Focus Discussion of the Week:
The price increase of materials and delayed building times are raising home prices and pushing move-in day further back than your buyers might like — but there is a way to navigate this obstacle. Al Trellis joins Matt and Mollie to discuss everything you need to know about “Pricing, Shortages, and Expectations.”
Hear more from Al Trellis at the Home Builders Network.
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Two thought leaders come together to explore all things sales and marketing from their unique perspectives. Each week, Mollie Elkman, Matt Riley, and others from Group Two dive into a focus discussion to talk about the latest trends, changes, and best practices.
[00:00:00] What’s when you go to the restaurant, we called up the other night. How long has this a fairly popular place? How long is the wait for takeout? We were at the beach. How long is the wait for takeout to out? If you, if you come, if you put it in now, you’ll have it at age 15. This was at six o’clock. We said thank you very much, but no, thank you.
Okay, then every I’m not mad at them. They’re busy. I get it. Now, if the guy told me, I’ll take your order and didn’t tell me. And I sat in my car for two hours. How annoyed would I have been? Right. So a lot of it is about telling that to people. Now, how do you deliver that message in a meaningful way? Well, you say something like this now.
I understand. That’s not what you want to hear mrs. Johnson. But having said that other builders might tell you, come on in, meet with our salespeople. Great. They’ll sign a contract. And now you and the other 500 people can sit in line waiting for your chance to start the house. Once you come in to see us in February, you’re going to move through our process in 60 [00:01:00] days.
And we’re going to dig your house. I can tell you that because I’m telling you you’re right now, how long the line is to get to the front of the line. I’m not going to tell you that your house takes seven months. But not tell you that it takes four months to get the starting point.
Hi, and welcome to Building Perspective with Matt Riley and Mollie Elkman. We’re here to bring value to you and your team by exploring all things, sales and marketing all from different perspectives. All right. And welcome back to another episode of the sometimes weekly podcast building perspective and Mollie and I are here, to chat with none other than Al [00:02:00] Trellis.
And we’re going to be talking about pricing. Shortages and expectations. So really, really jam packed episode today. So, Mollie, what do you have going on? Very happy to have Al here. I’m going to embarrass him a little bit to get started even though I don’t think he can get embarrassed. Al I am. I am one of Al’s biggest fans.
And I’m just going to claim that rate now. I think after his wife Roselle, it’s probably me and he knows that because every single time I see him, I tell him that he is an absolute genius and I. Say that flippantly. when I first came into the housing industry, Al and I were chatting about my business model and I will never forget, he said, okay, here’s your product.
This is how many people you have, literally just on his fingers. This is what you’re doing. Dah, dah, dah. Okay. This is how much money you’re making. And he was literally on the dot [00:03:00] exactly. Right. And he did it in five seconds. and ever since that day, I have, taken the advice that Al has given me throughout my career.
And truthfully I would not be where I am and group two would not be where we are without the advice of Al Trella. So how is that for an introduction? Sounds great to me. I think Al’s going to hire you to just come around, come along the road with him and just give his intros everywhere he goes. I love it.
It’s fantastic. So we are happy to have you, one of my favorite things about you is that is your brutal honesty and, you know, your. Say it like it is, and you don’t sugar coat. So I, I want to start with that because we need your brutal honesty. What we’re talking about today is really important. And it’s what company is around the country are facing.
And you know, anyone who wants their handheld and sugar and spice and everything nice. [00:04:00] That’s probably not going to be this episode. We’re going to get right into it and get to the, You know, to the meat of what we need to talk about. So why don’t we go ahead and get started with yeah, well, let’s, let’s start.
Yes, let’s dive right into it. Let’s start real quick. Al, why don’t you share, you know, your. You know, 5,000 foot overview of who you are, how long you’ve been doing this, what your company does just to kind of give in case some of the audience, maybe doesn’t know who you are, just to kind of give them an overview of, of what you do and how long you’ve been doing it.
Sure. So this is my, this is embarrassing. This is my 49th year in home building. So, if you, if you run the math, you can tell that I’m over 70. And, I S I used to work at the NHB and back in the seventies, I was the director of technical services for about 15 years. I was a builder. And for the past 25 years, I’ve been a consultant speaker writer, and we own parts of multiple home building [00:05:00] companies.
we sold parts of our home. We sold our home building companies and we’re partners in lots of land development deals around the United States. I have the same business partner for 50 years and my son has worked in my business for 27 years. we have 46 clients. The smallest one is about $6 million and the biggest one is about $250 million.
I usually don’t work for the nationals. I work for individual builders. I usually compete with the nationals. I’m pretty well rounded in my, knowledge of home building. I don’t talk or write about customer service very much. I leave that to people like Carol Smith. The only people I’m interested in serving are my own customers.
I don’t want to tell other people how to service theirs. I am, I would say I’m an expert on pricing. I written a lot. On pricing, including a wonderful 60 or 70 page handout that people can get. If they liked that I did for the 2013 [00:06:00] IVs, I’ve written a lot about spec houses. I consider myself extremely well versed on that.
and, and I’m both a tactical and a strategic thinker. So we, we own a lot of plans. In fact, Mollie and I. Own up a plan of service called values that matter, which is a exclusive plan service so that if you belong to it and you get to use certain plans in your area, no one else can use them. We have over 50 plans in that collection, but my company owns 700 copyrights on plans.
