Foundations of Home Construction Revealed by Contractor Israel Sanders

[00:00:07.850] - Chris Griffin
Welcome to Back to Your Roots, a podcast that provides insight into all things farming, financing, and farm life, guiding you back to your roots. Thanks for joining us today on Back to your Roots. I'm your host, Chris Griffin.

[00:00:20.980] - Jordan Turnage
Hey, guys, I'm Jordan Turnage. As always, thanks for listening. Spring has sprung, and where I'm used to thinking about our farmers and getting ready for planting season, our guests and others are thinking about home construction. And so today we have a general contractor, Mr. Israel Sanders, owner of IS Custom Homes with us. Mr. Israel, thank you so much for coming in. I appreciate you coming out.

[00:00:43.080] - Israel Sanders
What an honor it is to be with you guys today and be able to share a little bit about the construction industry and look forward to it. Thank you for asking us to be here today and be part of this podcast.

[00:00:53.940] - Jordan Turnage
Absolutely. Just give us a feel for what you do in your industry and give us a little bit of a background history on yourself and your business.

[00:01:03.530] - Israel Sanders
Yes, sir. This is my 24th year in business, and so I come straight out of high school into the construction industry. My father was in the construction industry, so come by it natural. But got into the construction industry and started small. I tell people all the time in introductory that build a dog house was my cup of tea. I didn't care what it was. We would do whatever, especially in the early part of business. Then about four to five years into it, we began to develop into the custom homes. Never forget, my first home was in Leadbetter, Kentucky, and I scared to death that I couldn't fulfill the obligations of a custom home. But the process went great. Since then, that's all we've done, custom homes, residential. We do some commercial work. Most of ours is residential construction and all custom. We build start to finish general contract and do custom homes.

[00:01:58.530] - Jordan Turnage
Where's your headquarters and your service area?

[00:02:02.250] - Israel Sanders
We cover all of the surrounding counties. My base is in Salem, Kentucky. That's where my shop is. I guess you'd say offices is in Salem. But we cover, man, we've built Livingston, Crittenden and Lyon, Marshall, McCracken, and we build all of the surrounding areas and counties. I try because I stay so busy. We try to stay in a roughly 50, 60-mile radius. Especially in our custom homes, we stay in that radius just to make it a little more convenient being able to be at jobs daily, keep up with the responsibilities daily of each project that's going. That's our surrounding community, if you may say, in construction.

[00:02:41.440] - Chris Griffin
I know I've been in home lending since 2020, so I jumped right in during the pandemic and everything else, which obviously rates were super low.

[00:02:51.910] - Jordan Turnage
Yeah, that was fun times.

[00:02:52.570] - Chris Griffin
The times were a lot different. I know you said you've been in it for, you said 24 years.

[00:02:56.940] - Israel Sanders
24 years.

[00:02:57.900] - Chris Griffin
You've seen a lot of different changes and a lot different seasons. But the last couple of years, things have been different. The rates have been higher. What are some things that you've seen the last couple of years with inflation, with increase in input costs and things like that? How have you handled that with those customers?

[00:03:13.910] - Israel Sanders
Most of that in the customer base, those that are coming into building, so I'm going to use one homeowner for an example, that we had a conversation during COVID. Rates were going crazy. Cost of materials were going up. The whole scope of the project you just could not budget or balance it hardly because you didn't know day to day what was available and what prices were available. But this homeowner, we were in conversation and they said, Look, I know these are the rates. I know this is going to be the price. I want to build my retirement home and I'm ready to do it now, so that doesn't scare me at all. So they jump right into it. Again, I try with all of my home-based customers that we're working for to let them know this is a vulnerable market. Here's the high number, here's the average number, and here's the bottom number. So if we're coming in on the bottom number today, here's where our cost is going to be to have this home finish. But again, we're looking at a 9-12 month build time that could change in cost of materials, cost of rates.

[00:04:19.650] - Israel Sanders
You guys know the lending side of it, but cost of material side, we could change drastically. So they have to understand, here's the low, here's the high. Your budget At the end of the job could be at this number, but we're shooting for this number on the low side.

[00:04:35.230] - Jordan Turnage
In your quotes, I know in 2020, a lot of guys that I was running into that were looking for my side of things, I was looking at helping to facilitate a poultry operation. The problem that we were running into with materials was the quotes were only good for so long, too, because of the lack of materials. Are we still seeing Are we seeing that? Or are we starting a rebound as far as going in? Currently, now, I feel like everybody and their mama was making he sheds and she sheds in the backyard to get away. I think we're past that right now. But are we seeing materials We try to do what we can with rates, but are we seeing... Is it still an escalating rate or environment that we're having to deal with, or is this an issue?

