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Welcome to Trust the Process Podcast.

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We're going to pull back the curtain on new home construction,

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the real estate market and the trends shaping it all.

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Discover the stories, insights, and expertise behind the process of building an home.

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Join us and let's build something great together.

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Welcome back to Trust the Process Podcast where we take you behind the scenes of real estate,

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construction, new homes, and everything in between.

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Thank you for joining us.

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Today we wanted to talk a little bit about a really important distinction in the new home market,

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production homes versus custom homes, some of the differences, some of the similarities,

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what's primarily out there, what you might be familiar with if you work in one or the

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other or if you're looking for a home or building them, walking through some of those details

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and how they differ, how they're similar, we look forward to sharing some good information with you

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about that. We'll turn to our resident expert.

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I like that time. I know, right? I like to relax.

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Yeah, it's good.

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So,

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all right.

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So I think it might be helpful to start rather than a compared contrast.

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Let's talk about one, talk about the other, and then talk about where those stuff are.

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Where they kind of overlap. Yeah.

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It might be helpful to start with. So let's talk first about production.

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What does that mean? What is a production home in today's terms?

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Unless you live in a large booming city, you probably don't know what a production home is.

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Production homes are what we like called a cookie cutter suburban house.

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Neighborhood maybe probably 50 homes are greater. Generally built by a publicly traded home builder.

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You need very deep pockets to undertake subdivisions at large to hold the land to hold the

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infrastructure and the amount of manpower just in managing projects at large requires you to be

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a very well funded, like I said, generally publicly traded companies.

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So if you're in an area like our market Southern Nevada, very booming,

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Sunbelt City, Charlotte almost all of Florida at Lanna, Dallas, Fort Worth, Houston,

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Phoenix, and then some parts of the inland empire in California and all those kind of Sunbelt

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cities are going to have a really high presence of production builders. And they are really the

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main drivers of housing supply on our episode where we talked statistics earlier. A lot of the

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statistics are pushed by one builder, especially in a local market like Las Vegas. It's 11,000

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permits closed out every year of single family. I would venture that about 95% of those are production

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builders and one or two builders making up 50% of that 95%. So those builders hold such a great

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share everything that they do in the marketplace really knows the needle and it sets the par for

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what the rest of the market is able to do and how things move throughout that, that echelon

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if you well. Yeah, it moves through that kind of move through that throughput. Yes. And if you look at

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why we're in such a housing crisis, it's because when you have 10 players, nation wants to

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say 15 players nationwide and in our market it's probably 7, maybe less. Now that there's been

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acquisitions and there's been when you have even four or five of those seven pull back and not

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wanting the exposure of building too many homes and then flooding the market or their presence is

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in Las Vegas is just one shred of their business. They're not going to maximize all of their

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lots and are going to maximize all their potential out here. So what we've seen are these knock-on effects

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down the road, years down the road that we're still dealing with that when you're a big public-litrated

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builder and you have shareholders to answer to and you have to answer to why you're so exposed in one

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market or why you're so exposed in spec homes and you have all this inventory sitting vacant and ready

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for buyers. You have to answer to those shareholders and you kind of live quarter to quarter and when

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you're a CEO and you're executive leadership in those businesses you're answering four quarter one

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in quarter two. You're not worried about quarter four. You're not worried about two quarter,

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you know two or three years down the road quarter three and you ultimately relay it's not your

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responsibility to worry about the over a half of a housing market you're fiduciary to your shareholders.

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So when you have such a you know such an oligarchy of home supply we're left with what we have today

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and that's why we make the distinction of what is a production home. I would say if you're building

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more than if you're a builder and you're publicly traded you're for sure production builder

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and if you're a builder who's not publicly traded but you probably deliver more than two to three

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hundred doors per year probably could draw a line even lower than that maybe a hundred doors a year

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uh hundred doors hundred rooftops depending on what you're looking at. I use the word door

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you'll hear that. It covers multi-family too that are owned that are fore sale. Multi-family and it

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kind of helps us to understand how many doors are being created in the marketplace. When you're kind

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of controlling that flow it's easy to see how how quickly how quickly you can manipulate the market

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unintentionally even just manipulate the market by pulling back on your land development or pulling

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back on the amount of homes you put in every year. Just to clarify when when you say doors just

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want to clarify for the audience that if they're not familiar if they don't exactly what that

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means it's not just homes that have been started it is they are finished turn key off the record.