I’ve been working on plans. That’s the other part that I really love to work on. My expertise is in plan. So when I’m say I’m tactical and strategic. I coach my clients, not in any one thing, I coached them and how to be successful business people. If we want to talk about how to go to the bank and borrow $10 million, we can do that.
And if we want to talk about why I think the hallways should be four inches wider, we can talk about that. And so, and that makes me a little unique, I [00:07:00] think, Among consultants, advisors, coaches, whatever word you want to use. I’m fairly picky about who I work with. I need to work with people. I like, I need to work with people who listen, if you can’t listen, I don’t want you to waste my time and I don’t want you to waste your money.
So, that’s kind of my philosophy on the job of a coach. I think I was a good builder. I wasn’t a great builder. I’m a much better coach than I ever was a builder. So, With, with that, let’s talk. I love it. Very good. Okay. So we tied, we’re going to talk about pricing shortages, not pricing shortages, but pricing shortages and expectations.
And let’s, let’s just dive into the first one, which is pricing, which is the huge. Elephant in the room that, everyone is trying to figure out. Right. And that is mainly lumber pricing. Right. We’ve seen what over a hundred percent increase since the, [00:08:00] since probably April, may in lumber pricing, builders are all, everybody’s wanting to know how do we handle this?
Not necessarily. It could also be how do we handle keeping our lumber prices down, but also how do we handle. These price increases and with our, with our buyers. Right? So lumber pricing being the number one topic let’s, let’s dive in and let’s kind of hear the, the genius of Al Trellis when it comes to, this, this part of the puzzle.
Alright. So the first thing I would tell you is that while lumber pricing is the biggest culprit, we’re going to see more increases in lots of other things. We’ve already begun to see it. So we could get into a more fundamental discussion of economics and supply and demand and elasticity of demand and a whole bunch of things.
But we don’t have the. The time, and I’m not sure the listeners want to hear all that stuff, but, so pricing is [00:09:00] related to sales, velocity and pricing is related to costs. Although we’ve always taught and I advocate that you should not use cost based pricing. You should use market based pricing. And we can discuss the difference.
I think most people know the difference. and there’s a great, great, great book. If anybody wants to read a book, that’s pretty heavy. Just, don’t just read only the beginning. It’s called the strategy and tactics of pricing. It’s a very, very famous book. It’s a textbook for graduate school, but it’s by an author named Nagel and Holden.
It’s one of my favorite books. I’ve read it twice. And, it’s a slog every time, but, it’s a great, great book. And so, you know, so prices go up, lumber goes up on a bigger house. The price of lumber goes up 12, $15,000. What do you do? Well, your first reaction is if you’re a cost-based pricer, I raised the price by 15,000.
In fact, a lot of builders will tell you, you should [00:10:00] raise the price by 15,000 plus your margin. but again, the, the reality is. That only works. If the market will accept that price increase, if you historically, vendors have sometimes had to eat cost increases or get part of it, or in some cases get more than then that price increased depending on the market demand.
so what you’ve got now, If you’ve got a bunch of factors, I believe there are five of them that conspired to make what for many of our builders is the best of year they’ve ever had, which is insanity. When you think about it, since they didn’t sell any houses in March and April in much of the country, but what happened is for, for the reasons which.
I can go into, or not depending on whether you want to hear it for certain reasons, the demand has gotten crazy. So we may June, July, and August across the country where for most builders phenomenal, interesting conversation. I also try to watch other industries. I’m a big believer that if you want to be a successful home builder car dealer, any, [00:11:00] any business, you look at other businesses, a lot of what I’ve learned about pricing.
I learned from McDonald’s. I learned from, FedEx I learned from people have nothing to do with home building because that’s a philosophical conversation, not a home-building conversation. Like the, the thing that I think is really important is all these factors have conspired to allow people to pay more and feel okay about it.
So at the moment, in most cases you can pass on the cost increases without a big problem. The reality is if I buy a house today for $25,000, more, more than it was six months ago, my monthly payment is equal or less than it was six months ago. So yes, I paid more, but I don’t feel it. And, and then these other factors such as, I don’t want to miss out on these rates, I I’m tired of the house I live [00:12:00] in.
No, now that I’ve been home every day for 150 days, I don’t want to live here anymore. I want to leave the city. you know, there’s a million reasons why people are buying. And so, Affordability is one of them because with low, low, low rates, then something, even at a higher price is more affordable today than it was before.
So that’s, I think what’s what’s going on. So how do you pass these costs on? Well, for most builders, they just raise the price and that’s the most common. A way to do it and we can, we can talk another time if you’d like about the right way to run pricing sheets and how often you should have pricing increases, et cetera.
I believe in more frequent, small increases, even if you don’t have cost increases, because when you do we’ll get a big cost increase, then you don’t have to have a big increase to go with it. Right. So, yeah, that’s, that’s my philosophy. So, but, but I’ve had. Most of my builders more than half have raised their [00:13:00] prices in excess of $10,000, at least once.
And most of the time, twice in the last two months, three months. And, and they’re a lot of them are anxious about the houses that they already sold, that they now have to spend an extra $10,000. So one of the questions I think that you want to discuss is what do I do for the people that I already sold the house to?
And now I’m hit with an extra $12,000 lumber bill. Well, depending on your contract, you may not be able to do anything about it. What’d you can, maybe you can. I have one of my builders. He has a clause that says, if costs go up more than 2%, he can class cost increases onto you, or he can cancel your contract.