[00:05:27.490] - Israel Sanders
Let me explain it this way. COVID, everything shot up. Market, building material prices went through the roof. We were seeing, sometimes in certain things, 150 to 70% increase in numbers. You take one material costing $30 a sheet for OSB, now it's went to $70, $80, $90. It was like, Where does this stop? Building construction material, the lumber and that side of it, the lumber, the windows, the vinyl, even the roofing, all of those things have come back down. If I'm sitting in front of a homeowner right now talking, this is how I tell them. I'm like, Look, COVID went here, and I established a level, and here was pre-COVID numbers. Now, we've come down not quite to a pre-COVID number, but we've come pretty close to it on those building materials. But areas that never changed of those high COVID numbers are electrical, heating and air, plumbing supplies, I mean, piping, wire, those things. It's like they found out they could get that number in the market, so they ain't moving that number.

[00:06:42.440] - Chris Griffin
I have a good friend of mine who's an electrician, works for an electrical company here in town, and he was telling us some things as far as just input prices on those and how much that has changed over the last three or four years. Then I see it when I'm dealing with borrowers, I think the lack of skilled labor, like your HVAC techs, your plumbers, your electricians. That's a whole other topic. I was at a chamber event the other day and just talking about trying to have people, more high school grads, get into vocational, highly skilled trades because there is a lack and a shortage. Well, just like anything else, supply and demand, when there's a shortage, they're like, hey, if I'm your only option, then I can charge more. That's what we've seen. Even my wife and I just did some work at our house and needed some masonry work done. You can't hardly find anybody to do it. That's skilled to really do that anymore and do a good job. It was a little bit more expensive than what we anticipated. I know you're probably running in that, too, a little bit and go into depth on that.

[00:07:45.170] - Israel Sanders
Yeah, we've been very fortunate. I've got some of my subcontractors have been with me more than 10 years, and I've stayed the same with these guys in my subs because I trust them. A lot of my subs, they work for a handful of contractors, and that's it. They won't take any more outside work. But what you just said is the labor market is just unbelievable right now. We can't get it. Those that you do hire, I tell people all the time, can we pass a drug test? Will you show up tomorrow? You hire one day, they work one day, they don't even come back to get their pay. They've done moved on. And construction industry entices, I don't know if that's the correct word, but entices or draws those people in that industry, and I don't know if industry is the word to use, but in that market of, can they pass a drug test? Usually, no. Those people show up, want a job, work two or three days, get a paycheck, don't come back. It's hard.

[00:08:43.970] - Chris Griffin
I know that's going to be extremely difficult on you as a business owner.

[00:08:47.800] - Israel Sanders
And in 24 years, I'm dealing with it more right now, especially since all free money was given out, and we don't have to get into that for sure today. But all these things given out. They can live off the government now. So we're paying for it. Why work for it? Yeah, we're paying for it to be hardworking home builders. We're paying for it. So yeah, the market and industry right now is struggling, not just with the cost, but it's the labor demand.

[00:09:18.770] - Chris Griffin
So this is actually a great topic, and it's not on our list, but I get a lot of construction loans where people want to be there. I don't love them, but we offer them. They want to self-build or they want to be their own general contractor because they think they're going to save money, they think they're going to save time. My go-to with the borrower and the customer is always, hey, listen, if you're your own general contractor, when you call these subs, your HVAC companies, your plumbers, and all these different things. If they're going to prioritize who they're going to go to first, they're going to use you, like the contractor that they've had a relationship with for 24 years. All day long. They're going to prioritize their job first. They're coming to your job second. So have as much pull. What ends up happening is, and it's happened multiple times since I've been here, I'm like, man, I really wish I was just tired general contractor. They'll get it done, but it's been a lot more work, a lot more time, a lot more effort than they ever anticipate it. Sometimes just hiring somebody who's done this their entire life, walking through the steps, just like getting alone.

[00:10:18.120] - Chris Griffin
It just makes it easier. I know you've probably seen that some, and it just made sense when you said, hey, I've had these relationships, some of these subs for years. Right. So going to that a little bit and how you keep that relationship, I guess, and maintain that.

[00:10:34.030] - Israel Sanders
We do our best to keep that relationship with those subs. There's several different ways. A, pay your bills. Keep them paid, keep them happy. But not as much there. They know, Okay, let's talk. It's the lending agency, so there comes draw times. We can get into that in a moment. There comes financial side of it. But with these subs, put your parameters up front and you tell them, Hey, look, here's how the pay goes. Here's when you're going to get paid. But then again, just keeping a good relationship, being honest, transparent, having their back on the project, not blaming somebody else on them, making them fix somebody else's mistake. And this is going to go back to what you said, okay, be your own subcontractor. Be your own general, if you may say, and build it yourself. You can do it. But not only are you going to get pushed out, but I don't know how many jobs in 24 years I've went into and got a call from a homeowner, hey, we're in a mess. I've got lending on this project. It's delayed. It's going longer. The list goes on of all the things that they bring to me.

