LIVE from IBS: The Expectations Game Panel

Tom Houghton:

You’re listing to “The Building Code.” I’m Tom Houghton. On this episode of “The Building Code,” we are honored to be partnering with the NAHB to partially air one of their education sessions from the International Builders Show. We just attended the International Builders Show in Las Vegas last week and this was one of the 150 plus education sessions that they had available. The NAHB continues to be a pioneer in continuing education in the field. If you haven’t been to the International Builders’ Show, we highly recommend you check it out. It’ll be in Orlando, Florida, next year, and we’d all love to see you there.

Tom Houghton:

The following audio you’ll hear is from the session titled “The Expectations Game: How to Create a Winning Customer Experience From the Start.” This panel was led by Dan Houghton, co-owner of Buildertrend and included John Crabbe, principal owner of Crabbe Homes, Nick Schiffer, owner of NS Builders and Ed Earl president of Priority One Projects, also known as The Zen Builder. There was some technical difficulties with the audio in the room, so we apologize for that, but the content is still really good. We’ll join them in the middle of their panel.

Nick Schiffer:

You touched on a point about change orders and I think that was a mistake I made a lot in early on when it was just me, is that you would do a change order and you wouldn’t communicate the fact that that added time to the schedule. And so much so that you would… At the end of the job, you’re behind schedule.

John Crabbe:

Right.

Nick Schiffer:

So no. No. You added $50,000 worth of scope and well, you never told me that ahead of time. And again, we’re repeating ourselves, about the communication of the expectation and the fact that things change.

John Crabbe:

Mm-hmm (affirmative).

Nick Schiffer:

Whether change orders add time to schedule. And I think that’s even more important than the financial side of the change order is that even if it’s a $0 change order, we would still issue it and say, “Hey, just so you know, it adds seven days in the schedule.”

John Crabbe:

Yeah.

Nick Schiffer:

We’re going to still target our original date, but at least we’re adding a buffer to that ending.

Dan Houghton:

So $0 change orders schedule change. You’re still having the approval process go through.

Nick Schiffer:

Yes.

Dan Houghton:

Got it. We had a question over here.

Speaker 4:

Could you elaborate or give us a little more detail on the I’ve never missed a closing date?

Dan Houghton:

Question was, could you elaborate on never miss a closing date, which is a strong statement by John Crabbe?

John Crabbe:

Never say never. I think [crosstalk 00:02:20].

Speaker 4:

… figure out my question. It changes all the time. And so if you’re saying, well, that’s [inaudible 00:02:29] scheduled it this morning and I was ready, so I never missed it. Okay. I get it. Is there a little bit about time or how are you communicating with the buyer about the closing date and therefore say I never miss a closing date.

John Crabbe:

When I say I never missed a closing date, doesn’t mean that it’s the original closing date. The closing date can move, but when you get closer to the end, if you’re setting the expectation, if… And a lot of times it boils down to, we in this room, I’m going to throw it out there. We do a poor job of contract management. Contracting 101. Everything is in writing. Okay? If you’re setting customer expectations, contracting 101, everything is in writing. And that includes the closing date. And in our contracts it talks about I build in Tennessee and we use a Tennessee Real Estate or Realtors Association form, and in there, it talks about contractors not responsible for material delivery delays and things like that. If they order a front door that takes eight weeks to get there, we have to do a good job of managing that contract. We have to say, Hey, Tanya, our realtor over there needs to do an amendment that extends the contract six weeks. Cause we only had it two weeks. So now my closing date’s moved another six weeks.

John Crabbe:

So it’s not that I’m not moving the closing date, but once it’s all said and done, I’d better hit that closing date. If I say it’s going to be May 1st, and then, well, we have 10 weeks of rain and we bump it out three weeks. And because it affected the schedule that three weeks, I have to communicate that to the homeowner and say, it’s moved three weeks. And then we both sign, again we both put it in writing and then I need to make sure that I’m hitting May 21st now. Makes sense?

Dan Houghton:

So do you kind of have a timeframe at the end, call it two weeks, three weeks, where it’s a hard lockdown close date regardless?

John Crabbe:

We do. We actually, you talk about punch, we have a set process on the punch list. I think a lot of builders finishing a job is very, very different.

