Category Archives: Industry Updates

National Association of Home Builders Reports: As Downturn Lingers on, Remodelers Toss ‘Business as Usual’ Out the Window

The National Association of Home Builders Reports:

As Downturn Lingers on, Remodelers Toss ‘Business as Usual’ Out the Window

No one at the Remodeling Show in Baltimore on Sept. 14-17 seemed to be sure of when the market will fully recover from its current downturn, but those whose businesses are performing the best aren’t waiting to see a substantial improvement. Instead, they have been changing who they are and how they operate, recognizing that their prospective customers have changed drastically as a result of the economic recession.

“We’ve all been burned a little bit and we want to put our poker chips on things that have given us a return,” said Bruce Case, president of Case Design/Remodeling, Inc. in Bethesda, Md.

After seeing its average job size tumble last year to half of what it was in 2008, his company has restructured to bring in more medium-sized jobs, and it is finding demand solidifying for kitchen and bath improvements. But Case does not foresee an end to the downturn for another two to five years, and is projecting modest annual gains in the 5% to 8% range in the meantime.

Speakers at the conference overall said that remodelers need to invest in professional business practices if they haven’t done so already, especially in calculating their costs and profits so that they know how to price their work and how much revenue they need to bring in to sustain their operations. In a segment of the housing industry that is dominated by very small businesses, many of which are still operating out of the back of a pickup truck, many remodelers have yet to adopt these basic practices.

No matter when a recovery does materialize, presenters at the show warned, remodelers should be focusing on redefining their businesses now and resist the temptation to just get by in soft times. Some of the remodelers attending the annual show, which is produced by Hanley Wood and sponsored by NAHB and Remodeling magazine, will reach record sales this year despite a generally downbeat market, speakers observed.

A ‘Wake-Up Call’

“This is a wake-up call,” said Melanie Hogdon, president of Business Systems Management, Inc. “Things won’t return to the way they were five years ago.”

Aside from bruising consumer confidence, the recession has dealt a more direct blow to home owners, who have lost the equity they previously plowed into improving their homes but still have to rely on their own money for remodeling projects because it’s hard to get loans, she said.

“It’s a buyer’s market,” Hogdon said. Prospective customers are just looking and in no rush to sign a contract. They are no longer grateful for a contractor calling them back. In today’s perilous times, “they want you to provide a sense of security and help them make the rough decisions.”

Hogdon said that thanks to the Internet, today’s customers are also “better informed than ever” about products and can easily check out the track records of the remodelers they might consider hiring.

“You used to be able to upsell,” Hogdon added. Now remodeling customers “are looking for the biggest bang for the smallest buck. There is no more keeping up with the Joneses. They are looking at the contractor for guidance,” and are searching for products that are “serviceable” and not at “the highest end.”

Swapping Horses

As a result of the slowdown, remodeling companies have typically been shifting down, she said, for example, from production to custom remodeling, from custom to full service, from full service to specialty remodeling, from specialty jobs to replacement contracting and from replacement to handyman jobs.

However, this process of “swapping horses,” she advised, requires making fundamental changes in the business that are impeded by legacy issues. “You are tied to what you used to do and can’t let it go.”

Remodelers who used to sell on their workmanship, Hogdon noted, may find that this “is not working so much now that the distance between price and value has narrowed.”

Among other dilemmas remodelers can expect to face as they carve out a new identity for their business: with sales and profits suddenly squeezed, owners may find that they are needed in the field and can’t stay in the office managing business at the same time as a shift to a greater number of smaller jobs makes management more important than it was before.

“When you put the tool belt on, who’s selling the jobs?” she asked. “What other management tasks are you distracted from?”

With the hope of emerging as the last man standing, remodelers may also succumb to the temptation of “taking any job to keep the guys busy. That is a formula for a financial debacle,” Hogdon said. “You probably have too many guys,” but remedying that situation isn’t easy because you have so much invested in them.

Employees will also have to be more flexible and able to adapt to new types of work, methods, products and clientele. However, they may be entirely unequipped to do the new work.

Identifying New Clients

Among other challenges of successfully transforming a remodeling business: the historical data may no longer be relevant for projecting what you need to know; production management requirements may change a lot; and estimating and pricing may have to be done in a vacuum until reliable data from the new business becomes available.

In switching over to a different clientele, “do you know who they are, what they want, how to market to them?” she asked.

In today’s market, the value of the job to the resale of the house won’t be the reason clients decide to purchase a remodel, said Hogdon, but comfort is a big selling point.

Among the unique things that the remodeler can offer are expertise with the financing process, tax credits for energy-efficient upgrades, paperwork, home performance, specialty products and value engineering. Two-day bathrooms — something remodelers used to say could never be done — are popular, she said, and remodelers can help make a name for themselves by partnering with specialists in energy performance, becoming an energy auditor, establishing partnerships with vendors and initiating a less-hurried sales process.

There is a tendency for remodelers to imitate each other and go after the hot jobs, she conceded, and businesses can veer in the opposite direction by going after “what’s not hot, what nobody else wants to mess with.” A prime example is lining up work related to the renovation, repair and painting rule recently implemented by the Environmental Protection Agency. “Everybody hates it,” she said.