[00:11:38.950] - Israel Sanders
Then we get to that point and we show up, and I look around, and the HVAC guys haven't done their job completely, so they're blaming it on the framers. And it just all the trades.

[00:11:50.520] - Jordan Turnage
It's a domino effect.

[00:11:51.370] - Israel Sanders
Yeah, it's a domino effect. So now the homeowner brings in a contractor to...

[00:11:56.230] - Chris Griffin
Clean up the mess.

[00:11:57.010] - Jordan Turnage
Bail them out.

[00:11:57.010] - Israel Sanders
In the back of the house.

[00:11:59.020] - Israel Sanders
They're paying my general contracting fee for me to bail them out and do all these guys work, which if they would have known what to hold their feet to the fire on, it would have been done.

[00:12:08.180] - Chris Griffin
Because I feel like there's so many moving parts there. You understand, you've had enough experience that you know, Okay, this is who needs to come in first, this is who needs to come in second. Hey, once that's done, then, hey, this person that was in first needs to come in and finish this. I feel like the few jobs... I inherited a few loans when I first got here. They were not mine, midstream. There were a few that... There was one that was a bit of a mess, and it It was that deal. It was all over the place. It does. I didn't really do a lot of construction loans at the previous place, but I try to hopefully lay that out for the borrowers. I've had a few people that are like, I want to be my own general contractor. Then after talking for two weeks, you're like, I think I'm just going to meet with a contractor. It makes me feel so much better because it's just a little more reassurance for us as the lender.

[00:12:54.680] - Israel Sanders
On that note there, a lot of times we'll go into a house and a homeowner has had a a family friend or a long-time friend that's been an electrician or a trade that is in on the project. They've been like, Hey, man, can I use this person? Do you mind? I mean, we've been together. They're going to save me money. I always say, We'll see if they'll save you money. Yes. When we get to the electrical, when we get to the plumbing...

[00:13:20.060] - Chris Griffin
Let's see what our electrical bid is.

[00:13:21.930] - Israel Sanders
Let them submit a bid just like my guy submits a bid, then I'll let you use them. But that's your friend. I'll hold the ground on making sure the job's done correctly, but if there's delays, if they got to go on vacation, this goes back to you. Usually, they just go my route.

[00:13:42.520] - Jordan Turnage
Help me help you.

[00:13:43.620] - Israel Sanders
That's right.

[00:13:45.440] - Israel Sanders
Yes.

[00:13:46.560] - Jordan Turnage
In the business, we hear a lot about there's two different kinds of bids. There's turnkey and cost plus. Are your bids turnkey or cost plus, usually? What's best, would you say, for borrowers when shopping for a contractor?

[00:14:01.370] - Israel Sanders
So we do both. On the financial side of the home construction, I'll come in and tell people I can do it three different ways, really. First of all, turnkey, locking key. Here's your balances, here's your budgets. You got to stay within these parameters of budgets to bring it to this final number. So when we do a turnkey, start to finish. I start on the lot, we clear the lot, and when we're done, we hand you the key. With that, sometimes that's great. Sometimes people don't like that, so we'll go to a cost plus. Even in a cost plus project, I still give them a budget number. So we'll go and create a budget for that entire project, with all of these being the budget balances. Everything's coming in hopefully on the project at this number. Then I become, as a general contractor, a percentage fee of the balance. So we bill once a month or however the billing is worked out through the lending agency or the homeowner. We I come in and I like to bill once a month. So by the end of the month, we bill. Within the first 10 days of the month we get paid.

[00:15:06.310] - Israel Sanders
The bottom line of that is I pass through all savings of the project, but they see an expense spreadsheet report every month of what that project is costing. At the bottom of that is a percentage for my company, me being the general contractor. So it can be both ways. We've done it multiple times both ways in 24 years. Most people feel comfortable with the turnkey, cost-cut-dry number. Where you get into people wanting to do cost plus is, I've got a friend that owns a lumber yard or owns this supply company, and he told me he can save me a bunch of money, so they'll turn to the cost plus on that side to try to save some money. I don't really care.

[00:15:50.010] - Jordan Turnage
So you can hybrid.

[00:15:51.460] - Israel Sanders
Yeah, it's a hybrid.

[00:15:53.200] - Jordan Turnage
It's a moving target.