Nick Schiffer:

Hardest part of the job.

John Crabbe:

Yeah. You have a superintendent that he’s looked at the job the entire time. If you’re not focusing on punch list, you need to.

Nick Schiffer:

I think communication also drops because everyone’s under the gun and they’re rushing to get it done. And there’s that closing date that can’t move. And everyone is just so focused on getting the job done that now communication lacks and they’re pretty sure that they know the closing date hasn’t changed, but they also haven’t gotten a daily log or they haven’t got the weekly update or they haven’t got the email that they usually get or the phone call. And I think that, yeah, finishing the job is by far, I think one of the hardest things and the biggest thing that we can improve on as a contractors.

John Crabbe:

We developed in our company, I call it the eight-day punch process, but it’s an eight event and I’ll run it down real quick. So day one is superintendent comes in and he punches it. It’s a functional punch. Are all the door knobs on? Are all the light fixtures in? Are all the… It’s big stuff. So then day two and three, all of our subcontractors come back in because, and we tell our homeowners, Hey, look, we’re not going to come back and fix this stuff during the build.

John Crabbe:

If you see that that light fixture needs moved, my electrician’s not coming back, and and we tell them for our contractor to come back, it costs him 200 bucks to come back. And they’re like, what do you mean? He’s just down the road. And I’m like, by the time he gets in his truck, he packs up his tools, gets in his truck, drives over to the other neighborhood, fixes the light, disrupts his whole production, it’s $200. I’m not bringing a subcontractor back in every single day for 200 bucks. So we bring them back on day two and three, or event two and three, is the sub-contractor punch. [crosstalk]

Dan Houghton:

Is that all subcontractors or what?

John Crabbe:

All functional.

Dan Houghton:

Okay.

John Crabbe:

And then day four, superintendents coming back in and now we’re into the pretty stuff. Okay? We’re drywall and paint is really what it is. And then day five, drywall contractor comes in and fixes all of his punch from day four. Day six, drywall has been touched up. It’s homeowner walk through. And we tell our homeowners, Hey, this is when they’re coming in. This is where it gets a little squirrely. We call it day seven is when we fix the homeowner punch, but we actually set the expectation that we have five days to fix that. And it gives us a little bit of time. Theoretically, we shouldn’t have a whole lot of big stuff. And then day eight is what we call a verification walks. So we do a final walk on day six with the homeowner. And then on day eight, we do the verification walker and we had stressed to them. We’re not re-punching in the house. You’re not seeing more stuff because it’s a man-made product. You can punch a house to death.

Nick Schiffer:

Well, to elaborate on that. So we do the client walk and we build a list and we agree on the list. And then we complete that list. And I think that verification day is when you make sure that that list was completed. And then the way we communicate it is that when that list is completed, final payment is due. And when final payment is received, the warranty is in effect. If anything, between the time that a final payment, basically anything between being verified and that they’re adding stuff to the list that will be taken care of during our warranty periods. And there needs to be that clean line, because otherwise [crosstalk]

John Crabbe:

For me, it’s closing. I don’t get paid until we close on the house.

Nick Schiffer:

Right. And absolutely. You can punch a house to death.

John Crabbe:

We do the verification walk two hours before closing.

Tom Houghton:

Got a question here.

Speaker 5:

I think he [inaudible] my question was whether the punch [inaudible] being done after they were in house?

John Crabbe:

No.

Dan Houghton:

The question was is the punch list being done after they were in the home?

Speaker 5:

Or some portion of it.

Dan Houghton:

Or some portion of it.

Nick Schiffer:

I mean, we do a lot of remodeling. I would say primarily most of our remodeling they’re moving out, but if they live there, I mean, then we kind of give that space back once the punch list is done. You know, we try to avoid at all costs even if we’re doing a small renovation, is this is our space until we’re done, but we don’t, there’s no in and out. I mean, we all know dust. I mean, that’s huge in remodeling, so if we can avoid any transfer of that.

