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back. to Trust the Process podcast where we talk
about new homes, the real estate industry, construction,
and everything in between. So today we're going
to talk about product and pricing. So how does
a builder come up with pricing? How do we decide
what's going to go on any specific lot? It's
kind of a catch -22 because you're building out
to a product that you're going to market. Months
from now, so it's anticipating what's going to
what there might be an appetite in that area
for and how you put that pricing together. So
an interesting topic and one that seems really
relevant for every area. These questions. It
does, right? This is something you guys into
play. So what I liked and I wanted to circle
back to is that you're putting something out
there that you're not marketing or you're trying
to create manifest something that you're not
going to even market. First seven to twelve months
if it's a subdivision. I have two pieces of raw
land right now. We're working through entitlements
on I I even have I have tentative map approval
on one and I won't even have The civils and all
the off -site improvement permitted until October,
which is in seven months from now We won't even
be able to move any dirt over there for seven
months Let alone building the homes and marketing
the homes and selling the homes These are residences
that will be moving. You know, these residents
will be moving into their homes and probably
Christmas of 26, potentially. I don't know. It
could easily be Christmas of 2026. So to try
to imagine what the market's going to want. It's
just dirt and you have to conceptualize what
you're going to put there, how much you're going
to price it at, how much you want to put into
it to know what you might get out of it. So it
is. And that is that those have attended the
map approved, which means the lot lines are there,
the law sizes, everything's there. I can walk
on. I know this is going to be a lot one. Once
we build the street. And then we'll call this
act. This is going to be a lot one. This is going
to be a lot two. This is kind of views a lot
two is going to have. So I am at least hemmed
in a little bit by that, but they are pretty,
they're like 6 ,800 square foot home sites. They're
very regular. Do I build more custom semi -custom
that will maximize the lots? Do I do a unique
home for each lot? Do I hit the upper echelon
of the price point in the median sales price?
And that area is around 650 ,000, but there's
some new construction. that are in the twos.
There's some luxury homes. I'm talking within,
you know, quarter mile, by the way, the crow
flies that are up to 15 million. Some, some celebrities
live within this same zip code within the same
area. Well, they'll pass this neighborhood. So
how high can I push it? Right. Right. But then
there's other objections to this particular parcel
there. It's pretty close to a major thoroughfare
and it has a drainage, uh, wash on the other
side of the road that I have to build. It's not
touching my community, but it's It's an objection
that might not matter for a $900 ,000 buyer,
but will matter for a $1 ,900 ,000 buyer, and
certainly up and above and beyond that. So I
can put whatever I want there, but there are
going to be objections that I'm going to hear.
Two of those homes will back that street. All
the homes will be able to see that street because
the way it's kind of off at an L. So every single
one of those, you'll stand in the garage and
look down that thoroughfare. It's not an ugly
thoroughfare. It's actually well managed and
manicured thoroughfare, but people go around
50 miles an hour on that thoroughfare. And another
objection to that on the topic of the speed is
that you can only make a right -hand turn and
then do a U -turn to go out if you're going west.
And beyond that, it's a bit of a view. There's
something to be... I mean, it's a beautiful line.
It has so many pluses. So, geographic's amazing.
If you just looked at a map, you'd say, push
it to 2 million because you can get it. If you
walk the site, let's say 700 ,000, somewhere
in between. The conservative side of me will
say, oh, don't push it. You don't want to hear
these objections. But then the other part of
me thinks, gosh, there's two guard gated country
clubs around the corner from here. There are
$25 million homes that are visible from the parcel.
All the new construction in that area. So if
you want to be in that area, and it's a very
desirable area, all the new construction is luxury.
And the few production builders that are in that
neighborhood are 1 .2 is the lowest So I know
that is that my floor So I think my floor is
probably 1 million and I think my ceiling is
probably 1 .5. So now it comes to all right Let's
find that price Let's find that product that
will that will carry that sales price because
we think the neighborhood and the lots can carry
that sales price What kind of designs finishes
and square footage and amenities are people going
to expect for that sales price and that those
are knowables I can get an idea of where the
market is. Those can change a little bit. The
finishes, the, you know, and we're going to use
this quality of the product. Yeah, we can do
Whirlpool versus Jenn Air if we find that. We've
kind of maxed it or if, heaven forbid, anything
should happen or something opens up and then
you realize you want to build a little bit higher.