[00:15:54.940] - Israel Sanders
It varies with homeowners. When we sit down and lay out the logistics Steek's got a couple of houses going right now that are... Some either way, both ways. I've had homeowners say, Well, do you have a list of referrals? Absolutely. On those referrals, I tell them which customers were cost plus, which customers were turnkey, so that when they're talking to them, they can communicate how that project go, those things.

[00:16:21.240] - Chris Griffin
Well, and I guess, so we do secondary market home loans, which is a construction of perm with AgFirst, and then we do in house. And I would... AgFirst requires a turnkey bid. You have to have a turnkey bid. And I don't know if you've done any with the AgFirst, but it's a little bit different. And they actually have a draw schedule. The contractor agrees to that. And really on the AgFirst side, when we do that loan, it's really more of us dealing with the contract directly. We're still doing the loan for the borrower. We've got a really clear line of communication with the contractor. And at that point, you call me and say, I need for draws Well, two, this is done. We send the inspector out, they look at it, they send us back, we send a form to the borrower, they sign it, and then we cut you a check. That's right. On the in-house, we don't have to have the turnkey. Looking back now, I think a lot of the bids I've had have been a cost plus. There'll be a contractor percentage fee at the end, like 10, 15, 20%, whatever that is.

[00:17:19.850] - Chris Griffin
But I don't have a draw schedule. So typically, I'm just dealing with the borrower directly. I'll have guys that send me. I might cut a check today for 2,000 and then tomorrow for 10. I wish they would send it all together, but some of them are like that. I guess that's where the biggest difference is, too, on the turn.

[00:17:38.260] - Israel Sanders
Most of ours we've done, especially through River Valley Ag, we've done it both ways. But most of ours that we've done, I set the parameters for the draws on the job. I do that to where there's usually six or seven draws in the whole project. So it minimizes all the check writing.

[00:17:58.040] - Chris Griffin
I will say, you can tell the ones who have done business with us in the past, even on the in-house construction loan. That's right. They will send an actual invoice to the borrower or to the homeowner.

[00:18:07.090] - Israel Sanders
Correct.

[00:18:07.540] - Chris Griffin
Then they will send us that. It's typically ever so often, and it will literally say, draw one, and show what all has been done since that last draw or first draw.

[00:18:15.980] - Israel Sanders
That's right.

[00:18:16.350] - Chris Griffin
And I just cut a check to the borrower. The borrower cuts a check to you, and we move on. It is funny because I haven't done one directly with you, but there's another contractor that's done a bunch of business for us, too. I've got one right now, and it's super clean and easy for for me. The other one, not so much. I feel like I get 15 text every week.

[00:18:34.800] - Israel Sanders
Where's that check for that?

[00:18:35.730] - Chris Griffin
I'm like, I wish they would just wait on a Friday and just send once a week. Sure, my accounting department does not like me very much sometimes. But you can definitely tell that's much easier doing it that way.

[00:18:46.570] - Israel Sanders
I mentioned there when we was talking money, there's three ways to go. There's the cost plus, there's the turnkey, and then the other area that we have done in 24 years, I've probably only done a handful of these, is where we come up with the budget for the project, total amount of the job. Let's just use the number of $400,000. Then I set the percentage of that cost for the general contracting fee. I get that percentage, half of it up front, half of it at the end of the job, and then the homeowner pays all bills. Anything that comes to my company as a bill or as an invoice, we meet on the first five days of the month, they write their own checks. I've probably done half a dozen of those in 24 years. Usually when it's there, most of the time they'll have cash in hand, so they're writing their own checks. They're paying out the people, and they had some people they wanted to use, so they're taking responsibility for that.

[00:19:45.870] - Chris Griffin
I got you.

[00:19:46.340] - Israel Sanders
I don't see that as much, but you do see that on the market. For general contracting, they'll do a percentage of the job.

[00:19:53.540] - Israel Sanders
And that number, usually in residential, should be between 10 and 15 % for a general contracting fee. Commercial, you get up in the 20 % or more.

[00:20:03.570] - Jordan Turnage
Okay.

[00:20:04.490] - Jordan Turnage
What is for buyers that are coming to you to help mitigate as many preliminary questions and make things as smooth as we can? What are some good tips, questions that borrowers should have to bring to you to help you guys open that line of communication between each other, that way things can start off on its best foot?

[00:20:29.660] - Israel Sanders
Yeah, I would say, first of all, as a borrower, they're going to build a new home. We're talking construction today, so we're going to build a new home. They need to know what they're going to build. I don't know how many people have come and be like, Well, we're wanting a three bedroom, two bathroom.