Finance Is Pivotal

Also pivotal in reconstituting the business model for a tighter market, she said, is finance. Remodelers need to reduce their overhead and job-related costs. That includes asking for discounts, increasing efficiencies in the office, eliminating necessary overhead, retraining employees to make them more productive, maintaining and repairing tools instead of throwing them out and replacing them, and working out more favorable payment terms and pricing with suppliers and subs.

When it comes to pricing jobs, a strategy of breaking even can lead to nowhere, she said.

To illustrate that point, Hogdon presented the example of a remodeling job that brings in $35,000 in income and costs $23,000, leaving $12,000 in gross profit. Subtracting $10,000 in overhead brings in $2,000 in net profit. If the identical job is repeated four more times, the remodeler has $10,000 in net profit. However, when the sixth job comes along, for whatever the reason, the costs run over and there is zero gross profit. The $10,000 in overhead on this last job “offsets all of the accumulated profit, bringing profit to zero.” The remodeler will then need to do this job five more times to make up for the loss.

In considering various cost strategies:

■“Be sure to plan for the margin you need.”
■“Slice and dice until you get a price you need.”
■“If you can’t mark up materials, charge for your unique expertise.”
■“Test your pricing strategy.”
“And never buy a job.” Hogdon said that lowering the price will lower the margin, and “lowering margins will force you to utilize a higher volume to cover the same overhead.” Another recommendation against price discounts, “they set customer expectations for more price discounts.”

Hogdon recommended using available financial tools, including Judtih Miller’s forecasting tool on Remodeling magazine’s website, information on her site — www.melaniehodgdon.com, and Google’s “markup calculator.”

When operating in a new environment, “plan ahead, test the results, keep what’s valid and abandon what no longer works,” she said. This should result in a new pricing model that’s reliable, enabling remodelers to leverage their resources to do something different.

CSLB Warns to Prevent Scams People Should Hire Only State-Licensed Contractors

“The California State Licensing Board (CSLB) says to help prevent scams, people should hire only state-licensed contractors on projects of $500 or more for labor and material.” 

More news continues to flood marketplace surrounding arrest, fines, and unlawful activity surrounding contracting without a license. Just today News 10 ABC’s Michelle Ponto reported the following:   AUBURN, CA — A Roseville contractor was arrested after ripping off an 87-year-old Auburn woman. 

According to the Placer County district attorney, 30-year-old Leron Anthony Stephenson from Roseville bilked the elderly woman out of $13,500 for a tree removal project on her property. Stephenson cashed six checks, including four blank checks given by the victim.

Stephenson was given a one-year jail sentence and must pay back the $13,500 to the family of his victim.  The elderly woman died before the defendant changed his plea to guilty in April, said prosecutor Jim Deslaurier.

Stephenson, who pleaded to theft charges and contracting without a license, was also placed on five years probation and was given a suspended prison sentence of five years and four months when sentenced May 26 in Placer County Superior Court.

The California State Licensing Board (CSLB) says to help prevent these kinds of scams, people should hire only state-licensed contractors on projects of $500 or more for labor and material.

contractor’s license number can be checked online at www.cslb.ca.gov or by calling (800) 321-2752.

More tips include:

— Get at least three bids and three references for past work from each bidder.

— Make sure all project expectations are in writing.

— Only sign the contract if you completely understand all terms. 

— Do not pay more than 10 percent down or $1,000, whichever is less.

— Do not pay in cash and do not let payments get ahead of the work.

By Michelle Ponto, News10 http://www.news10.net/news/story.aspx?storyid=90343&catid=2

To understand more on who needs a contractor’s license visit  http://makemeacontractor.com/California-contractors-license-cslb.cfm

CSLB Sting Operations How To Not Get Stung

Daily we see reports of the CSLB’s Statewide Investigative Fraud Team (SWIFT) sending unlicensed operators to jail.  Just recently in July 2010 CSLB stings stung 13 illegal operators, including violators of state energy-saving programs. We thought it best to share an overview of what the CSLB -Contractors State License Board, considers an illegal contractor and share what penalties these operators are potentially subject to. 

According to the CSLB…

Who is considered an illegal contractor?

It is illegal for an unlicensed person to perform contracting work on any project valued at $500 or more in labor and materials. Besides being illegal, unlicensed contractors lack accountability and have a high rate of involvement in construction scams. They also are unfair competition for licensed contractors who operate with bonds, insurance and other responsible business practices.

What is the CSLB doing to stop illegal activity?

The Statewide Investigative Fraud Team (SWIFT) is set up to monitor and combat illegal activity. SWIFT has teams around the state that conduct stings on a regular basis and sweep construction sites.

SWIFT also conducts joint operations and sweeps with other state agencies dedicated to combating underground activity. The partnerships with other agencies raise the penalties and fines for violators by increasing the scope of violations to include taxes, illegal payrolls, and workers compensation and worker safety.

