If you’ve been paying any attention at all, you’ve seen the news about dramatically increasing construction costs. For starters: Is there a housing bubble? Houses are getting more and more expensive. There’s a simple fix for that. and Building a Home in the U.S. Has Never Been More Expensive and Builders Report 26 Percent Increase in Material Prices.
I have been practicing real estate for 20 years, and I never paid much attention to the escalation clause in the new construction contract. It was there, but not relevant. In 2021, that clause has been a big point of conversation but it is now highly, dangerously relevant. Dangerous for both the buyers and the builders. I thought the following from a Charlottesville area builder would be instructive to readers; it was to me. Not only is the information enlightening, but the empathy and pain are as well.
It’s easy to look at the headlines about new construction pricing and think they are overblown, hyperbolic, exaggerated. They’re not.
It is important remembering that at every step of these transactions, from foundation to closing, the people involved are humans, and our neighbors. Being kind and understanding is important.
Related: Everything is getting more expensive.
… we’re getting hammered with price increases from all angles, and at rapid rates.
- It’s mostly lumber that’s in the news, but it’s been a different sub calling to raise prices almost daily
- Copper, metal, concrete and PVC have all also reached unprecedented levels
- We just saw a 17% increase in identical truss packages from 5/4/21 to another on 5/21/21– without warning.
- We’re seeing $40-$55k total increases, across the board, with suppliers saying that it will get worse before it gets better
- In hindsight, we should have paused all sales for anything not breaking ground in 30-60 days
The result is that we just aren’t in a position to build (the house) at the original contract price.
- Our costs are up just over $40k on her specific house
- To build her home, we need to ask her to raise her price by $25,000 just to stay at an operational margin on her home
- We can’t build it for any less because our suppliers can’t get us the material at the old price and won’t/can’t continue to sell it to us at a loss—though they did hang on to old pricing for us as long as they could
It saddens us to need to use the clause from the contract to go back to customers with higher pricing. Stomach turning actually.
Even with dutiful estimation and monthly price increases to stay ahead of it, we never thought we’d be in this position.