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Welcome back to Trust the Process Podcast where we take you behind the scenes of real estate,
construction, new homes, and everything in between.
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Today we wanted to talk a little bit about a really important distinction in the new home market,
production homes versus custom homes, some of the differences, some of the similarities,
what's primarily out there, what you might be familiar with if you work in one or the
other or if you're looking for a home or building them, walking through some of those details
and how they differ, how they're similar, we look forward to sharing some good information with you
about that. We'll turn to our resident expert.
I like that time. I know, right? I like to relax.
Yeah, it's good.
So,
all right.
So I think it might be helpful to start rather than a compared contrast.
Let's talk about one, talk about the other, and then talk about where those stuff are.
Where they kind of overlap. Yeah.
It might be helpful to start with. So let's talk first about production.
What does that mean? What is a production home in today's terms?
Unless you live in a large booming city, you probably don't know what a production home is.
Production homes are what we like called a cookie cutter suburban house.
Neighborhood maybe probably 50 homes are greater. Generally built by a publicly traded home builder.
You need very deep pockets to undertake subdivisions at large to hold the land to hold the
infrastructure and the amount of manpower just in managing projects at large requires you to be
a very well funded, like I said, generally publicly traded companies.
So if you're in an area like our market Southern Nevada, very booming,
Sunbelt City, Charlotte almost all of Florida at Lanna, Dallas, Fort Worth, Houston,
Phoenix, and then some parts of the inland empire in California and all those kind of Sunbelt
cities are going to have a really high presence of production builders. And they are really the
main drivers of housing supply on our episode where we talked statistics earlier. A lot of the
statistics are pushed by one builder, especially in a local market like Las Vegas. It's 11,000
permits closed out every year of single family. I would venture that about 95% of those are production
builders and one or two builders making up 50% of that 95%. So those builders hold such a great
share everything that they do in the marketplace really knows the needle and it sets the par for
what the rest of the market is able to do and how things move throughout that, that echelon
if you well. Yeah, it moves through that kind of move through that throughput. Yes. And if you look at
why we're in such a housing crisis, it's because when you have 10 players, nation wants to
say 15 players nationwide and in our market it's probably 7, maybe less. Now that there's been
acquisitions and there's been when you have even four or five of those seven pull back and not
wanting the exposure of building too many homes and then flooding the market or their presence is
in Las Vegas is just one shred of their business. They're not going to maximize all of their
lots and are going to maximize all their potential out here. So what we've seen are these knock-on effects
down the road, years down the road that we're still dealing with that when you're a big public-litrated
builder and you have shareholders to answer to and you have to answer to why you're so exposed in one
market or why you're so exposed in spec homes and you have all this inventory sitting vacant and ready
for buyers. You have to answer to those shareholders and you kind of live quarter to quarter and when
you're a CEO and you're executive leadership in those businesses you're answering four quarter one
in quarter two. You're not worried about quarter four. You're not worried about two quarter,
you know two or three years down the road quarter three and you ultimately relay it's not your
responsibility to worry about the over a half of a housing market you're fiduciary to your shareholders.
So when you have such a you know such an oligarchy of home supply we're left with what we have today
and that's why we make the distinction of what is a production home. I would say if you're building
more than if you're a builder and you're publicly traded you're for sure production builder
and if you're a builder who's not publicly traded but you probably deliver more than two to three
hundred doors per year probably could draw a line even lower than that maybe a hundred doors a year
uh hundred doors hundred rooftops depending on what you're looking at. I use the word door
you'll hear that. It covers multi-family too that are owned that are fore sale. Multi-family and it
kind of helps us to understand how many doors are being created in the marketplace. When you're kind
of controlling that flow it's easy to see how how quickly how quickly you can manipulate the market
unintentionally even just manipulate the market by pulling back on your land development or pulling
back on the amount of homes you put in every year. Just to clarify when when you say doors just
want to clarify for the audience that if they're not familiar if they don't exactly what that
means it's not just homes that have been started it is they are finished turn key off the record.
So that's a completed project homes. It's got to say they're doing 400 doors. They probably have
500 under construction. It that moment but that's that finish. It's how many addresses how many keys
that how many home families in homes. Just to clarify. Yeah just to kind of give some context.
