Local Builders Play Unexpected Hole Card

If you’re a small builder who thinks your only recourse against the increasing purchasing power of large national builders is relationships with trade contractors, think again.

Across the country, buying groups are coalescing among local builders, as they have in many other industries, to put volume muscle together, to get in the game with the big boys by negotiating better prices from manufacturers. Grand Rapids, Mich., builder Mick McGraw of Eastbrook Homes, the largest builder in that market with 325 closings a year for $70 million, formed Builders Buying Group LLC with Bosgraaf Builders (100 homes a year) and Marlink Builders (50 homes a year) three years ago and hasn’t looked back.

“This is an entity that negotiates and contracts for quantity purchases but doesn’t take title to anything,” McGraw says. “It stands alone, operates alone and takes no part in day-to-day operations of any of the firms. The builders deal direct on invoices.”

BBG’s only employee is Pete DeGelder, a former manufacturer’s representative for a cabinet company who does all the negotiating. “We started with vinyl windows and cabinets,” he says. “When we first came up with the idea, I went to the NAHB Builders’ Show to gauge manufacturer interest. We represent 10% of the market in Grand Rapids. They went gaga over the idea, and I was blown away. I knew right then it would work.”

BBG now buys lumber, rough trim, shingles, drywall and appliances, as well as cabinets and windows. DeGelder reports that Eastbrook is realizing savings from 5% to 10% on the products purchased. The smaller builders’ savings range from 15% to 25% compared with the prices they got before BBG.

McGraw is attempting to put together adjunct groups in Kalamazoo and Lansing, Mich. “We might add another builder in Grand Rapids, but we don’t want to give away our competitive pricing advantage by bringing in too many local guys. The better idea is to pull together a group in each of those other markets to increase our clout.”

How far can this go? Across the Midwest? The nation? “Our grandiose thinking runs like that,” McGraw says with a laugh, “but we have no plan like that.”

DeGelder says: “I lie awake some nights thinking about it. And this is a relatively low-tech solution right now. We’re just using fax machines and e-mail. I think about an Internet site sometimes, but that just gives me a headache.”