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So that's a completed project homes. It's got to say they're doing 400 doors. They probably have

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500 under construction. It that moment but that's that finish. It's how many addresses how many keys

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that how many home families in homes. Just to clarify. Yeah just to kind of give some context.

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And because it's a term that you'll hear that again and again I just wanted you to have real context

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for how it's used. Yeah so really our way out of the housing crisis where an astrue production

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holders like it or not and there's there's cultural there's a cultural milieu to this that

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people you know there's an anti cookie cutter anti suburban kind of bent that we have within our

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culture and until we make major zoning overhauls we're just cities or you know zoned in favor of

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single family suburban tract homes and that is our most hopeful way out of the housing crisis that

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we're going to need more supply and honestly we're at a point where we just need to we're not going

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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.

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So in a nutshell production production yeah it's something that you're going to have limited

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you know limited customization but predictable pricing your builders most likely going to be

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able to give you a price down to the dollar of what you're going to close at you might be able to

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customize any you know as little as three things or as many as maybe 30 40 things mostly textural

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things finishes sometimes production builders just like you go for a bedroom for instead of a

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loft things like that cabinet colors one or two options that you could build in for the counter

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tops exactly yeah overall limited you can customize a production home but it's not a custom right

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now define a little bit for us the custom home so that we can see some differences.

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So I think of a custom home really is anything that's not a production home a custom home has this

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this context that it's always in a you know it's always in an upper echelon buyer it's always a

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luxury home but not oh I would say all luxury homes are custom but not all customs are luxury homes

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right and a custom home is generally built by a smaller builder someone like myself or our company

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and a builder's probably turning over fewer than 30 40 homes per year and you're generally

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involved in that process as a buyer or as a homeowner who's building to suit from the

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beginning not always our business models a little bit different we'll talk about that I prefer to

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sell homes in their near to completion but they are still a custom home at that point the company

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completely customized every aspect and in general no two versions of that home exist maybe two versions

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of the floor plan but no two versions of that home exist so that's basically the distinction we

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cannot custom build our way out of housing crunch that we're in it's going to take production and

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probably some multi-family and many other inputs to get us to where we need to be to be in

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have a healthy real estate market but custom is an important part custom especially in our market

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and southern Nevada and I will say in most markets in most metropolitan areas unless you're far

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out in the excerpts or in more rural areas you might have a custom home that is within the

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median sales price of the of the county but in general in most metropolitan areas custom homes

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occupy the top three to five percent percentile in in terms of pricing so they are important

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because every every door added is you know ideally a door someone else vacated and it serves as a

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move up place to kind of unlocks an entry level homes as those people move into those any

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they rent their existing home out or put it back into the into the housing supply so they do

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serve an important function but we'll never custom build our way out of our housing crisis

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okay so those are kind of the two opposing sides talk a little bit about a semi custom

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and maybe the overlap between some of that what's the what's the difference if they were a third option

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yeah semi custom is is is is flirting with production and and builders that are in semi

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custom which is really largely what trust home builders is especially as as I grow the company

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and as I kind of build it in that in that in that mold I feel that the semi custom has

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the efficiencies and predictability of a production home but the customization of a custom home

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and we can kind of tighten up our timeline whereas a custom home could take from land acquisition

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or from conception to delivery it's really hard to get it down in under 18 months generally it's

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18 to 24 months from okay we identify our parcel let's hit the ground running and that's a buyer

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that knows what they want or homeowner that knows what they want it's still very very challenging

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it's going to vary by your jurisdiction I mean if you're if you're permitting permitting something

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to that is notoriously sludging and slow but if you're in a city that moves a little bit faster

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you might have other issues that we don't have to contend with such as weather and snow and seasons

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for a lack of a better word yeah so I think that in general it's in 18 to 24 months whereas

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semi custom which is the like I said the mold in which I'm building trust home builders into

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that type of business allows us to maybe deliver a product 12 months maybe shave six to 12

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months off off of the process and really cut it in half I've already done how to have the floor

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plan already have all the engineering done you're maybe make some minor changes if we can do

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as built in the field that's great if you have to run it back through the architect in the

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engineer it's much faster we're not working off of a blank slate so that's kind of what a lot

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of people feel as a sweet spot and as an early custom builder I was able to do that replicated by

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not even listing the home not even releasing the home to the market until I was three to four months

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into the build process which represents about a year's worth of total work six to seven months of planning

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and then permitting groundbreaking and all that takes us to about or the home is approximately

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180 you know 140 days from completion and those that's a really great time to list the home some

