Five Criteria You Should Consider When Forming a Builders Guild for Your Master Planned Community
You are developing a master planned community. After working with your various consultants, you’ve crafted an inspiring vision and an optimized master plan. It is designed to generate incremental and sustained value for you, your financial partners and the community’s future residents. Now, you must find the right implementation team. Unless you have your own homebuilding company and/or plan to build each of the houses yourself, you are going to need to enlist the assistance of third-party homebuilding companies.
Finding and working with the right homebuilders – those who are professional, ethical, passionate about what they do and embrace your vision – is critical to the success of your community. Otherwise, the chances of achieving your goals will be severely hampered and perhaps impossible. While homebuilders will typically be your number one source for lot sales, they shouldn’t just be people to whom you sell lots. They should be your allies and partners.
Assembling a preferred builders program or builders guild is similar to assembling a sports team. You need to find the right players to play the right positions. To paraphrase the author Jim Collins, get the right people on the bus and then get them in the right seats on that bus. For example, if your business plan requires you to sell hundreds of lots per year with houses at moderate price points, your guild shouldn’t be comprised of only small-scale, low-volume custom builders. Likewise, if your community vision calls for one-off custom designs, a large-scale, high-volume builder could be the wrong choice.
Regardless of the scale and intended character of your community and the type of homebuilders you will need to work with, the process for vetting builders to be members of your builders guild is the same. The selection criteria below are based on my experience in recruiting, managing and/or working builder programs and builder guilds at several master planned communities. These criteria should be used as you recruit and review homebuilders for your guild.
Criteria 1: High Level of Customer Service
Most likely, the homebuilder will spend more time with your community’s residents than you will. How builders relate to and communicate with clients and your future residents will have a significant impact on how those residents feel and talk about your community. A good building experience will foster a positive introduction to the community. A bad building experience can negatively affect how that resident engages with your community in the future.
The best way to understand the level of customer service a builder is apt to provide is to ask their past customers. By means of a rigorous and comprehensive survey of a builder’s previous customers it’s possible to ascertain whether a builder can be trusted, is responsive, provides good value and most important, would be recommended to others.
For an answer to the critical question, “Would you recommend your builder to a close friend or family members?”, I typically look for a “would recommend rating” of at least 80 percent. Keep in mind that the industry average “would recommend rating” is only around 65 percent. If the builder doesn’t meet that minimal threshold, I would advise not wasting yours or their time on the remaining due diligence steps.
Having a high “would recommend rating” is not only a good indicator of how a builder will treat your future residents, it is also a good indicator of how you will work together. At one of the community development projects I worked on, we had our arm twisted into accepting builders into our guild with “would recommend ratings” significantly below our minimal threshold. A very big mistake. Not only did these builders create unhappy customers among future residents, they created other problems in the community as well. They missed their lot closing dates. They didn’t build houses consistent with the approved designs. They had messy job sites. They were generally overall pains in the rear to deal with. More important, their presence in the guild made more qualified homebuilders question how serious we were about having our guild comprised of quality builders. Fortunately, over time, these substandard builders were either asked to leave the guild because of repeated issues of concern or left on their own volition when they realized there was very little chance they would succeed in the community.
Criteria 2: Financial Strength and Stability
It is important to make sure members of your guild will be able to meet their financial commitments; take down their lots on schedule; have an appropriate amount of standing, move-in ready spec homes; complete their houses; pay their subs and vendors on time and meet their warranty obligations. If we learned anything from the Great Recession, I hope we learned to make sure we and our builders have enough capital or access to capital to fulfill our commitments.
While not a perfect predictor of the future, the best way to understand a builder’s financial situation is to ask for and review their financials – P&L statements, balance sheets, credit reports, etc. Ask yourself these questions:
- Do they make a reasonable and sustainable profit?
- Do they have enough liquid assets and/or easy access to available funds for day-to-day operations and capital expenditures?