Dan Houghton:

So I think this is a good transition into one thing I’ve seen with a lot of newer builders particularly is they think their job is when it’s complete and the hand over the keys, or they move all their tools out that the job is over. And they’re moving on. Obviously for the folks who’ve been in the room, who’ve been doing this for a while. Sometimes the job just begins at closing. And one mistake we see a lot with a lot of newer contractors is they cut off the communication at the closing or at the end of the job. Talk about setting the expectations when you move out of the house or when you close and why don’t we start with you.

Ed Earl:

Well, and I think that’s the thing with warranty. I think a lot of contractors see warranty as a pain in the bud kind of thing, and they try to avoid it. And we tell all of our coaching clients, that’s some of the best marketing you can do is in the warranty work. And that’s what you really shine at because the fact is, and I see this as an owner’s rep, what the client remembers is the last 10% of the job. And that last 10% is that warranty work. So if you can shift the mindset and really look at the warranty as a marketing expense, you’re willing to maybe spend more time and money than you otherwise would and realize that it’s going to pay dividends down the way.

Dan Houghton:

Sure.

Nick Schiffer:

But it’s also, we tell this, this is something recent for us is that when we finish a project and we’re done, we actually build the book. Right? Write the book with all the specs in it, all the manuals and everything like that, that they never open. It sits in their mechanical room. But we also build that digitally. And then we put together, we just completed a house and it’s a 1600-page document. And then we pair that with an eight page spreadsheet showing what every device requires for maintenance in the home and a cost associated with it. Like, for instance, you know, Hey, you should change a filter.

Nick Schiffer:

Give them the link to the filter, the specs. The reality is they’re not going to want to buy these filters or do these changes or anything. So to your point, the marketing side of it, while it could be a marketing expense in the beginning, we’re looking at it as, this is a much more profitable endeavor in the building and remodeling because when they finish the job, they just want the home to be maintained, and setting up a division within our company for a small project maintenance warranty is that, Hey, this is what the house requires for maintenance.

Nick Schiffer:

And to keep up with your warranty, but this is the price that we can do it for. You know, maybe it’s $12,000 per year and you get six visits a year, and this is what we will do on those days, every client we’ve even just had the communication with or offered that, it’s not even a question it’s, yeah. We’ll take that. And what that does to your point, is it also [crosstalk].

John Crabbe:

I’m cringing here. I’m going, Oh golly. [crosstalk].

Nick Schiffer:

… a little different. A little different. But [crosstalk].

John Crabbe:

I’d never be done with the house.

Nick Schiffer:

For us being in the remodeling is that now we’re in their life. They’re six times a day when they need, you know what? Can you paint? We want one of these rooms painted. Can you set that up? You know, we’re thinking about building a vacation home. We don’t want to reach out or we have a small electrical project. There’s only one person they’re calling and you’re trying to avoid them from building a relationship with someone else at this point.

Ed Earl:

And you’ve had a client now for life, not just for a project. Right?

Nick Schiffer:

Right and imagine another plumber coming into the house, not knowing what we did, not having the specs. We can look at it on a computer and say, Oh, that faucet failed. Let’s just order the parts for it and head over there for two hours. And if we don’t need the parts, we return them.

John Crabbe:

I wholeheartedly agree that you lose a lot of clients in warranty.

Dan Houghton:

Explain that real quick.

John Crabbe:

Well, you, they may be raving fans of yours at the end of the closing, but then in that year warranty period, you don’t respond. You don’t do things that they think are warranty. So therefore they’re not a raving fan any more. And I call it, we’ve lost them.

Nick Schiffer:

Yeah. They call someone else.

John Crabbe:

They call someone else. Well, one of the biggest compliments that we’ve had in our business is we’ve built probably a dozen homes for repeat clients. We’ve built three, three clients have built three homes with us over 14 years. And again, we’re in a military town. They transition out. They come back. Two or three years later they want to build another house with us. They leave again two or three years. They come back.

John Crabbe:

That’s a huge compliment. So it’s very big to us. From a new construction standpoint, one of the things that another takeaway, builder books down there on the show floor, there is a book called “Residential Construction Performance Guidelines,” NAHB publishes it. Cannot tell you enough how much that has changed our business, because guess what? Any of you builders in here, in a client’s eyes with a cracked concrete slab, you’re a dirty dog for not fixing it. You just are. In their mind, they’re going well, you just don’t want. I actually had a lady tell me this one time. I said, Ma’am, there’s nothing wrong with this. And it was a crack in her garage floor slab. She said, you just don’t want to fix anything. Do you? And I mean, snarled at me. And I thought, wow. And that was in, I think, October, November, and in January, I’m out here.