And my building just gave his buyers the choice. And in our case, we did it for every individual house. We calculated the difference. We told them the difference. There were, there were 18 of them. We told them the difference and we told them. We don’t want to cancel your contract, but we have the right in a spirit [00:14:00] of working together.
You know, we propose that we split that price. And in your case, it went up $14,000. If you accept the change order for a $7,000 price increase sign here. And if you don’t and you want us to cancel your contract sign here. And so far we’ve sent out about 10 of them. And so far everybody’s said, okay, but we’re prepared to have a certain percentage say no.
Now at the same token, there’s almost no inventory in the system. So for most people, if they haven’t already bought a spec house, there’s very, very few of them around. So if you don’t buy a presale, you can’t find a spec house, you can find a used house, but we don’t sell you. We’re not in the used house business.
So hopefully that we all understand that. And. We have chosen not to be in the used house business. Right. So I think that’s an important factor. The other, the other thing I think that is driving this market that I should spend a second and talk about is inflation. [00:15:00] If you don’t believe that you gotta be serious inflation in the country over the next five years, I think you’re living in LA LA land.
Because you cannot economically dump $5 trillion into an economy and not have inflation. It’s just not possible. I mean, you can get kind of stagflation and you can get various forms of inflation, but stuff’s not getting cheaper. It’s getting harder to produce. Commodities are going up in price. Labor pool is shrinking a little bit for us.
Yup. One of the reasons that lumber prices have gone up so much has to do with how much wood is being diverted to pressure treated lumber for people that are now putting new debts on their houses and redoing their decks. I mean, on my street alone, I probably have seen him a million dollars to $2 million of renovations going on.
You can’t find a pool contractor in America today. Who’s going to tell you, he’ll give you a swimming pool in less than three months. Because everybody’s doing it, everybody’s improving their health. They’re either staying in improving [00:16:00] or they’re saying, yeah, it’s beyond repair. I’m moving on. And so now again, this is the people who have money.
There, there are lots of people who’ve lost their job in this thing. And I don’t want to under state that having said that this COVID situation is not an equal opportunity employer, it. Has dramatically affected the lower income people more than the upper income people. And think about who most of our customers are.
Most of our customers are the better part of the society from an income point of view. you know, you get people who were moving up from a house, they already own a house, which is how they created equity. We could have a giant conversation about equity and opportunity and home building and homes as the number one equity producer for the average American.
Number two. you try to get renters to move into new houses and we are getting some of that, but there are another great part of the economy. About 30% there they’re always going to be renters because they’ll never make enough money to really [00:17:00] afford a house. And as housing becomes a little bit less affordable over time, and it has then fewer and fewer or more, and more of those people will never achieve home ownership.
So I think this is a factor, but again, go back to inflation. If you really believe, like, I believe that inflation is a factor. What’s the number one hedge against inflation that the average American working person can have. What is it? Well look well, how, because the interest rates don’t help you. It’s buying a house at a low interest rate that helps you, right.
A low interest rate. Doesn’t help a renter. A low interest rate. If I buy a house and I, and especially in America, if you go to Canada, you can’t get a 30 year mortgage. The average mortgage in Canada is five to seven years, and then you have to re negotiate the rate. So here in the States, if you go get a 30 year mortgage at 2.7, 5%, yeah.
Your, your utilities may [00:18:00] go up. Your maintenance costs may go up, but the bulk of your payment is fixed for 30 years. What better hedge against inflation? Where, where else can you go invest? $30,300,000 of which only 30,000 is your money and get a $300,000 hedge against inflation. You can’t there’s nowhere else.
It’s the only place the average American can leverage up and lock in low interest rates and basically protect themselves on 300 grand. Right? I mean, think about that. Yeah, we totally agree with you. So that, to me, that’s one of the drivers, the smarter buyers are figuring out, you know, I can afford the house at this price.
Maybe I can’t afford it in the future. If prices go up, I’m locked in. I need this as a protection against inflation. I don’t think they sit around and think about their inflation adjusted model, but they unconsciously understand what’s happening. Yeah, I want to go back to the, what you said a few [00:19:00] minutes ago about, the different ways to pass on the cost increase when you were talking about splitting the difference and all of the people that you have had that you guys have had that conversation with, have done it, you know, That sounds to me, like there is an opportunity for that to hurt the buyer relationship or to strengthen it.
So can you go like a little bit deeper about the approach that you guys took when you did that to make it a positive experience for the buyer? Sure. So I think the secret to me, the secret of everything in running a business that’s customer centric is, is. Honest information, honesty, integrity, letting people believe that there’s nothing going on.
If they don’t really understand. And one of those things, when we talk a little bit here about expectations is you cannot deliver a house in my opinion today, right [00:20:00] now, if you sold the house last week or last month, you can not deliver that house the same way in the same timeline that you could have six months ago.
It’s going to take longer. There are, you’re just beginning to really see shortages show up more and more, which are, which is exacerbated by all these sales. So not only do you have the covert factor on the one side on the supply side now you’ve got an increased demand. Everybody’s sold a huge amount of houses and all those people are now in line waiting for their turn to get started and get their house.
And all my builders have backlogs of houses sold, but not started. At almost record levels right now. So we have builders that last year sold 200 houses that this year have sold 350. Let me think about that. They’re not enough to deliver 350 houses a year and ordinarily the things you would do to gear up you can’t because everybody else is trying to gear up.
