It’s a good time to seek price breaks

Friday, Oct. 6, 2006 | 7:41 a.m.

The housing market slowdown has prompted builders to seek price cuts from contractors in a bid to make new homes more affordable.

By asking favorite contractors to charge less, or seeking bids from an expanded pool of contractors, builders hope to reduce costs by more than 10 percent. Contractors are playing ball because the alternative for them may mean no work.

Builders are specifically trying to take advantage of a drop in lumber prices, which have fallen 6 percent in the last 12 months because of a slowdown in new-home construction, said Ken Simonson, a chief economist of the Associated General Contractors of America.

With new-home closings falling four of the last five months in the valley, builders have cut back dramatically on home construction. During the last four months, new-home permits have fallen between 30 percent and 48 percent per month from 2005.

The work slowdown has put homebuilders in a better bargaining position, said Dennis Smith, the president of Home Builders Research, a local housing analyst. Contractors don't want to lay off workers, and builders are taking advantage of their negotiating strength.

Mandi Lindsey, executive director of the Framing Contractors Association, said her members have gotten the message.

"Some of the builders have asked and others said there is not a choice if you want to keep working on the project," Lindsey said. "They realize that the market is slowing and it is going to get worse before it gets better, and they have to adjust. I am sure they are not happy about it but they don't think it is unreasonable given the fact what is going on, and they want to continue to work."

In the current slowdown, KB Home has solicited price breaks of between 4 percent and 15 percent, said Don DelGiorno, president of KB's Las Vegas division. "We have some breathing room now and we are stepping back and getting back to basics, which is to watch how we spend our dollars and be more efficient," DelGiorno said. "And I think it will start bringing down some of the cost of houses as we get acclimated. I think in this town, more affordable housing is driving the issue. There are so many resales and standing inventory on new homes. We are trying to have less expensive product on the market."

Cutting prices will be difficult for some contractors because their costs continue to increase, said Cindy Creighton, executive director of the Nevada Subcontractors Association. Those willing or able to give price breaks are asking for something in return such as guaranteeing all phases of a project, she said.

Richard Thomas, vice president of Gary Day Construction, a framing contractor, said he realized he needed to lower bid prices when homebuilders started receiving cheaper bids from other contractors. Now his company is lowering its profit margins to stay competitive, he said.

"We can do it to a point because we do have to make a living," Thomas said. "I would rather have it slow and keep more in control and still make a couple of dollars."

This story also appears in today's In Business Las Vegas, a sister publication.