Last month, I attended NAHB’s midyear meeting in Miami and had the pleasure of sitting in on a presentation by Daniel Swift, president and CEO of Des Moines-based architecture group BSB Design.
Denver's Oakwood homes Consolidates Vendors
When Denver's Oakwood Homes won the 1995 National Housing Quality Award, the company was cited for partnering relationships with manufacturers and suppliers as well as trade contractors.
When Denver’s Oakwood Homes won the 1995 National Housing Quality award, the company was cited for partnering relationships with manufacturers and suppliers as well as trade contractors. In one sterling example, by reducing the number of trade partners and working closely with them, Oakwood cut hard costs dramatically, then passed the savings on to buyers by including concrete tile roofs as a standard item on a $120,000 house. Today, Oakwood is still pushing the envelope on value-added partnering relationships.
Oakwood president Pat Hamill recently told a Dallas meeting of building materials dealers to find ways to add value, rather than just selling materials as commodities, based solely on price.
"For example, we now have a sole supplier of lumber that was not doing any business with us three years ago. But they are not just selling us lumber. They produce fully panelized wall sections, from working drawings we produce on our Argos design software that counts and dimensions every stick. We’ve also got a trim supplier, who used to just sell us materials, who now does trim installation on everyhouse-everything from exterior doors to interior shelves, trim, and millwork," says Hamill.
In addition to concrete tile roofs, Oakwood now includes Corian countertops as a standard item in all houses. "Dupont will tell you how our use of Corian has vastly increased their market share here in Denver," says Hamill. "National manufacturers cannot do that on their own. They can only do it by partnering with a savvy and efficient builder who knows how to merchandise the value they can add to a home. We’re now expanding our use of Corian to include shower surrounds in bathrooms. Consumers see it as a much more durable and sustainable product than tile. That perceived value is what we’re looking for."
The revolution in e-commerce is something builders must watch closely over the coming months, says Hamill. "National purchasing and direct distribution may be the wave of the future, but I can always figure out how to compete with the big boys. We didn’t raise the price of our houses when we included Corian counters as standard, or rounded drywall corners, or downdraft cooktops."
Hamill believes the handwriting is on the wall for vendors in the home sale process as well as construction. "Everyone involved in producing and selling a house will have to add value commensurate with cost," he says. "And that includes Realtors."
"They’re going to take a hit on commission structure. When you look at the big public builders, who are making 2.5% to 3% profit margins, and they are still co-opping with Realtors at 3%, there’s something wrong with this picture." The risk/reward equation is out of balance. That amount of compensation might make sense if builders were making 12% margins, but they’re not.
"It’s the same as what the airlines are telling travel agents. They’re going to have to accept less or face being superceded by direct selling on the Internet," says Hamill.
Oakwood is breaking price barriers in Denver this fall with affordable detached houses at Green Valley Ranch priced from $105,000. He is cutting Realtor co-op rates as well. "That’s way below the Denver new home average price of $202,000," says Hamill. "We debated what to do about Realtor commissions, and finally put it out at 2%," he says.
"I’m getting blasted for it. But we’ve already sold 35 houses and our models are just at drywall stage. I think it’s fair."