[00:20:47.660] - Chris Griffin
Yeah, I get borrowers. They come to me and they're like, We're going to want to build a house. I'm like, Okay, well, how much? Well, I don't really know. I haven't met with them. I'm like, Well, I would really think you need to meet with a contractor first. I typically like when they met with a contractor first. They have an idea. Then they come to me and say, hey, are we pre-qualified for this amount? Can we even get this loan? Then they work off of that.

[00:21:07.760] - Israel Sanders
If I get a phone call, Chris, let's just use yourself. If you call me tomorrow and be like, hey, I've got me a lot bought. Let's just go, you've already made that step. I've got me a spot to build on the farm. You come to me tomorrow and you say, let's sit down and talk this through. Or you call me on the phone and say, what steps do I take next? The first thing I'm going to do is do a site meeting. I'm going to meet you where you want to build, because I've been out there when it's elevation is like, whoa, you're going to spend $50,000 just to get this buildable. And I'm like, what?

[00:21:39.480] - Chris Griffin
Just your site prep.

[00:21:40.760] - Israel Sanders
I just shot their dreams in the foot right there. But I say, let's meet on the site, and then the first question I ask, Do you have a set of prints? The internet has made this so easy, if I may say. You get on houseplans.com, and you start clicking what you want, how many bedrooms, bath, levels, style. Just get me something so that I can get in the mind frame.

[00:22:03.020] - Chris Griffin
Trust me, my wife is a pipe dream. She's printed off a few ideas of future build for us.

[00:22:10.000] - Jordan Turnage
I hope Wendy didn't miss us. I might have to skip this part of the segment. We will listen to it on the podcast.

[00:22:15.180] - Chris Griffin
While my wife's been pregnant, we've had a lot of printouts. I don't know. I guess that's just part of the pregnancy brian. I'm not really sure.

[00:22:21.120] - Jordan Turnage
I already get the random text from Zillow.

[00:22:23.930] - Chris Griffin
I'm like, we just moved.

[00:22:24.620] - Israel Sanders
Yes.

[00:22:25.310] - Chris Griffin
Literally.

[00:22:25.680] - Israel Sanders
Now we're doing this again?

[00:22:26.630] - Chris Griffin
We just moved. I don't know.

[00:22:28.650] - Israel Sanders
You call me. We talk through that, get a house print, meet on site. Then the next thing I try to do is give you a budget. I try to be within 10 to 15%. Now, that's going to narrow down and go to the details you want inside this house. But, that stops people right there if they say, Oh, we were hoping for 200, and we're 400. It saves everybody's day. And then we start with going back to, do you have a lending agency? Who are you going through? That's the next step. Do you have the money to do this? How much do you have to get started? Because here's what I got to have. So that's as a borrower. You got to have a house print, you got to have property, and then you got to have the money to build.

[00:23:16.530] - Chris Griffin
Well, because that's where I'll run into it. I'll get a borrower. If you listen to what you're saying, this isn't something that would just happen in two days.

[00:23:24.500] - Israel Sanders
That's right.

[00:23:24.980] - Chris Griffin
You've got to set up a time to meet them at the property because you're doing your due diligence. You're at the property, then, hey, do you have plans? What's the house going to look like? Okay, now I got to run numbers. What about the fixtures? What level of fixtures are you going to use? What level of flooring are you going to buy? All these different things. It's not something that you're going to be like, Yeah, I can just whip that up in two days. I tell people, I'm like, they have other jobs going, too. They also want to do their due diligence and make sure they get you an accurate bid. I was like, It may take a couple of weeks or three weeks or whatever to get that back. I run in that a lot because both of our construction loans, typically Most borrowers already have a piece of property that they own. But there are times they can do the construction loan and buy the lot in one deal.

[00:24:07.380] - Chris Griffin
Well, they find this lot, other people bidding on it. Then I'm like, well, you got to roll the dice. I'm like, either, hey, just buy the lot and then figure it out, or you're going to have to get with somebody.

[00:24:20.040] - Jordan Turnage
Totally agree.

[00:24:20.670] - Chris Griffin
It's like they always put the cart before the horse, I feel like, on some of that, especially on building and get a little bit too far in front of them. That's great advice. I didn't realize even I wouldn't even think about you meeting them at the site, site prep. Is there any grading needs to be done, things like that, just to get the site buildable.

[00:24:37.080] - Israel Sanders
We've been to houses that you get out there and they got $20,000 in clearing. We want our house through this I mean, back here on this hillside. It's wonderful. It's your dream.

[00:24:49.130] - Chris Griffin
Yes.

[00:24:49.270] - Israel Sanders
But there's a lot of stuff we have to do. We got to take trees out.

[00:24:52.780] - Jordan Turnage
Dreams in, where money begins.

[00:24:53.990] - Israel Sanders
Yes.

