TCMC Management & Development

The Modular Advantage in Cost

 

Manufacturers of prefab homes are usually able to build new house plans more affordably than custom stick builders, for the same kinds of reasons that automobile manufacturers are able to build a new car for far less than a mechanic could build the same car in his garage. They include: 

• Volume purchases of materials, which allows modular manufacturers to secure significant discounts

• Lower labor costs: Experienced factory workers are well paid, with good benefits, but they do not command the wages paid to professional carpenters, plumbers, electricians, and painters

• Assembly-line efficiencies: Organizing the construction process with inventory controls, power tools and equipment, and quality-control systems enables the factory crews to produce a home with greater efficiency than a handful of construction workers building in the field

• Less material loss: Inclement weather does not damage the materials

• Less pilferage and vandalism: Factories are easier to secure than building sites

• Less waste: By working with standardized dimensions, modular manufacturers are better able to make optimal use of materials and avoid waste

 

To compare the costs of modular home designs versus site building, you need to make sure you are comparing apples with apples. For a modular house, add the dealer's price for the house to the general contractor's price for finishing the new house plans at the site. In an area with average construction-labor costs, you can expect to save about 5 percent over a comparable site-built house for the part of the house built by the manufacturer and GC. You will not save any money on the other construction work, however, since the GC will charge the same amount to clear the land, drill the well, install a septic system, install a driveway, build a foundation, and a landscape the property, regardless of the type of house being built. He will also charge the same for building a garage, deck, porch and other site-built structures. The construction costs for prefabricated houses are always fixed in advance of construction. Most modular dealers and manufacturers offer guaranteed prices for long periods of time, even in a market of moderately rising material and labor costs. To secure this price lock, the customer needs to authorize their home to be built, sign-off on all plans and specifications, and have their order accepted by the manufacturer. This process greatly reduces the possibility of cost miscalculations and overruns later. Many site builders have a price-escalation clause in their contracts that remains in force until the house is finished. In a typical construction season, prices are unlikely to rise by more than a few percent. But every few years there are some dramatic price increases, usually caused by sudden spikes in demand due to natural disasters or building booms. If material prices were to rise sharply during construction of a stick-built home, the customer might be responsible for a big jump in costs. Many customers save even more money on the construction financing of their modular homes than they save purchasing it. The significantly shorter construction phase required to build a modular home means there are fewer monthly interest payments required to service the loan. Lenders like modular home designs because customers are unlikely to incur large cost overruns, the home will be built on schedule, and the quality is predictable. The construction inspections are also easier to complete for a lender, since a modular home is mostly built at the time of the first inspection. The shorter construction period lessens your exposure to the typical risks that attend construction sites, such as vandalism and the pilferage of construction materials. Vandalism is further curtailed because the modules can be secured more rapidly than a site-built home. The ability to quickly secure the modules also makes it more difficult for someone to steal construction materials. Pilferage is further reduced because of the size of the modules; you cannot walk off with a module in the way you can carry away a few sticks of lumber. And completing the home more quickly reduces your biggest financial risk, that of a personal injury to a contractor working on the job or a neighborhood child playing around the home after hours.

 

Modular Advantage in Planning Discipline 

 

Building a modular home compels the customer and the dealer to complete most, if not all, of the planning steps before beginning construction. That is because the manufacturer cannot begin construction without knowing what it is going to build and how much it is going to charge. This forces the customer and dealer to make final decisions about the home's design and its building specifications. Some customers building a custom stick home complete their planning tasks with the help of an architect, others with the help of a builder. But it is much easier to skip some of these steps when stick building, since to some extent customers and builders can make things up as they go along. These planning steps sometimes get short shrift when stick building because it takes a large investment of time on the part of both the customer and the builder, just as it does when building a modular home. When pressed for time, both parties often prefer to start construction and postpone the meetings and decisions to a later date. Modular dealers would be just as prone to do this if they could get away with it. The planning discipline imposed by modular construction is an advantage for customers, because as most banks will tell you, poor planning almost always leads to cost overruns. For example, customers who do not spend enough time thinking through the design of their home often discover some design flaws once construction has started. One week they notice that the foyer closet is too small, the next week they decide that it is better to make the dining room smaller so the kitchen can be larger, and the following week they realize that the door to the study will be swinging into a bookcase. When they make discoveries like this, they have the choice of accepting the layout as is or asking the builder to make the necessary changes, which might include tearing down the walls he has already built. If they decide to make the changes, all of the additional costs are passed on to the customer through expensive change orders. Another way in which delayed planning can cost a customer money is when "allowances" are used to cover the cost of materials that have not yet been selected, such as cabinets and flooring. This is sometimes done so that construction can be started before every selection has been made. The builder assigns a dollar amount for those items yet to be specified. The allowances are adjusted, often higher, depending on the cost of the customer's final decisions. If you build a modular home, you and your dealer will not have many opportunities to procrastinate on your decisions, and you will not be subject to as many unbudgeted expenses. 

 

Modular Advantage for Do-It-Yourselfers 

 

Many people want to build their own home but are afraid of getting in over their head. This book does not encourage you to take the do-it-yourself route. In fact, it strongly recommends hiring a professional GC with modular experience. If you are going to take the leap, however, modular construction is a much better way to act as your own GC while building your first home than stick building, primarily because there is less work to do and it is more defined and manageable. Also, if you want to complete some of the construction tasks yourself, you are less likely to be overwhelmed by the work because the tasks are more limited in scope. This book will not turn amateur home builders into modular professionals, but it will help you make the right decisions and stay on budget and on schedule.