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The "price" of the home is being discounted to the buyer, and the "cost" of the home is being discounted to the builder by his subs/vendors. In the end, the builders still make their money just like they always do......
There are builders here in the Poconos (National and Regional) that are not only discounting their homes, some are even offering freebies at closings, such as cars, appliance packages, trips. And yes, they still are making money hand over fist. Many of the builders force contractors to take less for their work, to make up for such things. I only know because we've been one of those contractors forced to take less.
That's easy to say, and in theory it's correct. But in reality, when you've built a company based on a certain amount of volume, employed people, purchased equipment and materials, etc., it's not as easy as "just don't do the job" unless you want to fold up shop and hand everything you've worked for to the bank.
Not easy to do when more than half of your work comes from one particular builder. You may say - don't put all your eggs in that one basket, but then you do not understand that many of these contractors fear losing the builder to some fly by night, who is willing to cut their throats just to get their foot in the door. There were many times we put up with that to keep that steady flow of work going, for fear that we would lose 30-40 homes per year. Then, after these contractors take their pay-cuts, they see the builder's advertising their homes for 15-30% more then they were before the cuts.
That is one of the top reasons we started our own company, a home building consultant company that charges a flat fee based on the home design and sqaure footage, instead of by the mark-up system - and we always pay contractors what they are asking for. (as long as they have done a quality job and are not overcharging the customer)
By doing so, the client saves money, the contractor has earned what he deserved as a small business owner, and we end up with referrals from both parties.
That's easy to say, and in theory it's correct. But in reality, when you've built a company based on a certain amount of volume, employed people, purchased equipment and materials, etc., it's not as easy as "just don't do the job" unless you want to fold up shop and hand everything you've worked for to the bank.
That's part of the "domino-effect".
Then there are less employees, less demand for product from maufacturers, who in turn need less employees. Now there's more people unemployed, and less that can afford to own a home.
...and around, and around we go.
Not easy to do when more than half of your work comes from one particular builder. You may say - don't put all your eggs in that one basket, but then you do not understand that many of these contractors fear losing the builder to some fly by night, who is willing to cut their throats just to get their foot in the door. There were many times we put up with that to keep that steady flow of work going, for fear that we would lose 30-40 homes per year. Then, after these contractors take their pay-cuts, they see the builder's advertising their homes for 15-30% more then they were before the cuts.
One reason I will not work for many builders. They want cheap. The lower price means sub-standard work and materials. When I first began drilling, each year modular homes sales staff and a few builders would call me. They would hire me to drill their wells (for the customer). In return I would pay them $500-$700 per well. After I explained to them I do not need a "pimp", they stopped calling. Of the four drillers working for them, three have had the state take their license.
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