And because it's a term that you'll hear that again and again I just wanted you to have real context
for how it's used. Yeah so really our way out of the housing crisis where an astrue production
holders like it or not and there's there's cultural there's a cultural milieu to this that
people you know there's an anti cookie cutter anti suburban kind of bent that we have within our
culture and until we make major zoning overhauls we're just cities or you know zoned in favor of
single family suburban tract homes and that is our most hopeful way out of the housing crisis that
we're going to need more supply and honestly we're at a point where we just need to we're not going
to reverse it we just need to make sure it doesn't get any worse. So that's kind of how I look at that.
So in a nutshell production production yeah it's something that you're going to have limited
you know limited customization but predictable pricing your builders most likely going to be
able to give you a price down to the dollar of what you're going to close at you might be able to
customize any you know as little as three things or as many as maybe 30 40 things mostly textural
things finishes sometimes production builders just like you go for a bedroom for instead of a
loft things like that cabinet colors one or two options that you could build in for the counter
tops exactly yeah overall limited you can customize a production home but it's not a custom right
now define a little bit for us the custom home so that we can see some differences.
So I think of a custom home really is anything that's not a production home a custom home has this
this context that it's always in a you know it's always in an upper echelon buyer it's always a
luxury home but not oh I would say all luxury homes are custom but not all customs are luxury homes
right and a custom home is generally built by a smaller builder someone like myself or our company
and a builder's probably turning over fewer than 30 40 homes per year and you're generally
involved in that process as a buyer or as a homeowner who's building to suit from the
beginning not always our business models a little bit different we'll talk about that I prefer to
sell homes in their near to completion but they are still a custom home at that point the company
completely customized every aspect and in general no two versions of that home exist maybe two versions
of the floor plan but no two versions of that home exist so that's basically the distinction we
cannot custom build our way out of housing crunch that we're in it's going to take production and
probably some multi-family and many other inputs to get us to where we need to be to be in
have a healthy real estate market but custom is an important part custom especially in our market
and southern Nevada and I will say in most markets in most metropolitan areas unless you're far
out in the excerpts or in more rural areas you might have a custom home that is within the
median sales price of the of the county but in general in most metropolitan areas custom homes
occupy the top three to five percent percentile in in terms of pricing so they are important
because every every door added is you know ideally a door someone else vacated and it serves as a
move up place to kind of unlocks an entry level homes as those people move into those any
they rent their existing home out or put it back into the into the housing supply so they do
serve an important function but we'll never custom build our way out of our housing crisis
okay so those are kind of the two opposing sides talk a little bit about a semi custom
and maybe the overlap between some of that what's the what's the difference if they were a third option
yeah semi custom is is is is flirting with production and and builders that are in semi
custom which is really largely what trust home builders is especially as as I grow the company
and as I kind of build it in that in that in that mold I feel that the semi custom has
the efficiencies and predictability of a production home but the customization of a custom home
and we can kind of tighten up our timeline whereas a custom home could take from land acquisition
or from conception to delivery it's really hard to get it down in under 18 months generally it's
18 to 24 months from okay we identify our parcel let's hit the ground running and that's a buyer
that knows what they want or homeowner that knows what they want it's still very very challenging
it's going to vary by your jurisdiction I mean if you're if you're permitting permitting something
to that is notoriously sludging and slow but if you're in a city that moves a little bit faster
you might have other issues that we don't have to contend with such as weather and snow and seasons
for a lack of a better word yeah so I think that in general it's in 18 to 24 months whereas
semi custom which is the like I said the mold in which I'm building trust home builders into
that type of business allows us to maybe deliver a product 12 months maybe shave six to 12
months off off of the process and really cut it in half I've already done how to have the floor
plan already have all the engineering done you're maybe make some minor changes if we can do
as built in the field that's great if you have to run it back through the architect in the
engineer it's much faster we're not working off of a blank slate so that's kind of what a lot
of people feel as a sweet spot and as an early custom builder I was able to do that replicated by
not even listing the home not even releasing the home to the market until I was three to four months
into the build process which represents about a year's worth of total work six to seven months of planning
and then permitting groundbreaking and all that takes us to about or the home is approximately
180 you know 140 days from completion and those that's a really great time to list the home some