And at the same time, your materials are now short. [00:21:00] Oh, and at the same time, the labor guys, the beginning to say things like, well, I bought the street and get an extra dollar a foot. So what are you going to do, Jack? You’re going to see some serious pressure. Then the next ones are too, we’ve already been in the only, and the only way that the builder can offset that.
Right. Cause they’re way out over their skis, their they’re their, their staff to manage 200 and they’ve got 150 more, they can’t, you know, they’ve got all these shortages, the only way that they can offset that is timing. So there’s, they just pushing that build time, further out, further out, further out, which then.
Opens you up to even more, right? Well, this is what happened by the way, in the 2004, five, six, boom. In Florida. I remember I remember going there and my bill, one of my builders had a project and they sold out in one night. They stole 120 townhouses in one night. And I said to him, why why’d you do that?
What do you mean? Well, that’s, that’s a [00:22:00] disaster. You’ve just fixed the price for 120 houses. The last of those houses will be delivered for 18 two months. Do you think that prices are going down here in the boom of 2005? And it turned out that by the way that half of those people were, they’re not real buyers, they were investors, which is really a fancy word.
In most cases for speculators, by the way, when people talk about, I sold the house to an investor, I usually jump on their butt and I say, Oh, a real investor or a speculator. And they usually say, I don’t know. Well, then he’s a speculator, so, well, The thing that’s going on. W we’re beginning to see some of that around, you know, as a, as a, I’ve been a digress, you know, there’s a lot of money floating around big money.
That’s raised publicly to buy rental houses. There’s money sitting on the sidelines, waiting for the COVID spring next year, when a protection about foreclosures and things goes away, [00:23:00] they’re waiting to buy these houses up and turn them into more rentals. It’s a little frightening. What percentage of the single family houses in the country are rentals today?
It’s a, it’s a bigger number than people realize. I saw one report that claims it’s close to 6%, but which is a big number. But anyway, so go back to Mollie’s question. I think the secret is, is honesty and realistic expectations. The time to tell these people that we sold a record number of houses in August.
And your house may not start for three months is now if the salespeople or saying the same thing, they’ve always said, how long does it take to get my house takes six months to build that’s the problem. Because the reality is, yeah, it might’ve taken six months to build it. Now let’s say it only takes seven months to build, but it also takes two or three months to get to the front of the line.
Yeah. What I wanted to add in there is I think a lot of sales people or marketing people kind of approach this. As more of an [00:24:00] apology of like, Oh, we’re so sorry, you know, for what, for all of it. And they take on the burden of apologizing for what’s happening in the world. And I don’t think that that’s necessary.
So I really liked the idea of taking it from the approach of, you know, just fully transparent. Like this is, this is where we are, this is what’s happening and I’m not. Apologizing for the situation, if that makes sense. Makes perfect sense. In fact, I wrote an email to all my clients last month. And in there I used the phrase that sounded a little like an apology, and I got it.
I got a couple of letters from people, including one from, from a very good friend of mine. Who’s quite well known in the industry saying, I think this is a better way to say it. And so I sent that out immediately to my clients and I said, Again, in the spirit of transparency, you know, I said these words and these words are better by the way that that person is Jane Mollie
on our podcast as well. [00:25:00] Yeah. And so, and, and I, and I said, James words are better than my words, but, but again, my intent, when I originally wrote it was to help people understand what’s going on. And I think it’s not, it’s not honest and it’s not. Good business to not tell people. What’s when you go to the restaurant, we called up the other night.
How long has this a fairly popular place? How long is the wait for takeout? We were at the beach. How long is the wait for takeout to out? If you, if you come, if you put it in now, you’ll have it at age 15. This was at six o’clock. We said thank you very much, but no, thank you. Okay, then every I’m not mad at them.
They’re busy. I get it. Now, if the guy told me, I’ll take your order. And didn’t tell me. And I sat in my car for two hours. How annoyed would I have been? Right. So a lot of it is about telling that to people we’ve got, I’ve got one builder, one of my favorite builders, I guess I’m not supposed to have favorites, but just don’t tell [00:26:00] him
parents aren’t supposed to have favorite children and consultants. Aren’t supposed to have favorite clients, but anyone who says they don’t as a liar. So, the, the. We try to sell 12 a month. We try to start 12 a month and we try to close 12 a month. Right. And we only make a certain number of appointments.
I’m going to tell you right now, if you call that builder today and you want to meet with a sales consultant, do you know what you’re told? I have one left for January. If you don’t take it. That was, that was two days ago. That’s probably gone. So what you’d hear today is. I apologize, you know, we’re, we’re sorry to make you wait, but our first appointment is for February.
You can come in and talk to a Salesforce. Now, how do you deliver that message in a meaningful way? Well, you say something like this now. I understand. That’s not what you want to hear mrs. Jones. But having said that other builders might [00:27:00] tell you, come on in, meet with our salespeople. Great. They’ll sign a contract.
And now you and the other five, a hundred people can sit in line waiting for your chance to start the house. Once you come in to see us in February, gonna move through our process in 60 days, and we’re going to dig your house. I can tell you that because I’m telling you you’re right now, how long the line is to get to the front of it.
I’m not going to tell you that your house takes seven months, but tell you that it takes four months to get to the starting point. Right? So. Here’s what’s interesting so far in the last, since we’ve, we’ve been doing this now, since the backup has gotten what we’ve always done this, but the backup has gotten longer and longer.