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minimal selections can be made we like to outfit our homes really well and make it a we have a professional

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designer on staff and he makes it really really fashion forward and really kind of blending functionality

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and and and form together so we don't see a lot of edits from my buyers but this still happens and

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if we can accommodate it we do and it kind of allows us to have that sweet spot in between okay

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we're you're getting a custom product and if you're not going to split hairs over your

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layout exactly if it's a functional layout and it takes advantage of the views of the home site

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home site specific conditions generally you're reinventing the wheel if you're making a lot of

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changes to that so it allows us just to have kind of the happy medium and I think about the end

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user you know the buyer if you will and they're they're focused on that design process but what they

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don't think about is the time and effort and you know all of that infrastructure that goes into

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the raw land and everything that has happened so you say it's it's that 24 month 18 to 24 month

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process on a custom but what the but the buyer doesn't know is that first 12 months what that

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web but by the time you see something on a ground what that represents it represents months and months

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of me pulling my hair out and 60 to 100 thousand dollars worth of soil testing surveys to top top top

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top top top of a graphical surveys civil engineering drainage plans mechanical electrical we'll

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go into that in detail yeah you'll know those terms and that's that's what takes up that time

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and until your shovel ready yeah all of those professions have to basically do their work on the house

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and then that's not to mention homeowner associations approval design review boards city planning

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if you're congruent with your zoning you have to go through that but also building department

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building safety there's a lot of a lot of signatures you're you're collecting before you

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mobilize your first your first crew to get started so I tried to try to head that off and

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keep them basically a shadow inventory and as we go through the projects that's really what we're

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seeing we're going to see kind of a pull the curtain back on some of the shadow inventory that we have

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that will slowly trickle on with more predictable timelines so categorically those would be the

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three anything else you would plug in there or anything else that we'll refer to as we do these

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um the series or anything just in the marketplace that might fill in any of those gaps or are

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those that need to be in other markets you'll see some terran's you know you might see terran's in

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your city I would I would lump that into custom homes that's the only category I can think that's

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not represented with what we just mentioned and it becomes a custom the minute that home is torn down

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and if it's not fully torn down it's a renovation right so I would say it pretty it lumps it all

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in together um without covering multi family build a cell most multi family or are put in portfolios

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and rent it out anyway but there's there's enough builders maybe if you look at nationwide that

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will build and sell condos and town homes to an extent um to lots of differences the lots of

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overlap yeah the day it's houses right it's I mean housing is a basic need and a luxury good at the

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same time and a production can be a luxury good you know definitely does not have to be

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custom to be a luxury good so and a custom home can be basic housing depending on where you live

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it's just kind of the nature of who built it what was a process like what was the end user's

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involvement in the process and that's kind of how but it's a venda agram in a lot of it on apps

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how does it affect timing in general I know we talked a little bit about timing on a production

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versus timing on custom are there parts to the process that are just going to be longer by nature

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well you in production you're definitely having a longer lead time because you're generally

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changing zoning you're buying bigs tracks of land and you have a lot of front end work um

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whereas the individual home sites yeah looks like they just pop up like daisies but when you're

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seeing a builder open for sales in a new home track you're probably looking at approximately

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three years of work that went to get them to that point identifying the parcel and you know

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doing all the engineering and school impact fees and water impact fees and sewer just general

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infrastructure getting all those signs sign-offs done and then of course developing a 200 home

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neighborhood is a lot more work than when I'm buying you know a big portion of my business is

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still buying custom lots that are 100% ready to go I can walk on that lot has the curb the gutter

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utility connections are all there sometimes there's neighbors on each side so the walls are already done

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and yes that takes me longer home-specific wise but it's overall it's a quicker turn ultimately

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it is yeah so I look at a production as production neighborhood as it's the entire project

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when you break it out into the individual homes yeah they fly but it's the entire project start

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to finish is probably five years from conception to the last homeowner getting the keys to the last door

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yep easily right yeah great great great great so covers the distinction yeah all right

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covers the distinction yeah and as we move forward and get into other conversations those are things

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that will play into it and now that you guys have a little bit of history and kind of the definitions

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on those and the distinctions hopefully it'll help you play into what we talk about as we move

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forward so look forward to seeing you on the next podcast thank you for joining us today as we

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talked a little bit about production versus customs on my custom and we'll see you next time

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thanks bye bye thanks for tuning into the press the process podcast make sure to follow us on

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Spotify to stay in the loop of the latest insights project updates and everything in between see you next time