts (called contingency) or use a cost plus contract. There are multiple types of contracts so just because a contract is signed for the price of X, that doesn’t mean that’s the price you pay, unless it’s a lump sum contract with no change orders.
I don’t know what type of contract was signed so it’s hard to argue who is liable for the price increases.

 

[dlbleak]

Our house is a Taber home. From the time we signed the papers until we closed, the base build price went up 20k. We certainly didn’t get the red carpet treatment when we closed. The houses before us were all powerwashed driveway and patio plus the house itself. Our inside cleaning could have been done a bit better. We didn’t complain. We were just happy with our instant equity. I figure they didn’t make much on us.
Had we made our minds up 1 month sooner we could have saved another 10k