CSLB :http://www.cslb.ca.gov/Consumers/ReportUnlicensedActivity/WhatIsIllegalContractorActivity.asp 

Penalties & Fines

“If you’re caught contracting without a license, you will likely have to go in front of a judge to answer to misdemeanor charges, which carry a potential sentence of up to six months in jail and/or a $500 fine, and a potential administrative fine of $200 to $15,000. If you get caught again, the penalties get stiffer. You could face a mandatory 90 day jail sentence as well as a fine of 20 percent of the contract price of the work performed, or a $4,500 fine.”, according to the CSLB.

Don’t get stung! Protect your future:

  • Get Licensed this is critical and the law
  • Do not engage in contracting work on any project valued at $500 or more in labor and materials
  • Advertised accurately

View Video of CSLB Sting in action

[youtube=http://www.youtube.com/watch?v=9-61eZ9EH7U]

Gain The Competitive Edge

As the Construction market landscape continues to be more competitive now more than ever it is important to obtain a Contractor’s License and or additional licenses to obtain a competitive edge. With limited dollars to spend on home improvement and construction consumers are compelled to hire the best Contractor they can find and are looking for the most cost effective opportunities.

Many Consumers are not taking a chance at hiring an unlicensed Contractor for fear of potential additional cost to their projects. Consumer skepticism includes fear of unlicensed operator’s not carrying adequate insurance coverage necessary to protect them from potential claims. Unlicensed operators do not carry workers’ compensation insurance for their employees as required by California Labor Code or the contractor license bonds required by the state’s Business and Professions (B&P) Code. In this case, should a problem arise the homeowner may be liable if a worker is hurt on their property and without financial recourse if something goes wrong with the project. Many consumers want to avoid costly pitfalls such as these by hiring an experienced Licensed Contractor. For example “badly installed heating or air-conditioning units cost California families money, harm the state’s ability to meet important energy and environmental goals, and can even make people sick,” said CSLB Registrar Steve Sands. Additionally, Failure to obtain a building department permit and have proper follow-up by a California Energy Commission-certified inspector could result in additional expense and risk for the homeowner. A deficient HVAC system may affect a property’s resale value, and could harm the state’s air quality and environment. Inspections ensure that a system is safe, will produce lower utility bills, and help the state and consumer meet energy-efficiency goals. [CSLB]

B&P Code also requires licensees to place their license number in all advertisements. Unlicensed contractors can advertise and perform projects valued at less than $500 but must state in their ads that they are not licensed. A Licensed Contractor in this case would be a more competitive candidate.

The Contractors State Licensing Board works diligently to protect California Consumers from costly mistakes. Recently, four unlicensed operators contracting to replace the air-conditioning unit of a Rancho Bernardo condominium were among the 13 snared for violating California home improvement contracting laws during an undercover contractor sting operation on July 28 and 29, 2010. The Contractors State License Board’s (CSLB) Statewide Investigative Fraud Team (SWIFT) was assisted by the San Diego Police and City Attorney, San Diego County District Attorney, and the California Department of Insurance. SWIFT members posed as homeowners seeking bids for the installation of a new air conditioner, and for plumbing, painting, and tile work. “Stings like this help keep California consumers from making an expensive mistake.”

Several industries and occupations also require or prefer licensed contractors which equates to a competitive landscape:

 

 

 

 

How might you gain a competitive edge?

Get Licensed

 Network with other contractors for more business

 Continue your education with seminars and certification programs

 Advertise effectively

 Create a Corporation or DBA to protect your company

 Network and get connected via social media outlets such as Facebook, LinkedIn, Twitter

 Price competitively

 Do the best work and build a stellar reputation

 Ask for referrals

Lead paint poisoning affects over one million children today according to the Environmental Protection Agency

Lead paint poisoning affects over one million children today according to the Environmental Protection Agency “Adverse health effects include learning disabilities, behavioral problems, and speech delays. If not done in a lead-safe manner, renovations and repair activities that disturb lead-based paint can expose children, as well as adults, to harmful levels of lead dust.” Simply said, it can cause exposure to lead and result in serious health consequences, especially for young children.

Because of the potential harmful levels of lead dust the EPA issued a rule requiring the use of lead-safe work practices aimed at preventing lead poisoning in children. The new federal Lead-Based Renovation, Repair and Painting requirements may be applicable to you as a Contractor! Failure to comply with the new requirements is a violation of the law. Further, penalties are significant. Those firms found to be non-compliant may be liable for civil penalties of up to $32,000 per violation.

The bottom line, the EPA Certified Renovator certification is a national requirement as of April 22, 2010 for anyone renovating, repairing and/or painting a pre-1978 home or child-occupied facility.http://MakeMeAContractor.com

As a result Contractors must obtain the EPA Certified Renovator certification under Section 402 or TSCA. The EPA Renovation, Repair and Painting Certification course teaches the participant how to comply with the EPA Renovation, Repair and Painting Rule and the HUD Lead Safe Housing Rule. Additionally, the certification will teach Contractors how to perform lead-safe work practices safely and effectively. A successful completion of this course designates the participant an EPA Certified Renovator and therefore compliancy with the law.  Only an EPA approved vendor such as Contractors State License Services must provide lead-safe construction education programs.

Who should be concerned– All General Contractors, Renovation Contractors, Property Manager, Painters, Plumbers, Carpenters, and Electricians.