When we asked Daniel Steinkoler about the current business climate, he didn’t pull any punches. “This is the toughest market I’ve seen in 26 years,” said Steinkoler, owner of Superior Home Services, in Washington, D.C. “There’s very little construction money, and I’m working harder and longer to make a profit.”
It’s a common complaint. Although some materials have come down in price and subcontractor quotes are more competitive, overall construction costs haven’t dropped much. But consumers seem to think that remodeling is on sale.
How bad is it? Chris Wright of WrightWorks, a remodeling company in Indianapolis, says that he sees a lot of cutthroat bidding. “I talked with a guy who bid $15,000 on a job and was beat out by a $3,000 bid,” Wright says. That may be an extreme example, but everywhere we looked, remodelers were cutting overhead, charging less, and accepting smaller margins. And most projects have been cut back to just the essentials.
“Most customers are only doing the work they need done,” says Dennis Gehman, of Gehman Construction, in Harleysville, Pa. Like Steinkoler, Gehman’s sales cycles are longer, and while his design/build approach insulates him from competitive bidding, he says that “a lot more people are playing the game of pitting one contractor against the other.”
And these days, more contractors are playing in the game. Michael Strong, of Brothers Strong, in Houston, says that this is the first time since the business launched in 1990 that he has had to do much price negotiating. “We’re competing with Yankee remodelers who have left the Midwest, and storm chasers who moved here from Florida after Hurricane Ike two years ago.”
Mark Beulow, of Distinctive Remodeling Solutions, sees something similar in his Roswell, Ga., market. “We’re getting more competition from new-home builders who have opened remodeling divisions,” Beulow says. The result is project prices that are at least 25% less than a couple of years ago.
But contractors who have adapted their strategies are seeing an uptick. Like most remodelers in the Bay Area, Jim Kabel’s Case Remodeling franchise in San Jose, Calif., has shrunk by almost 40% over the last three years.
To counter pricing pressure, Kabel is working harder to communicate his company’s value proposition, including the fact that his price includes design. “There are clients out there who get it, but they’re harder to find,” Kabel says.
Not long ago, Walter Beebe-Center, of Essex Restoration, in Wilmington, Mass., felt the same way. In the past two years, competition led Beebe-Center to make concessions he never had to before. “In some cases,” he says, “we had to give away design and other preconstruction services that we used to get paid for.” But that seems to be changing. “I’m slammed,” he adds. “The phone started ringing in August and hasn’t let up.”
—Charles Wardell writes about construction issues from Martha’s Vineyard, Mass.