[00:24:54.590] - Israel Sanders
We got to build a road. We got to get utilities back to it. So when I show up, I know all that. They're just thinking, house done sitting on this hill back behind the trees.

[00:25:04.500] - Chris Griffin
You say that when we get to the self-builds and then being there on general contract, there are things that they do not think about at all.

[00:25:12.550] - Israel Sanders
That's right.

[00:25:13.100] - Chris Griffin
One of those is I'll ask, I'll say, well, hey, are utilities... Well, I didn't think about that.

[00:25:18.000] - Israel Sanders
That's right.

[00:25:18.610] - Chris Griffin
I'll say, Is your driveway going to be gravel, concrete, or asphalt? I don't know. Now I'm like, are you going to pay for landscaping? Are you going to put solid?

[00:25:28.960] - Jordan Turnage
Sprinkler system.

[00:25:29.540] - Chris Griffin
Things that they don't think about. Not that it's necessary, but I'm like, hey, are you going to include landscaping into your bid? Or are you going to just do this later down the road? They're like, Oh, my gosh, I didn't really know.

[00:25:41.420] - Israel Sanders
The other thing that people never think of, you're going, okay, I want a basement. okay, great. Does your elevation lay for a basement?

[00:25:48.210] - Chris Griffin
That's awesome. But have you thought about?

[00:25:49.950] - Israel Sanders
You can't just stick the hole in the ground. You can, but you're going to have problems. Or you go out to the site and you meet them, and when you show up there, you look around and elevation-wise, you see boulder rocks sticking out of the ground everywhere. You're like, it ain't going to work. I mean, we can do it.

[00:26:03.900] - Chris Griffin
We can do it for the right amount of money.

[00:26:08.400] - Israel Sanders
I've had those jobs where you have 10, 15,000 just a rental jackhammer, trackhoe, they're like, well, where did that expense come from? I told you there's rock under that ground, and I don't know how much until we get down there. So all those are things that you just, as a contractor, when you show up, you're thinking about it.

[00:26:27.350] - Chris Griffin
And your 24 years of experience, right?

[00:26:29.460] - Israel Sanders
Yes.

[00:26:29.950] - Chris Griffin
But then somebody who wants to build a house by themselves. I'm not saying you can't. We still do those. It's a self-build. We do them. But you have a lot of experience, and you can tell it definitely makes a difference.

[00:26:39.370] - Jordan Turnage
I feel like one elephant in the room we haven't really addressed yet is, what's the average cost to construct per square foot for an average home?

[00:26:48.240] - Chris Griffin
I know that's a loaded question.

[00:26:50.070] - Israel Sanders
It really is a loaded question. I get asked that a lot when you go to meet people, especially phone calls. That sometimes makes or breaks the deal. Here's how I respond always. You can build from $180 a square foot to 300 right now. And now that number can keep going. Here's how I explain it. We build and have in our industry, in my business, my company, what I would say on a scale of one to 10, 10 being the most elaborate house that's on the market. So we're at a 10 as being the peak. I mean, it's dolled out in crown molding, custom cabinets, the list goes on. I tell everybody, I will not build anything less than a five. I just don't build there. That's not my industry. All our custom homes is a five plus. So when I give you a number of 180 to 200 to start, that's a five to six.

[00:27:48.580] - Chris Griffin
Okay.

[00:27:49.220] - Chris Griffin
Well, that's good to know.

[00:27:50.670] - Israel Sanders
That's a five to six number of... You don't have crown molding. You've got no step tray ceilings, flat ceilings, modern ranch-style home, not a lot of cut-up roof system, your typical vinyl siding, maybe a some stone or brick foundation. Obviously, that's not a basement. That's how that number gets built. And then you can go up to three-quarter pre-finished hardwood, custom all-handmade cabinets, tile and walk in showers. Now my number is climbing 8 and 9. Now I've moved up to 280 to 300. And that number is so vulnerable because I've got to sit down with the homeowner, and I do. Once they have a set of prints, I'm sitting down and writing, what are you doing in this master bathroom? What's on the floor? What do you want in the walk-in shower? What do you want here? The list goes on so that when I give them that turnkey number, if I missed it, it's my fault. But if I don't, here's your number, here's the reality of what you asked for. I tell people, dream big. Come to me with those dreams. Then if that number is over budget, let's start scaling that back.

[00:29:00.720] - Israel Sanders
What can be done later? What can be done after the house is done in five years?