Which I'm doing on my Serene project. You know,
it was kind of slated to be in this 1 .5 and
then I've based off of the preliminary interest
we're getting. I'm realizing, no, these are probably
$2 million homes and they will become $2 million
homes if we do them right. Let's do black aluminum
windows. Let's do glass garage doors. Let's do
really nice finishes. We're working with plans
that I have already finalized and designed. So
that part now I can't change. So as you kind
of use, you start making those decisions and
then you have to try to right. So this parcel
I bought with the tentative map approved. So
that part was decided for me. Okay. I know they're
going to be 6 ,500 square foot home sites. They're
going to be irregular. It's going to be hard
to get like two different models on these these
lots. So I think that that made it a little bit
easier for me. And then I said, okay, well, what
can go here? And then once I designed those homes
and finalized and pay for architects and engineers
and get that process started, now I'm locked
into the structures. And then there's only so
much I can do from there to either save money
or maximize returns. So you just kind of go as
far as you can to the brink. And then as you
make decisions, when I build in country clubs,
I roughly know the lot. So I'm only doing usually
one off. I mean, we have a batch running through
for in that in South Shore. So those I had the
lots and I was able to put the same plan on two
of them and then a similar plan on the third
and then a single story another just to mix up
my product offering. But once I had all the architectural
design now we're pouring those foundations this
week. So I have to order windows. I ordered windows
on one or windows, you know, this week I have
to have all the windows order because they're
six weeks out. So as the lead time item starts
to come to where I need to have them order it
so that they're here on time. That's when I start
making decisions. Aluminum thermally broken bronze
aluminum windows, bronze color aluminum windows
are roughly twice as much as the same product
in vinyl and then fiberglass somewhere in between.
Energy efficiency. Yeah, there's some. Do I buy
a name brand? And with that one, when you're
building in South Shore, you're limited by the
HOA too. They have criteria that you have to
meet for the exterior. Oh, for sure. Yeah. Yeah.
I just can't, I can't change anything on the
outside. Once I submitted it to the HOA, submitted
my design and my elevations. That's it. I can
change windows, but I have to reapply. So this
one, I'm deciding to do a bronze window. I just
have to send it in. That's an approved window,
but FYI on this one, I'm going to do that. So
there's certain lots that I can, after I kind
of walk them in and simmer on it, I think, okay,
can I push this one? to 2 .5. Okay, this one
has some objections and I've seen the flier where
the foundation is and just kind of locked it
in 3d space. This one might be a one eight fiver.
Let's dial down the spec a little bit to vinyl
windows. And then maybe I'll do a lower cabinet
line that's not as custom that's still appropriate
for 1 .9. But not something that would carry
me up to 2 .5. But those are, you know, making
those decisions on the fly, as we get hit certain
cutoffs. So you got to go all the way back now
to when it's a parcel. Thankfully, this one as
an example is something that I had the lot sizes,
but now is time now that the engineers are working
on the civil improvement plans and the trains
left the station, so to speak. I have to start
conceptualizing the homes that are going to go
there because that's another three to four months
worth of architectural and engineering that I
want to overlap with the engineering of the actual
parcel and the site work so that I can have my
homes in for permitting when I'm doing all the
road, the curb, the gutter, the walls, the grading.
So that when all that's done, I have a permit
for the house. So it's actually sooner than you
might think in the process. It's more upstream
than you would think. Many people might think,
oh, the developer just graded all these lots
and the roads been built and the curb and gutters.
And now they're probably starting to think about
it. And now they're probably starting to think
about homes they put there. By the time they're
at that point, they better have their homes and
permitting if not permitted because you want
to get going. The cost of money is just astronomical.
It's around 1 % a month. So if you're borrowing
$2 million on that project, It's costing you
$20 ,000 a month to sit on it. So you want to
overlap as much of your time as possible. So
you minimize that downtime. You have to go through
engineering. You have to go through the civil
improvement process. You have to go through public
works and you have to go through actually developing
it. You might as well. You have to go through
that anyway. So you're paying carrying costs
on that as it is, you might as well get all your
engineering and architectural work done at the
same time so that you can be ready to go. So
that being said, you're doing this pretty upstream,
right? You're, you're, you're year before you're
breaking ground even on the site development
on the site work your year and you're trying
to conceptualize the plans so that's where i'm
at on this particular project and then i have
another project that's even farther upstream
because that one is kind of in the same area
has a lot of the same objections is hemmed in
by two existing neighborhoods one more high -end
and then one You know, I don't see lowering because
it's still really desirable area, but it's below
its production It's below the median sales price
that right neighborhood So we've got those two
things kind of working either fit with us or
against us And then I also have to figure out
how I want to lay that out because I have to
go to the city either way for a zoning change
So do I maximize it? It'll only hold about 11
to 12. I could probably hold 19 total It'd be
a lot of site work, but practically it can hold
probably up to 12 And if I did a custom, it could
be down to three or four, just luxury infill
homes. So where do I go? So I'm going to shoot
for the highest density possible, see if the
city will let me do it, which would be, I don't
want to say highest density possible because
that'd be like around 19 or 20. So I'm going
to shoot for 11, where it's like the most practical,
highest density, that balancing act. And if they'll
give me that kind of density, then we'll have
11 homes approved with that 10 of the map. Then
when I have that kind of clarity, then I can
decide what kind of product is going to go there.
