The ROI Case for Remodeling: It's Got a Pulse! (But Does That Matter?)

"That's right, Mr. and Mrs. Customer. If we go forward with this kitchen remodel, I personally guarantee that it will dramatically increase the value of your home and you'll get back every penny. Especially the dual dishwashers, terrazzo marble countertops and floors made from reclaimed French wine barrels."

Let's hope you never said that in a sales call. But many remodelers fondly remember the days when they could assure prospects that they would likely get back most of the money they spend remodeling, if not all of it. (Remember averages like this, as shown in the image below? 2005 was shortly after I began covering this industry, when everyone thought homes were the best investments around.)

Those days may never come back. But the return-on-investment case is getting stronger, according to this sneak peak from Remodeling magazine about its latest Cost vs. Value Report.

"We're finding that for the first time in six years, the overall average cost-value ratio has improved to 60.6%. This is 2.9 points better tan the 2011-12 number, which hit a historical low of 57.7%, and is more than a half-point better than the 60.0% ratio from two years ago.

The 2013 Cost vs. Value report will be released today. Go here for the full download.

By the way, we'll explore the benefits of "the ROI pitch" in d5R soon. I can tell you in the meantime that some remodelers think it's a futile cause. Said one in a series of tweets yesterday:

"It's such a funny metric. Totally the wrong way to approach remodeling your home. I ask what the ROI of a car is. [Remodeling] is about quality of life. Spend what you are comfortable spending to live well."

What do you think, remodelers?

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You're in Sales. Own It.

Eliminate sales commissions, watch sales go up. Reduce your power, become more persuasive. Forget that old saw, "Always Be Closing."

At a local bookstore last week, I saw Daniel Pink convince a room full of DC policy wonk-types that they're all in sales, that icky term that makes so many people squirm. We're in sales because of the persuading and cajoling and influencing we do every day -- whether with our kids, staff, boss, clients and every other person we come into contact with every day, like the meter maid who is there the minute the meter expires.

Pink's latest book is To Sell Is Human: the Surprising Truth About Moving Others, and it's about the art and science of selling -- something we could all do better -- in a way that most books about sales are not. When I saw Pink speak last week, I thought of you, remodelers.

Pink gets into his research in this video interview. 




What do you think, remodelers? Are we really all in sales? How can we be more persuasive, without coming off as a used-car salesperson?



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Rough Estimates, Screwed (but Sometimes Blessed) Contractors

Well, remodeler Diane Menke may think it's "contracting 101" to properly estimate a job, and perhaps among the high professional caliber of d5R readers it is. But we've all known of remodelers -- and plumbers, painters, electricians, masons, etc. -- to way underestimate how much a project will really cost, and to end up in a deep pile of mess weeks or months later, when the client refuses to pay far more than they had been told the job would cost.

As construction attorney Andrea Goldman shared in Wednesday's d5R Answers discussion (where Diane posted her comment):

"Failure to properly estimate jobs is probably the biggest mistake I have seen contractors make recently.... Within the last month, I have received calls from at least four contractors who misbid the job, built all of their profit into the last payment and are having trouble getting paid. They have to put their own money into the job to finish it."

Sometimes a single such misbid can bring a business down. More often, it drives the contractor to cut corners and do a job that is sloppy or worse.

On occasion, of course, one contractor's bad estimating can benefit another, such as when the client has to hire a new company to come in and do the job right. I just wrote (for another publication) about a remodeler who scored a $400,000 project in such a scenario. His company did such a wonderful job that the clients have since referred his business for another $1 million in business, he estimates.

How have botched estimates affected your business, remodelers? Please weigh in here.

 

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Today's Numbers: Key Indicators, Home Sales, For-Sale Inventory, Foreclosures and Vacancies

Key economic indicators this week:

• Tuesday: December retail sales, December producer price index
• Wednesday: NAHB monthly homebuilders' index, Federal Reserve's latest "beige book"
• Thursday: December housing starts, weekly jobless claims
• Friday: consumer sentiment survey

Total U.S. home sales in 2012: 4.2 million

That's a 6.2 percent increase over 2011 and the first year-over-year sales increase since 2005, according to CoreLogic, which released these and other housing-related numbers yesterday. As reported on HousingWire:

"As the housing market pushes deeper into 2013, CoreLogic sees real estate 'poised for further recovery,' despite the uncertainty of how the qualified mortgage rule and other new regulations will impact lending.

