This is part 1 of our interview with Jim Watson. See part 2here.
The current housing market is one for the books: With the median price of a single-family home in the U.S. sitting at $335,000, we’re seeing record highs. Even then, homes are getting snapped up like hotcakes, as houses stay on the market for an average of only 18 days — another record.
On the outside looking in, that may seem like a good thing — but it’s not that simple.
“We’ve never had a market this hot on the selling side, which is putting huge pressures on the commodities,” according to Jim Watson, Vice President and co-owner ofNew Atlantic Builders, a semi-custom homebuilder based in Florida. “Lumber’s gone through the roof, and copper’s gone through the roof, and labor’s increased.”
In fact, Jim says, “On older contracts, we’re caught in a short, because of when the houses were actually sold and what prices were like (then versus now).”
Still, they’re more than managing to make ends meet. “We are able to still build houses in an environment when trusses are in short supply and lumber’s in short supply, and vendors to install those items are in short supply. And it’s kept us enjoying some decent profits just based on offering people what we think we can deliver,” Jim says.
So how do they do it? It’s not because of massive contracts with national brands like GE and Builders FirstSource. It’s a bit more old-school than that.
Building Profitability Necessitates Building Relationships
“We’ve got a great group that we’ve worked with for 10, 20, 30 years. So that’s how we deal with it. Our approach is, we’re the guys that have always been there to work with (these vendors), and we’ve got a relationship and a lot of the vendors still respect that, and we’re blessed to have them taking care of us like that,” Jim explains.
It’s a starkly different approach from how the “big boys” do it, which is all about making sure the supply chain is uninterrupted while still getting the best price.
For Jim and his vendors, it’s all about trust. “I’ll give you a good example: If we ran out of a particular plywood, but our supplier’s looking at this other product line, we ask, ‘Will that meet our engineering requirements and our energy efficiency requirements?’
“And the answer’s going to be, ‘Yes and no. You may have to do a little bit more ceiling installation because this product had a different energy rating.’
“So then we work with our insulator and say, ‘Okay, what’s the cost to switch, because now we’re having to use a different type of plywood?’ This is like real life stuff that’s occurred. They ran out of the glue to put foil on the back of the plywood that they’re using in the attics. So we had to scramble.
“We’re relying on the expertise of the vendors that we’ve been working with for a long time.”
Better Tracking Means Better Cost Control
Additionally, Jim is also drawing on his own expertise in cost control and budgeting. “Cost control is the heartbeat of the construction business,” he says, explaining how he stays on top of projects.
“I’m the guy that keeps track of all the progress on the houses. Every Monday I talk to the field supervisors. I get a photo of every house … so that I can see what stage the house is and catch any errors when. You’d be amazed at how true it is that a picture says a thousand words.”
And then, of course, there’s that thing again about trust. “When I’m talking to the guys, I get a feel for where we’re at on issues. I mean, they tell me every issue and then some, and so I’m pretty hands-on from a (bird’s-eye view) 40,000-foot level, down to, ‘Where’s the drywall guy to do the punch out, you know, because the closing date’s approaching’ and of course that’s what keeps us rolling,” Jim says. “I’ve got a pretty straight relationship with those guys.”
That relationship is one reason they don’t have to navigate the corporate labyrinth that a lot of other builders are all too familiar with. “I’m not isolated just because I’m an owner, but you know, I’ve seen construction versus sales or construction versus estimating. I’ve seen these little rifts occur in the bigger companies.
“I’m fortunate be able to talk to the guys and not really get into any issues with them about why didn’t this house move, and it’s because you never sent out that roof package. In a bigger company, you end up getting more secular with your different estimating and construction and sales departments,” Jim says.
“Communication is huge. It’s everything. It’s the whole thing, man. Communication is power,” he adds.