So to get 11 homes are going to be like 35 by
140 foot lots. So it's going to be a narrow home,
about as wide as a garage and a front door. So
you got to get real creative architecturally
on the second floor to make it stand out. And
then you have to pick your spec level to say,
well, that's, I mean, there's some views there
because you're getting farther up the mountain.
When you're at that point, uh, the road is not
as busy. It's about a quarter mile up. So, um,
but it is also a right turn only U -turn. There's
some objections there and you gate it. Do you
not? So the reason I don't mean to dodge your
question, but if you're going to do those things,
if you're going to gate it, if you're going to
make it an 11 home HOA, it's going to have high
HOA fees because it's divided over only 11 homes.
Then you better have a home that's going to carry
that kind of HOA and then you better make it
worth it to have it gated. So you probably need
to maximize your building pads to get 29, 3 ,200
square foot homes, maybe even do a third floor.
Rec room observation deck because there are some
views up there said pump up the square footage.
So those are the decisions that I can't really
get my head around it right now, but I want to
go into that into that price point. You know
what? I want to be at that one, one, two, one,
three. So I'll just have to see if the city says
you can only do seven in the lot while it's become
a lot wider. And they're larger, lower density.
Maybe I can push it to one vibe, but there is
a number where I just, no matter how Even if
I just did one home there, it's still going to
hit some resistance. So there's just kind of
that balancing act and that one is as far upstream
as you can get. It's raw land and I'm working
with the zoning changes as we speak. The engineers,
we're going to have our tentative map by Monday.
Oh, okay. So we'll have that submitted to the
city and then we get comments back about two
weeks later where they'll say, oh, too many homes.
We don't like this. We don't like that. We're
worried about the traffic on Horizon Ridge and
the right turn only. And we're just We have these
reservations. Could you do, could you either
address these things or could you do eight or
could you do seven? And then it'll change. It'll
change what I put there. So those are the, that's
the decision making. So I already risk on your
part. You're just making decisions that had,
like you said, upstream so far upstream from
where the boats will actually float. Right. You're
really making decisions. Right. Guessing that
you've been any times and they're educated guesses.
You've done it enough times. I have to know but
there's still some uncertainty in it and a risk.
It's a lot of uncertainty and we're talking on
the one we just mentioned. Now we're talking
some of those cells might the last four or five
might easily be in 27 could easily be summer
of 27. I'm not going to build all 11 at once.
I will flood the market. So yeah, I might deliver
some in 26 even that's really aggressive. Depending
depending how much infrastructure there is and
how much land moving you have to do in order
to make the lots accommodate what you're talking
about. It's a lot. It could be. It's time consuming.
If you want to know how time consuming, you can
go back to our codes episode. I know everyone's
chomping at the bed to go to that codes episode.
We also talked a lot about the timeline. We did.
Not the bill to sue primarily, but on the timelines
in general. It is. And our subdivisions episode
as well, we talked about how long it takes to
get through a tentative map and entitlements
and zoning changes and civil improvement plans
and public works and department of transportation.
And thankfully these aren't affected by that.
It's a city road, not a state road, but there's
always something, there's always some weird thing
that has a hillside overlay most likely. we'll
see, which requires a lot more studies. We'll
have to 3D map the slope. We'll have to say how
many dead sage brushes we're removing and how
many desert hairs we're removing and desert tortoises
and scorpions and beetles might be displaced.
Yeah. Yeah. So there's going to be, it's a developing
story. About a six month timeline for that hillside
overlay. Yeah. You can do other things during
that time. So yeah, it's yeah. But more or less
by the time you're through it all, by the time
you do the 3D mapping and send it through and
do all those studies. And it's probably, I don't
know, in the order of around $50 ,000 worth of
additional engineering and surveys and statements
and legal fees. And it's usually advised to get
a lawyer through those things, not in that adversarial
position, but just to have a lawyer on your side,
working you through it. Those are Those are the
factors that affect the product and it's not
that simple. It's not just oh, I've got this
50 by 100 lot I think I'll put a 2 ,000 square
foot home here and call it a day, right? And
it's interesting because again, you know, it's
kind of a pullback on the curtain now we're seeing
some of those decisions that are made in advance
and You know drive around town and you see the
outcropping of homes pop up and you're like,
oh that must have just started but to think about
all of the time and it you know Right hours of
thought in process and policy and all of those
things and then like you're saying sort of a
strategic pieces that you know if it were. pure
homes. These will be the ramifications if you
build a little bit larger homes these so all
those pieces that go into it and all the brains
and thoughts that have gone into it before it
ever even starts to look like it could be a salt
parcel. So it's interesting. Yeah, thanks for
for the behind the scenes look. These are the
kind of things that we hope to hear about and
look forward to hearing more of them from you.
Thanks to you guys for joining us on another
episode of Trust the Process Podcast, and we
will look forward to seeing you again next time.
Thanks. Bye -bye. Thanks for tuning into the
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