We’ve only had two people say no, right? We have, we make 18 appointments. We know our rates. We make about 18 appointments. We’ll end up with about 12 people started. You follow me. Because first they signed a preliminary agreement, then they signed a final contract. And so we know the percentages, it’s the [00:28:00] marketing funnel.
Right? You could talk about that now. So again, if you, you want to talk about price increases. If lumber goes up $20,000, you only have three choices, right? You can, you can absorb it and make $20,000 less. You can raise your prices $20,000, get it all. Or you can put goat to an infinite number of points in between, right.
But the fact that we have all the answers fall in three sets. So for most of our builders, if demand is high and the market will pay it, raise the price. I mean, price is the ultimate determination of many things. And most of the time it’s related to velocity, not always. Here’s the classic example. You’re about to cross the desert.
And there’s a big sign, last gas for 150 miles. You look at the needle, it says you have a quarter of a tank. How important is the price of the guests? [00:29:00] It doesn’t matter. And that’s, that’s the part of the problem that sometimes people can’t get that they can’t get that now. Right before you go to the desert, there’s 14 gas stations on the corner.
There. It’s the end of the city. There’s 14 gas stations in two blocks. Does price matter? Absolutely. Yeah. I mean, unless they’re in color, which, you know, that’s a different conversation, so yeah. So, you know, I mean, price is such a fickle thing and I would be foolish to not digress here and say this, sorry for the digression, but Oh wait, I’m apologize.
You nevermind. Listen to this digression. The. The myth of many people, many builders, many salespeople, even some customers. The myth is that price is always the number one consideration as decision to buy that’s a lot. And I’ve got a circle. If anybody wants it, I’ll send them to them. There [00:30:00] are five main things that people look at in any product.
They fall into five characteristics or aspects. There’s the financial of which price is one only one. There’s the physical, there’s the emotional, there’s the functional. And there’s the procedural for different buyers at different times with different products. Every one of those can be the most important.
I hope everyone understands what I’m saying. If I want to buy a laptop and I have a Mac and I travel, like I did up until Kobe 220 days a year. What is the most important single factor to me? If my computer it’s reliability, it works. Okay. I assume that anyone that I buy is that. What am I doing all across America?
What’s my number one care. [00:31:00] I know. I want to know how much it weighs. I need a lightweight computer. If a lightweight computer costs more than a heavyweight computer price loses. Now, if there are two computers that, like you said, Matt are reliable. And are both meet my weight requirement, which one was, well, I pick, then I’ll pick one with a better price exactly now, but it could be a different hierarchy.
There’s three computers that meet my weight requirement. Now from a functionality point of view, one of them is significantly better than the others. They’re all equally reliable, but from a, from what it can do, one can do more. It can do it faster. It can do it better. I might pay for that. It depends on who I am.
If I use the computer to get emails, I don’t care if I use the computer to build giant spreadsheets. I care. Right? So understanding those five aspects [00:32:00] of the product is the key to understanding when you can get price increases. And when you can’t, if the other things in the circle are more important, you can get price increases.
If the, if the competition is low, get price increases, but if other things aligned to make price, the arbiter of whether people buy or not, you may not be able to get price increases. Right now, circumstances have conspired to allow us to get the price increases. Yeah, I really like this answer, Alan, I’ll tell you why, because you give different scenarios, you give specific answers for the different scenarios, where some people just like give one size fits all and say, Oh, this is what you should do.
I like this, cause it’s not, it’s not vague. Like there really are only so many different directions. And then. That’s what you should do. If that’s the position you’re in, where you’re gonna say something for home building, when it, you know, when it comes to [00:33:00] these mass, you know, when I say massive, big price increases or continually aggressive, smaller price increases the other X factor that.
We can’t forget about is the appraisal side of it because we’re in a scenario right now where the market demand and pricing is, is going to significantly outpace what appraisers are going to say that the home is worth because they don’t really, or that your frame package, my wife was a realtor and she was just telling me, we’re seeing lots of under appraisals around where we live 10, 20, $30,000 under our presence.
Yeah. And you can put, obviously you can put things in your contract that state, this contract is not contingent upon on appraisal of home value. The, the other problem comes in that we can discusses. What if a good portion of your buyers use FHA and or VA loans, because there are built in protections for those loans that you can’t, that don’t allow you to require that buyer.
Well, absolutely. In fact, [00:34:00] if you go back to what I just said about the five aspects of the product, right? What I call the total product, we look at the fi the financial. We talked about price. Can you think of another part of the financial? So this circle, I have a circle. The circle is divided into five pieces, like five slices of the pie, right?
The five aspects I just talked about, but the circle is also divided into 16 finer slices inside the financial slice price is one, but one that’s even more important for many buyers is terms, right? So what’s the number one. One of the number one up until recently, what was a huge promotion? When you would go to buy a new car, what were they going to do for you?
They’re going to give you 72 months financing, but 0% interest or right. Less appealing. Now that interest rates are 2% for a car loan. That’s not a big deal anymore, right? But for years, because cars are historically a payment by and many. And for many people, [00:35:00] houses are a payment by. Many builders don’t sell price, they sell payments.
And that’s the whole point I was making with low rates. Payments are low. You talking about $12,000 lumber increase. What does that mean? That means a $50 a month payment increase. Well, if my payment already went down a hundred dollars because Rachel solo, I’m still $50 under where I used to be. So a lot of this is being driven by this whole payment thing.