[00:29:05.850] - Chris Griffin
Well, that's what I think that because there's actually a house across the street from ours that's being built, and we were talking to the homeowners, and there's things like they couldn't factor in a fence. But those are things right now, it just wasn't the budget. But it's not a deal breaker. They can live in the house without a fence in the backyard. That's something they'll deal with later. But those are also things that if it works in the budget and you can get it done at one time with the people who are already there, sometimes it's less expensive because the brick people are already there or whoever that is.

[00:29:34.460] - Jordan Turnage
More bang for your buck.

[00:29:35.850] - Chris Griffin
Yeah, there's just- You do. There's things there that... The slightest change. Yes. Let's talk about that for a second. Because I know that's got to be a headache for you.

[00:29:47.190] - Israel Sanders
That's a big subject.

[00:29:47.910] - Chris Griffin
So the change orders.

[00:29:50.910] - Israel Sanders
That's where I get into it. That's where our conversation comes alive with homeowners, because when we're looking at, go back It's a cost plus fixed bid. If I do a fixed bid, my contract is about six pages long or more, and it's going to break down every room in the house. It's going to break down what they want in that room, and it's going to be on paper what they signed off on. So they come in and be like, well, man, I went to this friend's house that was building this week, and I love the trim they had. And I'm like, great.

[00:30:24.760] - Chris Griffin
That's great.

[00:30:25.130] - Israel Sanders
I try to be realistic. And here's how I tell most of my homeowners, if it It doesn't cost me, it's not going to cost you. So if we get this change order early on, and all I do is change paper, it's no big deal. But if my framer's done and you want to come and large your bathroom, and So many people get really taken advantage right here because the contractor's got so many projects going. So he comes in, he's like, Absolutely, $20,000. And you're stuck. Or $10,000 to do a $3,000 more change because he's aggravated because there's so many changes.

[00:31:03.590] - Israel Sanders
There comes a point I get there, too.

[00:31:05.370] - Chris Griffin
I don't doubt it.

[00:31:06.250] - Israel Sanders
Guys, I got to get this house built. I got a limited amount of time. And every time I meet you, something's getting changed. Cost plus, more money, more percentage. We'll go there. But it happens so often, and especially in the change order side. And the key is people may get tired of it. It don't really matter to me. I get a signed document and a change order every time.

[00:31:29.530] - Chris Griffin
Yeah, and that's...

[00:31:30.150] - Israel Sanders
My backup.

[00:31:31.360] - Chris Griffin
When we had Julie on here, we were talking about that because that's probably our biggest frustration, too, especially on the in-house. The AgFirst is a little bit different because it's got specific draw schedules. We're doing an inspection every single time. But if you go from luxury vinyl to hardwood floors, it's a lot more. If you change that midstream, we've qualified you. Let's say you're at your max loan-to-value, you're at your max debt to income, whatever. You're like, Hey, I'm in. I'm like, Well, I don't know what we're... It puts us in a bind.

[00:32:06.680] - Jordan Turnage
Yes, sir.

[00:32:07.080] - Chris Griffin
I just always tell them just clear communication with us. Typically, if we have a good relationship with a contractor, they're letting us know those things.

[00:32:15.920] - Israel Sanders
That's right.

[00:32:16.240] - Chris Griffin
Because they know at the end of the day, that's where the money is coming from for them to get paid, too.

[00:32:20.110] - Jordan Turnage
Yes, sir.

[00:32:20.640] - Chris Griffin
The hardest ones are the ones at the end, and they're like, Oh, my gosh, we've done this, this, and this. I'm like, When did this happen? Maybe the contractor didn't tell us. We're between a rock and a hard place. A lot of times, I have to get pretty creative to get something done.

[00:32:33.500] - Chris Griffin
But that's great advice. The change orders, I know it's a headache. I know it's a headache for you.

[00:32:38.750] - Israel Sanders
You can look at the end of the job and you can easily gain 10 to 15% change orders or way more. Oh, yeah. That's the nice thing. It's been very awesome working with River Valley Ag because anytime I do a change order, so any of my communication with the homeowner or business side, automatically goes to that lending aid person. So whoever the loan agent is, They're in my communication link with that homeowner. If it has to do with the monthly draw- And that's great. If it has to do with the change order, that way you go back to that homeowner. Not only am I going back and saying, hey, you got $10,000 here. You're saying, as the loan people, where are you going to come up with that? We're already...

[00:33:17.860] - Chris Griffin
We're maxed. Where are we coming up with that money?

[00:33:19.840] - Israel Sanders
It's got to come from somewhere.

[00:33:20.720] - Chris Griffin
I'll just take it off this tree I have over here.

[00:33:22.710] - Israel Sanders
I'd rather you guys say, hold on, let me talk to this borrower and and talk this through, and then you say, hey, we're good to go, or we're going to stick with what the contract said.

[00:33:35.580] - Chris Griffin
Yeah, for sure.

