Televisions, Trampolines, and Diamonds – The Value Equation
- June 1, 2009
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I remember the afternoon my dad took me shopping for the new family TV. I was perhaps 12, and my dad had been discussing the need for a 27 inch color tv for the living room. We went to the store and methodically made our way to the television section, checking out the dishwashers, beanbags, and radar detectors along the way. Moments after our arrival in the department, a salesman cornered us, asked a few questions, and immediately detected the scent of blood. He walked us to the center aisle and had us stand back a few feet from two televisions sitting side by side. I had the feeling one of these would be coming home with us that afternoon.
The salesman began his well-rehearsed routine, explaining the benefits of the newest technology, the shape of the screen, and the richness in color now available. He had us stare intently at the two competitors while he compared the blue ribbon television with last year’s model. It might have been a rerun of the Loveboat, but he was right – the quality and crispness of the picture was obvious. You couldn’t argue with him. I had made up my mind, and I decided to let my dad know it. “Dad, I know it’s a lot more expensive than the other television, but we have to get the . . .”
My dad just stood there, smiled at me, and thanked me for my wisdom. A few more moments passed, and then he asked the salesman to turn off the more expensive television. He looked my way and asked me to imagine our television at home, sitting right there on the shelf next to the half price television. He asked me what I thought of the half price television now. Pretty good lesson at the age of ten, topped off by an even better conversation on the drive home about value. (Side note – we went home and setup the new “half price” television. Nobody in the family ever knew the difference besides me and my dad.)
In the custom home building experience, the concept of value is far more subjective and complicated than the illustration above, but thinking about value during the process can provide the owners with a sizable advantage and a fair amount of equity the day the home is completed. Most of our clients share in this philosophy, and have enjoyed the results of keeping value as one of the guiding principles during the process. Here’s a list of general considerations:
Know Your Neighborhood – One of the most important items overlooked in the process is an understanding of the neighborhood in which you are building. You need to understand what the other homes cost, what styles have sold quickly and at higher comps? What demographics comprise your street – are they younger couples that want a master bedroom near the kids’ rooms, or are they empty nesters looking for a place to store their collector cars and golf carts? Even though this home is for you and needs to meet your needs and desires, it’s not too difficult to use this information to make educated decisions along the way. What can I build that I’ll love, yet most people will want 4 years later (the average number of years an American couple occupy a residence). It’s important that somebody on your team (you, the realtor, the architect, the builder, or the designer) takes responsibility for becoming intimately familiar with the neighborhood. Not every person needs to be an expert, but someone you trust to observe and effectively communicate, should take the responsibility of training the team on these items. Except in certain circumstances, your all-in budget, including land and carrying costs, should pencil out to less than the average selling price of homes in your neighborhood. Unless you are intentionally building the most expensive home on the street, or building for a very unique purpose, a higher budget means you should revisit your thinking.
2-3 Choices: In most cases, you will have a long list of selections that can include doors and windows, flooring and surfaces, appliances, lighting, plumbing fixtures, hardware, and sometimes even insulation preferences. I’ve often seen clients get into trouble the minute they step foot into a store (think televisions). You walk into an appliance store with a budget in mind, and you walk out with commercial grade cooking and refrigeration, three in-wall coffee makers, and a trampoline. The better example is the tile and granite showrooms – this is where my wife breaks the bank for our own family’s projects every time. I know it’s fun to visit these places and peruse the endless choices, but there are alternative solutions that can save you a lot of time and money. A handful of our clients have done a sufficient enough job in casting the vision, that the entire team, including the designer, understands how the end project should appear. Ask your designer to go the showrooms and make 2-3 recommendations for your approval. Let them create a storyboard with choices. You can always send them back if you don’t like the options, but 99 out of 100 times, a good designer will hit the target and save you the frustration of looking at wall after wall of colors and shapes and dollars and more dollars.
Price check your builder’s trades: Everybody wants quality and craftsmanship and every builder will tell you they have it. Walk some of your builder’s homes and see for yourself if you like the way the molding is installed, the quality of the cabinet drawers, or the texture and paint on the walls. If so, ask your builder how much they pay their painter per covered square foot. In a different conversation, ask your architect for reasonable guidance. Compare the answers. Anybody can hire Pablo Picasso to paint their home, pay a small fortune, and talk about quality. The builders with value built in to their pricing, have identified the reasonably priced trades who can consistently perform; they’ve treated these trades with respect and maintained a good working relationship over the years. These trades provide quality work and favorable pricing, and tend to deliver on time. This exercise alone can be more telling than having multiple builders bid your project. Unfortunately, even the best bid processes are difficult for a client to assess the results and make detailed comparisons across bids. Comparing price is far different than comparing value.
Splurge a little – a little: We’ve seen it all and we’re still only in our mid-thirties. From the client who wants to chisel off pieces of the Hope Diamond for her chandelier, to the client that wants to employ the same fresco technique used by Michelangelo in the Sistine Chapel for their faux work on their dining room ceiling. Perhaps a bit of exaggeration, but the truth is there is no wrong answer. Make the home amazing, and use your own taste. Pick the handful of things that you know are going to be expensive and build them into the plan and the budget. Hopefully, your choices align with mainstream buyers in your price point, but accept it if not. Be smart with the remainder of the items however, and ask your designer or builder to help you find deals. Does a supplier have leftover travertine from a downtown condo project on sale? The color may be 1/20 a shade darker than you wanted, but $2/sf versus $7/sf adds up quickly. Do you really need cypress flooring from the Redwood Forest, or is there another variety that looks as great, but doesn’t require an act of the California state legislature to procure? Perhaps even consider working with your architect to reduce the number of rooms and think about labeling one room with two purposes. There’s already a trend in combining the breakfast nook and dining room into an “eating room” – something nice enough to entertain in, but comfortable enough to use every day. Same thing for the pool cabana, game room, media room. Talk to your realtor first to understand what will work in your neighborhood, but don’t be afraid to cut space to achieve more value.