Now you’re right, Matt, that as the appraisals become a problem. We’re going to have some more problems and we’re seeing some of that, not everywhere, but some places, particularly more towards the bottom of the pricing structure of new homes, more toward the starter. And first time move up houses. The, the higher end houses.
It’s easier to manipulate the pricing a little bit. If you know what I mean, the appraisal can be a lot looser at 600,000 and at 300,000. Oh, yeah, [00:36:00] absolutely. Yeah. Well, and, and also that upper end price point is not going to be an FHA or VA loan either. Right? Their conventional buyers are 20% down. So if you’re serving that first time, first time move up buyer, this is some, you know, that’s obviously something that you have to take into consideration now is as a builder before for me, I was okay.
Pushing. The price increases along the way and pushing appraisals, because if I raise the price $10,000 and only got 500 that, when it came time for or appraisal time, that was still five more than I would have gotten. And I’ve pushed the appraisal value you up another five because I’ve now gotten some more closings and I’m continuing to push that needle a little bit.
That’s the long game you’re playing the long game. You always, as a strategy and tactics coach. When I code strategy, I’m always asking my clients this question, by the way, this conversation, are we talking about the long game or the short game? Because [00:37:00] if you don’t have that conversation, then you’re not a good coach, right?
Because I could give you advice for today, but it may not be good advice for tomorrow. So we always have to have that conversation. w. What game are we playing? And by the way, we, we can play both games at once, but sometimes they’re in conflict. And so then you have to make a decision. I mean, all good.
Cause I was in the army for awhile. I always always think about things from a, if you’ve never read the book, the art of war by sun SU I suggest that you read it and. But I thought you can read different there’s multiple versions because it’s 2000 year old. So it’s translated by different people, different ways.
But, but one of the conversations you always want to have is, is strategy and tactics are not necessarily the same thing today. Good tactics may longterm be bad strategy. So we have to make great managers understand when things are in conflict. They’ve got to make a decision because it’s wonderful when everything lines up one way.
But the [00:38:00] hard part is, well, I want to raise the price because I don’t want to lose the margin, but if I raise the price, what am I going to do to the velocity? These are the kinds of trade off discussions that good managers and good owners and good employees have all the time all the time. Yeah. I’ll tell you some things we are seeing bad lead times and bad availability.
We’re beginning to see it in some tile. We’re seeing it in certain appliances. We’re seeing it in some light fixtures. We’re seeing it in some floor coverings. we’re really beginning to see cabinet lead lead times are going up and the choices of the materials that you can buy are going down. We’re seeing that everywhere.
So reviewing your choices, maybe narrowing them right now is probably not a bad. Thing. If you work together with your suppliers, would you recommend, and this just kind of popped in my head, as you were saying this, like, you know, if you know, upfront that certain tiles or certain appliances are [00:39:00] having shortages, you know, when the buyer is selecting those, do you recommend.
Almost helping them choose an option B just in case, you know, like all of a sudden this tiles out. Okay. Mr. Mrs. Customer let’s look at what is another option just in case we get to that point, setting the expectation up front. That that could be a possibility. I think that’s a great idea. I mean, in fact, you can, you can also narrow the choices, but you can also tell people very specifically look.
I’m having trouble with these tiles right here. So if you pick one of them, it may result in a delay in your house. If that’s true, do you want your house to wait the extra week for that tile or with it? If we can’t get it be what’s your second choice. And then if it is a delay, do you want me to use your second choice or not?
I mean, there’s lots of conversations you can have, and I would be reluctant to tell any one builder what way [00:40:00] to do it. But I would also say that to not think about it, to not address it is a mistake you’re addressing whoever you want, but address. Yeah. I think the resounding point to all of it is have the conversation with the customer upfront about all of it.
Right. It’s just open, honest communication, like you said, from the very beginning, because. You know, we talk about this from a sales perspective and that is, you know, when you’re, when you’re talking set the set the right expectation, because if you don’t set the right expectation upfront with the customer, they’re going to leave.
And then they’re going to set the expectation of which you don’t know what it is. So not only that, but it’s probably completely unrealistic because the last time I looked, most of them are not building a hundred houses a year for a living. That’s right. The other thing is the messaging really does matter because you can see with, with this kind of idea, what you don’t want to [00:41:00] do is just portray uncertainty.
Like that is what we don’t want to do. So it’s, we don’t want the messaging to be. Well, there may be a delay with this tile. Like you have to take it full circle and give you the solution to the problem, which is there may be a delay. What is your second choice? Would you want to, if it is going to be delayed, would you want to go with that choice?
So like the last thing we want to do is give our, give buyers one more uncertainty in their life. First of all, I want to say I I’m completely surprised Mollie, that you talked about the messaging. Like it was important. Yeah,
because I would expect nothing else, but, but again, you are at 100% correct. You know, the message facts are facts, messages, or messages, and somewhere there’s an intersection. Right. As a math guy, I love Venn diagrams, you know, the two circles that overlap. Right. And so that, that intersection between the truth and [00:42:00] how you say it.
It’s a big deal. And you, you want to, I can tell you a fact and be honest, but I can tell it to you in a way that makes you feel good, or I can tell it to you in a way that makes you feel bad, or I can tell it to you in a way that you don’t even understand what I’m talking about. So we need you to understand what I’m talking about and we need you to hopefully feel good.
