The Expert Podcast

So in addition to having lumber prices going through the roof and home builders raising prices on homes there's another kind of hidden problem within the industry of home building general contracting and even remodeling homes or putting addition on homes and that is the supply chain is not only creating pricing problems but it's also creating availability problems so lumber is just one part of a house you also have things like garage doors gutters paint adhesives caulking roof supplies and for each one of these items if there's a bottleneck that can hold up the entire house as an example if a builder can't get a garage door to finish out the house it may not be eligible for a certificate of occupancy for the permit to sign off because the house is no longer dried in or it's not sealed off something as simple as the paint for the house may not allow it to be finished in time and these kind of bottlenecks and backlogs are throwing a monkey wrench into not only the new home market which we've talked about before but also remodeling.

So what can you do as a client of a general contractor that's building a new house or maybe putting an addition on a house the risk of this supply chain problem according to the wall street journal is not just the fact that that part isn't there but it also can have a domino effect and this is absolutely true that we see this all the time if you don't have the garage door to put on the front that work crew for that garage door can't work that day or that week and everything else that goes behind it the paint the trim the electrical installers they can't fulfill their schedule.

So what we recommend is making sure that your general contractor has a plan has a work plan that if a part or material isn't available what are they going to do to fill in that gap maybe they can jump ahead to work on another part of the house or the reconstruction maybe the project goes dormant for a certain period of time and then they pick back up if they have good relationships with their subs and their trades they can probably play tetris with their schedule and keep the project going.

But you don't want to be the one that suffers if that supply chain creates a bigger problem for example there are some contractual details in your building arrangement that might allow the builder to get out of their contract if they can't finish in time it might allow them to reprice it they might say well we can't you know the trades people aren't available we have to pay them more so we have to raise your price right and it says that here builders have been able to pass their material cost to home buyers but you don't want to be in a position where you're just writing a blank check.

You know if you agree to pay x amount you know let's say in this case this is a home price 416 for your remodel or your construction what happens if the just one garage door throws off the trades and then they have to rehire the electrical contractor to come back in a month and by that time the material is higher and now it's up to 450 000. well that's 30 some thousand out of your pocket where if the project had been managed correctly it may not have had so much of an impact on your bottom line.

Another reason that contractors may have to pass along higher costs is because if let's say they're renting equipment throughout the duration of the job maybe they're renting an excavator a backhoe at let's say a hundred dollars a day and a supply chain problem delays your project for 30 days well that's an extra three thousand dollars it's on their bottom line they may have the ability to pass that along to you or they might not directly pass it along they may take that money out of something else maybe less labor maybe not not to be as thorough with some of their construction processes.

So you want to make sure that your builder has a good plan for contingencies and you might want to talk to them about that in advance you know ask them look their supply chain issues and delays how do you plan on dealing with this if they're an experienced builder or an intellectual builder that knows how to plan for contingencies and to make some of these things less of an impact your consequence may not be as great as if it's somebody who um maybe doesn't have that experience right um builders are scrambling to find suppliers but everybody is so it's not going to be like you can just call the next lumber yard because they're all running into the same problems.

Sometimes you're using substitute materials well that could be a problem you want certain materials on their job site and you don't want to be forced to take inferior materials or equipment on your job site one example a builder had bought metal metal shower bars and they bought them online because their regular commercial suppliers didn't have them sometimes the electrical contractor buys parts directly from like home depot rather than through their supplier.

So a good builder is going to know how to work around this but you want to make sure they have a plan that's not going to have an outsized impact on you as a client so that if they're 30 or 60 days behind like it says in the article um you're not going to suffer either from higher cost or from defective equipment or from having some contractual problem be triggered because they can't finish it in a certain period of time.

So be aware of the supply chain how it could affect you you see it on the news all the time and yeah the prices might go up but more important than the prices is how that's going to affect the execution of your remodeling your new home build and whether or not your builder can functionally complete the project the way the contract specifies.