John Crabbe:

And I talking to somebody about, “Hey, this, I need something more objective because the subjectivity of warranty, the client thinks this way. And we in this room think this way.” We actually modified our warranty to include the verbiage that that book is what we go by and what it does for us is it sets a lot of, in the book it says, Hey, if your garage floor slab has cracked any crack over 3/16th of an inch, and it’s on page 58, by the way, I use this as an example, but any crack over 3/16th of an inch.

John Crabbe:

And then it sets what the performance of the house should be. And so I would highly encourage you guys to look for that book because setting that expectation, because unlike you, I don’t have the people. I don’t have a team of carpenters and I’m a big advocate for school systems training the trades because in our area, we don’t have people that can do that. They’re not there. They’re all making $25 an hour framing houses. And it’s crazy to think that, I admire you. I don’t know how you can maintain houses because we own apartments. I can’t find people to maintain apartments.

Dan Houghton:

So on the communication si-, Oh, we’ve got a question here.

Speaker 7:

That book is actually, we use that book too, and it’s actually, we actually have it as an addendum in our contract [crosstalk].

John Crabbe:

Uh-huh (affirmative) We do too.

Speaker 7:

And then in our, what we call our onboarding process, we go over that book. And then we also go over just basically policies of communication, how to break up the math that’s involved in the break up, so that, that kind of thing is if you set expectations during your onboarding process, if you have one, if you need, you can kind of set expectations on all this.

Dan Houghton:

Right.

Nick Schiffer:

Yeah. So the point was made that, just making sure that the expectations are setting, you’re talking about the warranty work really in the onboarding process, even before they even sign a contract with you. So the expectations aren’t new at closing. Talk about when it’s gone [crosstalk 00:15:56] We have a microphone too. So we’ll take questions. If you could use the microphone, just so the people in the back and hear you, that’d be awesome.

Speaker 8:

[inaudible 00:16:02] contract.

Nick Schiffer:

What was the question?

Speaker 8:

Do you provide that warranty?.

John Crabbe:

We do.

Dan Houghton:

That warranty book.

Nick Schiffer:

The warranty book.

John Crabbe:

We don’t have them sign off on it, but inevitably they’re going to lose it in the build process. And we provide it there at the, we actually provide them a folder there at the verification walking. It’s got it in there. Yes.

Dan Houghton:

Yeah. So the warranty guidelines are part of the contract.

Nick Schiffer:

Absolutely.

Dan Houghton:

For all of you. Okay. Question here.

Speaker 9:

So it’s actually back, John, you were talking a little bit earlier about your eight day process. We have a similar process. We do a walkthrough at the homeowner at the end. However, we get a very common situation where then the homeowner moves into the house and says, Hey, you didn’t fix that spot up there. In this case, it’d be your verification piece. When they come back in and they say, well, I have seven more things. They were on the last one. You just didn’t fix them. How do you resolve if it was marked before? If it’s not marked later?

John Crabbe:

How are you marking?

Speaker 9:

Well, usually we do blue tape.

John Crabbe:

Stop.

Speaker 9:

Tape everything. Okay.

John Crabbe:

Stop right now.

Speaker 9:

Sure.

John Crabbe:

This is, I’m giving away all my trade secrets.

Speaker 9:

Well, we’re in different markets. It’s all right.

John Crabbe:

Every house that Crabbe homes builds faces north.

Speaker 9:

Faces what?

John Crabbe:

Faces North.

Speaker 9:

Yep.

John Crabbe:

Every house, because on my sheet, I don’t blue tape anything. Although Dan brings up the cell phone. If you’re going to blue tape something, video it, walk around the room and video tape it. I don’t like that because my house always faces North. We came in the front door right here. Right? So if I’m going to have a touch up spot in this room over here next to the sound booth. I’m going to put touch up drywall on the south wall of the conference room four feet from the southwest, four feet up and shorthand it real quick. But then the client comes back and they go, you know that spot right there, it was on the list.