minimal selections can be made we like to outfit our homes really well and make it a we have a professional
designer on staff and he makes it really really fashion forward and really kind of blending functionality
and and and form together so we don't see a lot of edits from my buyers but this still happens and
if we can accommodate it we do and it kind of allows us to have that sweet spot in between okay
we're you're getting a custom product and if you're not going to split hairs over your
layout exactly if it's a functional layout and it takes advantage of the views of the home site
home site specific conditions generally you're reinventing the wheel if you're making a lot of
changes to that so it allows us just to have kind of the happy medium and I think about the end
user you know the buyer if you will and they're they're focused on that design process but what they
don't think about is the time and effort and you know all of that infrastructure that goes into
the raw land and everything that has happened so you say it's it's that 24 month 18 to 24 month
process on a custom but what the but the buyer doesn't know is that first 12 months what that
web but by the time you see something on a ground what that represents it represents months and months
of me pulling my hair out and 60 to 100 thousand dollars worth of soil testing surveys to top top top
top top top of a graphical surveys civil engineering drainage plans mechanical electrical we'll
go into that in detail yeah you'll know those terms and that's that's what takes up that time
and until your shovel ready yeah all of those professions have to basically do their work on the house
and then that's not to mention homeowner associations approval design review boards city planning
if you're congruent with your zoning you have to go through that but also building department
building safety there's a lot of a lot of signatures you're you're collecting before you
mobilize your first your first crew to get started so I tried to try to head that off and
keep them basically a shadow inventory and as we go through the projects that's really what we're
seeing we're going to see kind of a pull the curtain back on some of the shadow inventory that we have
that will slowly trickle on with more predictable timelines so categorically those would be the
three anything else you would plug in there or anything else that we'll refer to as we do these
um the series or anything just in the marketplace that might fill in any of those gaps or are
those that need to be in other markets you'll see some terran's you know you might see terran's in
your city I would I would lump that into custom homes that's the only category I can think that's
not represented with what we just mentioned and it becomes a custom the minute that home is torn down
and if it's not fully torn down it's a renovation right so I would say it pretty it lumps it all
in together um without covering multi family build a cell most multi family or are put in portfolios
and rent it out anyway but there's there's enough builders maybe if you look at nationwide that
will build and sell condos and town homes to an extent um to lots of differences the lots of
overlap yeah the day it's houses right it's I mean housing is a basic need and a luxury good at the
same time and a production can be a luxury good you know definitely does not have to be
custom to be a luxury good so and a custom home can be basic housing depending on where you live
it's just kind of the nature of who built it what was a process like what was the end user's
involvement in the process and that's kind of how but it's a venda agram in a lot of it on apps
how does it affect timing in general I know we talked a little bit about timing on a production
versus timing on custom are there parts to the process that are just going to be longer by nature
well you in production you're definitely having a longer lead time because you're generally
changing zoning you're buying bigs tracks of land and you have a lot of front end work um
whereas the individual home sites yeah looks like they just pop up like daisies but when you're
seeing a builder open for sales in a new home track you're probably looking at approximately
three years of work that went to get them to that point identifying the parcel and you know
doing all the engineering and school impact fees and water impact fees and sewer just general
infrastructure getting all those signs sign-offs done and then of course developing a 200 home
neighborhood is a lot more work than when I'm buying you know a big portion of my business is
still buying custom lots that are 100% ready to go I can walk on that lot has the curb the gutter
utility connections are all there sometimes there's neighbors on each side so the walls are already done
and yes that takes me longer home-specific wise but it's overall it's a quicker turn ultimately
it is yeah so I look at a production as production neighborhood as it's the entire project
when you break it out into the individual homes yeah they fly but it's the entire project start
to finish is probably five years from conception to the last homeowner getting the keys to the last door
yep easily right yeah great great great great so covers the distinction yeah all right
covers the distinction yeah and as we move forward and get into other conversations those are things
that will play into it and now that you guys have a little bit of history and kind of the definitions
on those and the distinctions hopefully it'll help you play into what we talk about as we move
forward so look forward to seeing you on the next podcast thank you for joining us today as we
talked a little bit about production versus customs on my custom and we'll see you next time
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