[00:33:36.210] - Jordan Turnage
So transparency and communication has got to be paramount in this, just like in everything. So to wrap things up. So for you, with our listeners on this, what are some... I know we talked about earlier, but just wrap things up, getting maybe reiterated again. What are the best tips that you could give our listeners that are looking about to build a home?

[00:33:56.770] - Israel Sanders
I would say some of the best tips is stay within your budget, know what you can afford to build.

[00:34:02.440] - Jordan Turnage
Be realistic.

[00:34:03.420] - Israel Sanders
Let's all dream big. You have time and place for that. But realistic, I can afford... Let me just... I can afford 300,000. I can afford 500,000. Stay within your budget, because I tell people in custom home building, I'm building your dream, and I want it to be your dream. So if we start off on the wrong foot of, I want to be in it for 500, and I get your dream at 800. I've crushed their dreams, and they got to figure out how to pay for it. I mean, it's not good. So one would be stay in your budget. Stay there. Lock into it, settle mentally that this is where I can afford to build, and this is where I want to stay. And so that is a big factor to me. The other is trust your contractor. When you hire a man, trust that man. Do your due diligence to make sure you know him and you trust him. There's people I come in contact with. I meet for the first time, and first impressions are lasting impressions. But I don't just lean on that. I hand them a list of referrals, and I'm like, here's people I've built for within the last certain amount of time.

[00:35:12.620] - Israel Sanders
And then third is, a biggie is make sure your contractor is insured. This is your future. Guys, this is your future.

[00:35:21.830] - Jordan Turnage
We laugh but I mean, yeah.

[00:35:23.350] - Israel Sanders
It's real. We are in a sue society. I'd say this is the generation's lottery, is a lawsuit. So I'm going to give you just a quick example of this. If you hire a contractor that does not have, and I say an active workers comp and liability policy. When I say active, you get a proof from them before you ever sign a piece of paper, you call that company to make sure they didn't buy it in January, cancel it in January. So they have a year active showing on a paper. It's out there. But make sure it's active. They got a good standing with them. And then when you do lock in or engage in that contract, do your due diligence and call these referrals, just one or two people, and say, ask them questions. How were they to work with? How were they able to finish the job? How were they starting the job?

[00:36:15.070] - Jordan Turnage
You can't put a price on that.

[00:36:16.640] - Israel Sanders
You can't.

[00:36:17.290] - Chris Griffin
Well, the insurance people don't realize that-It's a big ripple effect. If somebody comes to your house and is doing work for you, I mean, legitimately, they're not insured, it's really on you. They could sue you. If it's on your property, you're doing work for them.

[00:36:30.220] - Israel Sanders
If you hired me today, Chris, to go to your house and do your work, we signed a legit contract. You said, I need a proof of workers comp and liability. I give you a proof that shows 2024.

[00:36:43.190] - Chris Griffin
But you canceled it the day.

[00:36:44.950] - Israel Sanders
That's it. But I canceled it. And my siding guys falls off the ladder and hits the ground and has a permanent injury. He goes and hires a lawyer. They come to me.

[00:36:56.530] - Chris Griffin
No.

[00:36:56.950] - Israel Sanders
They go to you.

[00:36:57.920] - Chris Griffin
They're going to knock on my door. I used to work. I worked for everything. I worked for a roofing company as a sales rep and very reputable. But it was something I would ask in my salesperson station. They had other bids. I'm like, What are these people insured? Have you got the insured policy? So, yeah, it definitely is a big deal. And I didn't even think about them canceling.

[00:37:21.990] - Israel Sanders
It happens.

[00:37:22.640] - Chris Griffin
Hey, we've got it, but we've canceled it as of today.

[00:37:25.560] - Israel Sanders
We didn't pay the next month.

[00:37:26.340] - Chris Griffin
We didn't pay the next month. Yeah, so I don't have to pay that anymore. That's great I didn't even think about that.

[00:37:33.520] - Jordan Turnage
That's wild. But Mr. Israel Sanders, thank you so much for coming in here today. We've learned a ton. I know I have. It's been fun to sit and listen to this side of things. I don't get to play in this yard as much, but it's fun to hear it. And we thank you so much as always, guys, for listening to the Back to Your Roots podcast. For Chris, I'm Jordan. Thanks for listening.

[00:37:56.670] - Chris Griffin
Thanks for tuning in to Back to your Roots, where we dish the dirt on all things ag. Be sure to never miss an episode by following and subscribing. While there, leave us a review about what you want to hear next. Stay in the know between episodes by following us on Facebook, Instagram, Twitter, LinkedIn, and TikTok. For more resources, go to our website at rivervalleyagcredit.com.