- Do they have excessive accounts payable?
- Have they had financial difficulties in the past? And if so, why did they occur and how did they handle it?
Criteria 3: Construction Quality & Job Site Conditions
Depending on the design vision for your community and the desired character of the houses to be built, the builders you are speaking with may not have built houses in the past which look like those you envision. If they haven’t, no need to panic. After all, they are building professionals, not design professionals. There are numerous ways to assist them on the design side. What you are really looking for is builders who care about what they build and how they build it.
Perhaps the best way to assess this is to walk through several houses they have built and houses they have under construction. Visiting houses they built five years ago or more will provide clues on how well their houses age. Visiting houses recently completed and not yet occupied will show you how they turn their houses over to their customers. Visiting houses under construction will show you the care they take with components of the house (framing, plumbing, wiring, etc.) that will eventually get covered up by drywall and trim.
Visiting houses under construction, especially unannounced visits, can tell you a great deal about builders and how they operate. For me, a clean job site – free of debris (inside and out), organized and stacked building materials, well-graded yards free of weeds, straight construction signs, etc. – are clear indicators a builder cares about what they build and how they build. These are the kinds of builders I want to help me build my community.
Criteria 4: Cost of Construction Reporting
For most families, a house is the largest expenditure they will ever make. You want builders in your guild who fully understand and appreciate this concept. They care about their clients’ financial health and wellbeing. During the programming, design, and selection of materials and features, they acknowledge and respect their clients’ budgets and have their customers’ long-term best interests in mind. They think in terms of providing a service and not just selling a house.
The final cost of any construction project can be quite fluid at times. Customers make changes, unknowns are discovered and selection allowances exceeded. I know from personal experience the pain a client feels when their builder shows up at the end of the project and surprises them, and not pleasantly, with a final cost exceeding the cost expected. Experiences like these can pollute the entire process and the homeowner’s attitude to the builder and your community.
During the construction process some items might come in higher than originally budgeted. And less frequently, some items will come in below the original budget. Builders, especially custom builders working on a cost-plus basis, who keep their customers consistently updated on the final expected cost of construction can better manage expectations and provide opportunities for potential cost savings. You want builders in your guild who are always clear, precise and timely when it comes to how much it costs to build a house and who follow the mantra of “Under Promise and Over Deliver.”
Criteria 5: The “X” Factor
During the identification, vetting and recruitment of builders for your guild, you should focus on the relationships you will be forming and not the transactions that will occur. Community development projects have long durations and might even go through an economic cycle or two.
It’s important to be working with builders who share your values, appreciate your design vision and goals and will work with you to figure out mutually beneficial solutions when you are thrown a curve ball or encounter an impediment. You want builders who want to be part of a team building a community, not just someone looking for lot positions.
In addition to those “X” Factor attributes, you want someone you enjoy being around and who will play well with the rest of your builders and development team members. Life is too short to be working with jerks. You should definitely adopt a “No Jerks Permitted” policy for your internal and expanded design and development team.
There are several ways to assess this attribute. I find asking myself questions such as, ”Would I like to have them over to my house for dinner?” and “Would I like them to be interviewed by the press for my project?”. The answers are a valuable litmus test.
While there are no guarantees, if you use these criteria in selecting and vetting builders for your builders guild, you have an excellent chance of surrounding yourself with builder partners who can help you achieve, and many times surpass, your goals for your community. Once you get the right builders on your team you can then start to focus on the fun and rewarding process of designing, building and selling homes with your builder partners as you craft and nurture a community of sustained value.
About the author
Joseph Barnes is the principal of Barnes Design & Development Management, advisory services firm. It is dedicated to working with design and development professionals on the creation of built environments which generate incremental and sustained value - aesthetic, social and economic. They leverage the knowledge, lessons learned and relationships developed by Joseph Barnes over twenty-years of experience with benchmark setting, high-profile, high-concept, mixed-used community and land development projects.