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Why are Building Costs so High?

November 5, 2017 By Tayson Rockefeller Leave a Comment

A couple of years ago I did an article about building costs in Teton Valley. At the time, it seemed like building costs exceeded what the average home sale price was at the time. Well, it seems like we are at that point once again, only building costs are even higher.

So, why are building costs so high? I’ve spoken with several builders and contractors. I’ve also talked with subcontractors. I was hoping I could pinpoint one major area, but unfortunately it is a number of items contributing to today’s building costs.

Labor: This is an obvious place to look when trying to balance your overall project cost. Yes, it is true, this is one of the larger contributing elements, but not to the point that it alone even comes close to the overall cost hike. Why is labor up? The cost of living is up. Home prices, rental prices, even groceries are more expensive than they used to be, even two years ago.

Subcontractors: Subcontractors are one of the main contributors as well. Subcontractors are usually defined as someone who carries out a specific task as part of an overall project. Examples include masons, electricians, plumbers and so forth. General Contractors oversee various Subcontractors who carry out most of the work. If you ask a General Contractor or “General” most of them report that these Subcontractors or “Subs” are price gouging because demand is so high. If you ask a Sub, they will report that labor costs are high and laborers are difficult to find. Personally, I think it’s a combination of both. We know the problem with labor costs and while I don’t think Subcontractors are gouging per se, they are certainly taking advantage of market conditions.

Materials: Materials are being impacted in many different ways. Remember that building materials don’t just include plywood. Industries can affect material costs. The main element in your electrical wiring is copper, which is an industry by itself. Fuel cost can have an impact, as well as regulations on imported goods which is currently having an impact on the overall dynamic. Further, just like high demand for subcontractors, I personally feel that high demand for materials results in higher prices.

In a nutshell, I’ve identified the main elements required for constructing a home. Time, labor, materials. The more complex issue is the number of contributing factors to each major element. Interestingly, it’s all gridlocked between high demand, increasing cost of living resulting in higher labor costs and changing Industries. Each of these major elements has its own set of smaller items that make up the problem. Here in Teton Valley, these elements are compounded by higher than average cost of living, and our remote location which only adds to material costs and lack of availability for contractors. I believe it is these two elements which have the biggest impact for our local market when comparing building costs with other areas, while the National trends such as high demand for builders and increasing material costs create the foundation that supports our local challenges.

So what does all of this mean for our local market? First, home prices are likely going to continue to rise to meet increasing costs of building. Second, we need to keep an eye on our rate of growth so as not to oversupply of the market, which ultimately will happen when comparing where our market is in the cycle of growth, oversupply, recession and recovery. Obviously we are on our way up, and we will likely create an oversupply which will in turn stabilized prices once again. Do I feel we are headed towards 2008 again? Not really. These cycles have been occurring for many years, by far predating the recession 10 years ago. Fortunately interest rates are still extremely low which creates a favorable environment for buyers to invest. 1% over 30 years on a 354k home (the median price in Teton Valley last month) will result in about $56,000 in interest over the life of the loan.

Stucco and Teton Valley

October 13, 2017 By Tayson Rockefeller Leave a Comment

We don’t see a ton of stucco in this area, but have seen it installed in years past. It is also becoming a popular accent material. Also, it is a durable material that rarely needs refinished.

Stucco has, however, had it’s share of troubled times. In the 60’s and 70’s, a stucco system called the Exterior Insulation and Finish System, or EIFS, was introduced. EIFS can be a durable system, which as the name indicates, also offers an additional insualtion layer. Basically a foam board is installed followed by a netting, then stucco. In the late 80’s, lawsuits began to surface due to water intrusion. While little to no siding systems are impereable to moisture, the problem with EIFS then was that it did not allow moisture to escape which created mold and other problems.

Today, EIFS systems and manufacturers have drainage systems which can be installed to prevent problems if moisture becomes present. In addition, most manufactuers require that installers are trained and certified. Repair persons should also be certified by the manufacurer.

In addition to EIFS, traditional stucco is still installed today. Unlike EIFS which is a single layer of stucco (actually synthetic stucco) over the netting and foam board, traditional stucco is a 3 layer system consisting of aggregate, a binder, and water, much like concrete.