And I think saying starting with. Congratulations. You’re, you know, you, you’ve got a slot, you’re going to get a house. Now let’s talk about how that would. That mean it’s not going to be as fast as we would like to be, or as fast as you’d like it to be, because this is what’s going on in the world. And so you need to understand these things and these are the issues we’re having and you know, but congratulations, because you bought last month, did you see, we just raised the prices again?
Well, you don’t have to tell them that sometimes, but sometimes we tell them it depends on. Whether you want them to be aware of it or whether you’re just going to let them figure it out for themselves. But clients always feel good when there’s a price increase [00:43:00] after they bought right. It makes them feel good.
It it’s an affirmation. Customers are looking for affirmation all the time about their choices, their decisions, everything. Everybody wants to believe. They made good decisions, even though most people make their decisions completely irrationally. They’re all these studies have shown this right. And Mollie you’ve, you’ve read some of my stuff about cognitive biases.
I mean, people have cognitive biases all over the place. They don’t want to admit it. you know that if you explain it to them, they’ll shake their head. They still won’t believe they’re affected that way. I don’t do those things. I’m, I’m a logical thinker. None of us are logical thinkers. We’re all biased by these cognitive biases inside of our head.
So a good messenger understands what the, by his authority, he understands how to talk about things the right way. And I couldn’t agree with you more, more. Yes. Big messaging is unbelievably important. I agree. A hundred percent. Yeah. One of the things that we’re seeing and we talk about [00:44:00] sometimes is how technology has brought those biases to the story.
Cause you can really actually track behavior now. And we talk a little bit about that with social media. So you have been in the industry for 49 years. I mean, that’s, you had seen this industry change and evolve and. I think your, your passion for understanding the business and the people and yeah, the psychographics and the demographics and the numbers.
And all of that has, has kept you at the, at the front of the industry. Talk to me a little bit about technology, because I know you gave a, a program at the builders show last year. what are your thoughts on, you know, how builders have adapted and are continuing to adapt in that way? Take builders are adapting at a pretty good clip.
So again, one of my builders has been at the forefront of technology. He was one of the first to have interactive floor plans. He’s one of the first to automate certain things and [00:45:00] he commits, he commits well, this year we’re committed. He’s a, he’s a $50 million builder. Which turns out to be about 145 houses for him.
We’re committing $250,000 to software upgrades this year alone. we’re we believe strongly that I am a, I have, I have a vested interest in a small artificial intelligence firm that works with home builders. But you guys know that, we believe that this data that you just talked about, we’re getting unbelievable data for our customers, for our builders, about their customers, data that really helps, you know, where they’re coming from physically, who they are demographically.
So I’m a big believer that I’m a big believer in general and technology. for my age, I think I’m fairly technologically proficient, right? I teach XL through a lot of people, which I, which I find fascinating that a 70 something year old guy can teach Excel to a bunch of 15 year olds. So, who, some of whom really want to [00:46:00] learn it.
And some of whom really don’t. But the point I’m trying to make is technology is. It’s everywhere. And it’s in so many forms because even though I try to stay abreast of the technology, I’m always hearing about things. I didn’t understand you want it. One of my clients yesterday, we were having a zoom meeting and he’s telling me, well, this is all recorded.
And it’s going to be converted to notes by this program that I have. I’m like, I’m sorry. What? And you know, and I remember when dragon, which is the word. Conversion program was brand new. I had to pay to get it. And I was the Guinea pig that they were trying to get the program better because it was about 70% correct.
And 30% incorrect. And so you look at, you look at verbal communication with a computer today and you can see where this is going to go in another 10 or 20 years. So, you know, look at, look at, Siri and all this stuff. I mean, it’s just, it’s kinda crazy. And [00:47:00] now. We people, my age, we’ve seen it when it wasn’t there.
I look at my grandchildren, they don’t know from this, we, we had our kids and the grandkids in the house. The other day, I have a phone here next to my desk. It’s a land line. And one of them asked what’s that. And I, and I I’m serious. And I said, it’s a telephone. And he said, no, really? What is it? I said, it’s a telephone.
He said, well, first of all, it’s so big. And second of all, what are those wires coming out of it? And I said, it’s a landline. It’s hooked up to phone lines, buried in the street. Why would you do that? Well, it’s left over from another time. What can I tell you to do you go it’s leftover? Well, why, why don’t you get a cell phone?
I have a cell phone then why do you, I mean, this whole conversation was insane and you know, it makes me realize. That different people have different perspectives. You always have to look at the world [00:48:00] through, through your lens, and then you have to try to look at it through the other people’s lens.
Right? This is called by the way, it has a fancy name. This is called aloe centric. If you can look at problems and circumstances through the other person’s eyes, that’s aloe centric instead of egocentric. And so I think one of things that makes a good businessman makes a good consultant makes a good, anything is through other people’s eyes, right, Mollie.
But you, when you write, when you write the message, you you’re writing it for me. Are you writing it for the reader? Absolutely. And you missed my correction where I said business person instead of businessman. Oh, I take that. I take that correction and apologize.
I used the phrase businessman, if he needs people of all races, creeds, colors, sex, gender, but it’s a habit. I mean, it’s, it’s no different than this [00:49:00] giant debate about the master suite, right? You’ve heard this whole thing, right? National association of realtors has come out and said, you can call it that we don’t want you to call it that.