John Crabbe:

No, it wasn’t. It’s always in writing. Remember contracting 101, if you’re setting expectations, everything is in writing. And you got to look for easy ways to do it. We voice dictated our punch list before. And it’s funny when you’re not going to get away from that, but let me ask you something, if that spot’s up there and the client says, man, it’s, you know, you didn’t fix this spot. Honestly, for most of you in this room, because you care about your business or else you wouldn’t be at IBS, don’t we really want to fix that?

Speaker 9:

That’s I mean, we do. We do. At the end of the day, right? They come back and he’s well you didn’t fix it. Okay. We’ll fix this one. You know? And that was actually my followup question. If you know that it’s not there is that what you do too?

John Crabbe:

We, a lot of times it’ll get fixed at warranty, but that’s exactly what Ed’s talking about. That that’s a marketing tool we have, in our accounting system, we have a warranty line item, and then we also have the customer service line item and our warranty manager, if he wants to fix something, that’s really not warranty, he’s going to go through. And he’s going to say, Hey, this was a customer service cost us 200 bucks. Well, that’s that marketing side that Ed’s talking about. [crosstalk 00:19:19].

Speaker 9:

Thanks.

Nick Schiffer:

One thing we add to that, you’re probably going to cringe at this too, but you know, especially with having our own cabinet shop is we do a one to two month follow-up saying, you know, “Hey, now your cabinets are filled with your plates, your pots, you figured out where everything goes. We just want to schedule a return visit. And we’re going to go through and adjust all the cabinetry. Because at this point, you know, inset cabinetry reveals are off. We want this to continue to look good and we’ll do that.” And we’ll kind of continue that as a customer service, maybe once a year and just if we’re selling them on the maintenance package, then that just becomes part of the maintenance program.

John Crabbe:

I want to touch on this because this is one thing that we’ve changed this year in our business. And it’s, it brought a lot of discussion. The girls are over there going I don’t know. We used to do a 60 day walk and a one-year walk and we actually stopped doing it. And it was man. It was a gut-wrenching thing from a company that we built our, again, we built three houses for people, but what we found was we weren’t meeting expectations because the people had unreasonable expectations.

John Crabbe:

And what we found was if we’re going to abide by our warranty, we’re going to do exactly that. They’re going to call us, We’re going to fix it. We’re going to do it right. But why open yourself up, because you lose more clients by going, he comes in and says, Hey, I want this fixed. And you’re going, well, it’s not warranty. And it’s unreasonable. And you know I’ll you an example, lady’s boxer chewed off the baseboard in a house, and she wanted us to fix it. And I’m going, Ma’am, that’s not reasonable. Well, guess what? I lost her because now she’s mad at us because we wouldn’t fix it. So we stopped doing the walks because we regenerating, creating more work for ourselves. And it just [crosstalk 00:21:09] That was a hard thing to do though.

Nick Schiffer:

I think that’s, you know, I can see how that will be very difficult, because if you open that up and say, “Hey, we’re going to do a one-year walk. We’re just going to walk through any issues.” They’re like, “All right, cool.”

Dan Houghton:

Yeah. Get their list [crosstalk 00:21:21].

Nick Schiffer:

… creating a list.

John Crabbe:

Yeah. Exactly.

Nick Schiffer:

Selling them on the maintenance program. We’re just there anyway. And they’re not anticipating this one year walk. It’s just, this is part of the routine.

Dan Houghton:

On the remodeling side, we’re seeing a lot of our customers do the same thing. This kind of estate management, home maintenance services.

Nick Schiffer:

There’s so many names for it.

Dan Houghton:

It is. It’s an incredible thing because people of my generation, our generation, a lot of us didn’t grow up knowing how to fix things.

John Crabbe:

Right.

Dan Houghton:

You know. So there’s a huge opportunity there. And you always want to be in their house because they got something to fix. I’ve got a question here.

Speaker 10:

Yeah. Could each of you elaborate how your companies handle the costs and expectations of budgeting early on in the process? And when you start talking about numbers with a client, whether that’s a first call or you wait until you give them a budget and what your process looks like?

Dan Houghton:

That’s a great question. Is my builder here by chance? Cause I still don’t know how much my project’s going to cost.

John Crabbe:

I don’t want to know how much your project cost.