With all of the new construction we are seeing today, it is important that if installing stucco, and particularly EIFS, that it is done so by a certified installer. In addition, the certificate should be retained for future buyers as well as future repair or warranty work. It would also be a great idea to have your roofing, siding and decking contractors to have a preliminary meeting with the stucco installer. Any items that meet or cover stucco MUST be property flashed so that water is directed away from, or to proper areas so that the drainage systems mentioned above work properly. If the contractor is not local, you or your general contractor should also review potential problem areas for ice damming. Pay special attention to North facing roof valleys and discuss roof ventilation systems which help prevent ice damming, which is often a result of heat loss.

Will real estate agents become obsolete in the future?

September 5, 2017 By Tayson Rockefeller Leave a Comment

I think there are a couple of important elements associated with this question.

1) the online effect – AKA eBay

2) the for-sale-by-owner effect

3) government regulations

4) convenience

5) local understanding and expertise

6) market trends

Alright – in no particular order:

I’m going to go after local understanding and expertise as well as market trends first. If you have researched this topic online, there are arguments on both sides of the field. Obviously, most real estate agents would argue that their service is needed, and the real estate agent will never become obsolete. If you have a burning hatred for real estate agents (some people do) the information sways the opposite direction. With regards to these two elements, I think there are arguments on both sides of the fence. Starting with market trends, I believe that market trend information is available to those who are not market professionals, it is just a matter of whether that person is able to interpret the information and take the time to research it. With regards to this argument, I think it comes down to whether or not you want to spend the time researching it, or rely on a local professional. As long as it’s someone you can trust, I would personally choose the agent in this regard, but it doesn’t mean everybody should. I personally have better things to do, and frankly don’t have the time to take on any further responsibility or research. Local expertise, however, is something that only exists if you are a local. Presumably, real estate agents our local experts in their local market. I think this can also go both ways. If you are local, you understand local construction methods, background, and history, you might not need an agent for this particular element. If you aren’t local, a good agent is indispensable in this regard.

I touched on convenience a bit with regards to time. Whether it’s something you don’t want to take on because you’re busy making money doing what you do, perhaps you are retired and would rather leave the paperwork to the professional, or maybe you just aren’t experienced and don’t want to take on the liability and responsibility associated with negotiating a real estate transaction, I think there will always be an audience that will work with an agent for these reasons alone. Here again, it doesn’t mean they have to.

Government regulations have always been the “Ace in the Hole” for most arguments I read in favor of the agent never going away. Governments protect consumers with regards to professionals in many ways that you may not realize. For example, an esthetician or hair stylist is required to take the number of education courses to maintain their license to conduct business. Further, they are required to uphold a lifestyle free of unlawful activities, and in many cases they are required to complete ongoing education classes. Real estate licenses are no different, and most governments monitor real estate activities very closely, especially when it comes to protecting the public which is the primary goal. With this comes several requirements including disclosures with regards to agency and real estate itself. Sellers are required (in most cases) to disclose pertinent information about the property being sold, and the agent acts as a liaison to properly communicate this information to any prospective buyer. It’s not just a rubber stamp or signature either. Real estate agents are trained to specifically communicate all elements of real estate to any potential buyer or seller in ways that they can clearly understand, not just signing off on a document that may not be communicated properly. For these reasons, the industry is very intertwined with government regulation, and in many cases they intend to keep it that way. There’s another effect that is closely related to the industry when it comes to other practices historically completed by a professional. Uber and Airbnb are good examples. Trusting some guy with a Honda Civic to take you from Joe’s Seafood Palace to taking your chances on a place to sleep near downtown is a bit different than purchasing a home, but the analogy is still one that comes up frequently.

The last paragraph lends itself to the biggest opportunity for a major shake-up in the industry. That is online retail. This is an area where many sales outlets or even representatives have, or are, becoming obsolete. There are very few things in this world apart from a [new] quality Stihl chainsaw or a Kirby vacuum cleaner that cannot be purchased online. People buy cars and real estate without the help of a professional or even a human online. Online Auctions are a good example. However, While most people are comfortable buying a used camera online and willing to take the risk that the battery isn’t fried, it’s a bit different, again, for most people when comparing the $18.64 camera to the biggest investment of their lives.

So. If you are a savvy investor familiar with local markets and have done your due diligence with regards to local market trends, are comfortable making a major purchase without any human interaction, can find a property of interest of which the owner of said property is not already represented by a professional, is also a local expert familiar with market trends and comfortable selling a property without the assistance of a professional, I would advise the both of you save a few thousand bucks and complete the transaction.

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