So, I mean, I get it and words have power. This is as a, as a messaging person, you know, it words that words have unbelievable power. As we wrap up out there, there was something you said that I really just want to circle back to because it resonated with me. You talked about the short game and the long game, and what happens in a market like this?
Matt talks about it and refers to it as good market syndrome. Where people just like, take it for granted and think this is the way it is. And I, I think, I want people to think about that. Like, are you, are you playing the short game or are you playing the long game? Because the people who are playing the long game are the ones who aren’t taking this for granted and are doing the things that they need to do.
For the future of the company, not necessarily for the market we’re in, at this exact moment. So exactly right. That’s exactly right. And I think, [00:50:00] you know, I had this conversation about an hour ago on a zoom call with one of my clients where I, in this particular case, I’m coaching the number two person in the company.
And because they they’re, they got new responsibilities and we talked about she’s under, she’s getting a lot of pressure, from the trades for more money. And I said, you need to sit down with them and have a conversation that says, if you need a little bit more money, because other people are trying to lure you away, we can talk about that.
But you need to know, I understand that’s a temporary thing, not a permanent thing. You need to think about the long. So what I said, I told her to tell them, you just think about the long game you’ve worked for us for five years. We pay you every two weeks, like a clock. Yeah. Somebody else might offer you more money.
If you come back, if you leave me and come back and four months, and I’m not happy with you because you left me high and dry, is that the game that you want to play because just, you know, I’m not threatening you. I’m just telling you that we’re here to have a [00:51:00] longterm relationship. And I would hope that you want to have that same relationship.
So, but we’re seeing a lot of the trades are being really distracted by the bright, shiny object, which is an extra dollar an hour, an extra 50 cents, a square foot, whatever that other people are offering. And you gotta, you gotta help them understand that that’s the short game. That’s not the long game.
Yeah. Sometimes as the builder, especially when you’re dealing with the trades, sometimes it’s with the builder, you can add value by essentially helping him almost as a business coach. Because a lot of them, a lot of times there’s a miss on how to run a business, right? The, well, I’m just a framer. I just do blah, blah, blah, blah.
No, you’re a business. And this is how, you know, these are the way you should look at things. and I think those can always bring tons of value out. Ways that you can bring value outside of that extra 50 cents a square foot. Oh yeah. In fact, we could have a giant discussion about how to become the builder of choice with the trades.
Right? What, what [00:52:00] does that mean from a trade perspective? What makes you the builder of choice to a tradesman? Right. You know, there’s, there’s six or eight different things that if you do them. They will, whether they consciously or unconsciously get it for many of them, it will bring them closer to you and make it more difficult for them to leave.
Yeah, for sure. Al, before we wrap up, I would love to know where the first place you are going to travel to is going to meet. Cause you are quite the world traveler. The first place I’m going to travel to is I’m going to take a trip South and see four of my clients, all of whom will take me bass fishing while I’m there.
So I haven’t been bass fishing for three months, four months, it’s killing me. And I went out to the golf course here the other day caught nothing, but I know that when I go to Georgia and Alabama and see my clients down there, we’ll have great luck fishing. And I have some really great clients. I mean, I’ve through the [00:53:00] years, we’ve.
But many of my clients have been with me 15, 20 years, and many of my clients are, I now have the young versions of, I have the sons of maybe eight or 10 of my clients. I’m now dealing primarily with their children. So mostly sons, one daughter. but, Mollie, but no, I mean, Roselle and I were supposed to go to Japan in April on a cruise.
Mollie knows we’re big cruisers. We’ve been on 54 cruises and. I don’t know if that’s going to happen or not, but I booked another cruise later in 2021 to go to the middle East in Israel. So we’ll see that, that one. I’m hoping we’ll at least get that one done. All right. Well, I mean, we could talk all day, obviously.
This is what we all love. thank you for sharing all this with our audience. If people want to reach out to you, how can they get ahold of you? They can reach me. Male, M a [00:54:00] firstname.lastname@example.org. Here’s what we would say. And in the army that’s hotel, Bravo, November, November, echo tech bingo.com and the messages will come to me.
And if anybody needs to reach me, even give you my cell number, it’s (410) 340-2352. If anybody needs to talk to me. What about your landline? I mean, we just heard about it. Well, you know, you know, what’s really funny about that is just, if the kids pick up that landline and then they, they put, put their ear up to the receiver and they look at you and say, what’s that noise coming from the phone?
I don’t know what the dial tone is. I didn’t tell the rep. He said, does it really work? And my wife said, of course it works. He says, can you show us? So made me call there. They made me call their iPad. Well, it was the funniest [00:55:00] thing I’ve ever seen. So hysterical, by the way, I used to have five landlines and we still have three.
My wife will let me get rid of her. She clings to them. She, and none of them are through cable because if the cable goes out, at least I won’t lose my phone too. So, you know, Everybody’s got to hold onto what they want to hold on to. I get it. So again, thank you so much for the opportunity. Anytime, feel free.
I’d love to talk more with people. I’m assuming we get real feedback. To me, it’s all about the feedback loop. If I, if I’m talking and I feel like I’m talking into the wilderness, that after a while you lose your enthusiasm, but if people reach out to you and you know, you affected somebody and you reach somebody, then that’s really positive for me personally.
Well there, you have it. I’ll want your feedback. So, let’s take this conversation online and of course we’ll loop Al and thank you for being here. And it was great catching up with you. Thanks so much for having me. [00:56:00] I really appreciate it. Thanks Al. Thank you. Bye bye guys.