"'Rising home prices will continue to slowly release pent-up supply as under-equitied borrowers are unlocked and opportunistic sellers begin to provide relief to tight inventories,' CoreLogic wrote. 'Geographic diversity in home price growth will continue.'"

Percentage drop in the number of U.S. homes for sale, October 2012 versus October 2011: minus-22 percent

"Can I Buy Your House, Pretty Please?" That's the title of a Wall Street Journal article last week about the resurgence of the "boom-era tactic" of hopeful buyers writing letters to sellers about why they should be the next owners.

"In an echo of the last housing boom, ardent pitch letters from eager home buyers are popping up again in hot U.S. real-estate markets like Silicon Valley, Seattle, San Diego, suburban Chicago and Washington, D.C., housing economists and real-estate brokers say."

Percentage of homes in Prince George's County, Md., that are foreclosed: more than 51,000

Known vacancies among these homes? 1,922, though actual vacancies are hard to track. In any case, this D.C. suburb is one of the hardest-hit by the housing bust. From yesterday's Washington Post:

"While Prince George's County escaped the kind of double-digit vacancy rates seen in Nevada and Florida, it had one of the highest percentages of vacant homes of any county in the Washington region....

"Vacant properties impose costs on communities whether they tend to them or not. Neglect, maintenance and demolition all come with a price.... Within weeks [of one owner leaving his foreclosed-upon $420,000 house], residents started noticing teenagers hanging out inside the house. They got in by busting the basement door. Over time, they grew more bold, and the vandalism spilled over to nearby homes."

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Employee Ownership: "Emerging from the Shadow Margins"

A growing number of builders and remodelers practice open-book management, and more and more of those that actually have profits to share are indeed sharing them with staff. But I know of only a handful that are truly employee-owned: that is, where every employee-owner (not to be confused with every employee) has an equal say in the company's decisions and an equal stake in its success.

The best example that I know of is a design/build firm on Martha's Vineyard, South Mountain Company. Here's a recent photo of all 30 full-time employees, of whom 21 are full owners.

In his latest blog post, published yesterday, SoMoCo founder John Abrams wrote this:

"On the last day of 2012 our 25th year as a worker cooperative (and 37th in business) ended. It was an extraordinary year -- rich, full, profitable, demanding, restorative, and uplifting....

"December 31st also marked the end of the United National International Year of the Cooperative. Worker cooperatives (and employee ownership in general) are emerging from the shadow margins of our economy. For the last decade or two I have noticed that the socially responsible business movement in the U.S. has been essentially deaf when it comes to issues of widespread ownership. That is changing, and that's important because, as Marjorie Kelly says in her seminal book Owning Our Future, published this year, 'Ownership is the gravitational field that holds our economy in its orbit.'"

Read the rest of the post for more on the benefits of employee ownership. Here's a previous d5R story on a net-zero housing project by South Mountain Company. And here's my 2007 profile of John Abrams, winner of the first Fred Case Remodeling Entrepreneur of the Year Award. 


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Tiny Homes and Shoebox Apartments: Getting Bigger

Whether a continuing backlash against McMansions or simply a reflection of the fact that there's only so much urban square footage (and so many dollars) to go around, interest continues to grow in the micro-housing trend. (Here's a d5R story on the truly-tiny trend from 2011.)

Most recently, The Architects Newspaper reported yesterday on a new pilot program in San Francisco for "micro-apartments" as small as 150 square feet in living space and 220 square feet in all, including kitchen and bathroom.

"'San Francisco has one problem above all other problems, which is that housing costs too much,' said Gabriel Metcalf, executive director of San Francisco Planning + Urban Research Association (SPUR). 'Allowing people to live in smaller units is one of the very few tools we have for potentially helping a lot of people.'"

The apartments are expected to rent for $1,200 to $1,500 a month, far below the city's average of $2,000 a month. In New York City, Mayor Michael Bloomberg has been less successful in getting approval for a similar city-sponsored measure.

Rendering of the "suite" unit at Smartspace SoMa, a 23-unit micro-apartment building under way.

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On Energy and Conservation -- if Only

from the department of innovative thinking...

Wouldn't it be nice if remodelers could deploy beeps, lights and rewards to encourage homeowners (and their kids) to actually use all those energy-saving technologies in their homes as cleverly as this Swedish machine encourages recycling? HT: Upworthy.com

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