Nick Schiffer:

Yeah. That’s a great question.

John Crabbe:

Can I hit that first? One of the things that for me as a semi-custom builder, everybody wants the $500,000 house for $200,000. They bring the Pinterest book in and we’re going, Hey look, we… So one of the scripts that I use is I will throw out and the ladies will throw out the dollars per square foot, rough idea, Hey, you want this house in this neighborhood. It’s roughly this much per square foot. If you want 2300 square foot, your house is going to be roughly this. It may move a little. What I’m doing is I’m establishing honesty. Okay? I don’t want the client thinking that I’m… And then what I tell them is your budget, I promise you, you’re going to overshoot. And then Jennifer’s going to get in there in the estimate, and she’s going to figure out what to cut out, to get that budget down.

John Crabbe:

And once you can get that budget down… So I tell people all the time, when you give me your number, it’s a $350,000 house, I promise you that our proposal is going to be $349,000. And they all, yeah, I bet it would be. But I’ve already told them it’s cost per square foot. And I’ll say, if we take your Pinterest book and we price it out and we’ve already got this, you’re already over budget. So now it’s our job to figure out what to cut out of that that you’ll be happiest with. And a lot of times she’ll give them a shopping list. The farmhouse sink is this much. This is this much. But when you’re pricing it from a production semi-custom builder price it honestly. Give them your numbers upfront and then ask them what their top dollar is.

Nick Schiffer:

And, Ed, seen some of your projects made $10, $15 million in Southern California, maybe we’re budget. I’m sure if some of you have customers where you’re doing these multimillion dollar projects, everybody cares about money.

Ed Earl:

Right.

Nick Schiffer:

Some just care about it differently. Right?

Ed Earl:

And everyone has a budget. I mean, you know, the $25 million house has a budget. And I think it’s really important even on something like that, that you really, the budget has to be at the forefront and you can’t go and design a house and then put together the budget. You’ve got to start with a budget at the beginning, design to that budget, and then work towards it. And you know, all of our contractor coaching clients, we always tell them argue against adding something, argue against, your role really is to help them reduce their scope to stay within budget not to increase it.

Nick Schiffer:

Yeah. For us being more custom and remodeling. It’s, we operate cost plus. We’re communicating the fact that we’re, our pricing struc- our pricing structure is transparent, but similar is that we’re, if we want to be involved design-build. So as that design is unfolding, we’re also budgeting. And what that process looks like to us is if there’s already maybe schematic design, we’re going to start communicating what we think this might cost, what the estimate is, and start getting some numbers thrown out there to understand where they’re comfortable, what they’re comfortable spending. At that point, if we’re aligned and their budget expectation is where we are. And we are going to start developing a design, we take a pre-construction retainer. So what that says is we kind of skip the paper estimate and we go right into building a formal budget.

Nick Schiffer:

So as design is unfolding, we’re pricing as much as we can, as fast as we can to be able to share, you know, the first design development drawing, and the first run at the budget and outlining here are your allowances, or here is the exposure. And as we get more finalized with the design, the budget becomes more finalized and so on and so forth. For one example is if we have a project say, it’s the budget’s $600,000 for a renovation, and we’re budgeting in the design is leading.

Nick Schiffer:

And we’re creeping up on $600,000 and then we’re about to surpass it. We’re going to continue budgeting and figuring out where that is, but also start basically, I’m using Excel as an example, create a second column, and then just figure out how you keep it at 600. So then we can come over to the table and propose, here’s your 600 number. This is what we’re going to have to value engineer, but you know, for 630,000, you get everything you want. So if the $30,000 is within reach, I would suggest spending the money and you can get what you want.

John Crabbe:

It’s that shopping list.

Nick Schiffer:

Exactly.

Tom Houghton:

We hope you enjoyed the recording of that session. And again, thank you to the NAHB for providing that to us, to share with our listeners, if this is your first time listening to “The Building Code,” and you love what you heard, don’t forget to rate and subscribe to our podcast so you can hear from more guests that will benefit your business. Also, please check out our show notes page for more information on what we discussed on this episode, you can find it at builder trend dot com slash podcast. Thanks for listening. And we’ll see you next time on “The Building Code.”