Spring Real Estate 2005

Publication Date: Wednesday, July 20, 2005

Building booming again
If homeowners can't buy, they'll remodel

by Kathy Schrenk

When Silicon Valley's boom was in full-swing five years ago, homeowners complained that it was impossible to find a contractor to do home remodels, and hiring a contractor based hundreds of miles away wasn't unheard of.

The remodeling business took a hit when the stock market swooned and the dot-com bubble burst, but it seems the market has swung back into some degree of equilibrium. Some contractors are booked solid for months to come, but most can accommodate homeowners with a little patience and a willingness to do their homework.

In this panelized house in Palo Alto, custom-made panels are attached to a frame.

Steve Farrell, president of Farrell Co. in Los Altos, has found business to be "very strong" in recent months. People are seeing property values go up and are taking their money out of the stock market to invest in real estate, he said, and that includes upgrades.

Right now, lead times are significant -- a year or more is typical, he said. Most people are patient and understand that backlogs exist -- but not all. "I had a struggle with a lady yesterday," Farrell said. "She found it hard to understand that I wasn't able to do it on her time frame."

Others have a hard time finding someone to do a job -- especially small jobs, such as bathroom remodels. Tom McGinley is the executive director of Peninsula Builders exchange in San Carlos, a non-profit agency run by its contractor members that was founded 60 years ago.

"It is really difficult to find someone to do a small job because nobody wants to be in those small jobs that don't make money," McGinley said. The best strategy in that case is to look for a contractor who specializes in the kind of job you want done. Ask around, or call the Builders Exchange for a recommendation, he said. Realtors can be a good source of referrals, as well as other builders.

Carpenter Josh White, center and Gordon Cameron, project manager for State of the Art Construction work on a Palo Alto 'panelized' house.

Many builders specialize or find most of their work in either big or small jobs. Most of the work Farrell does, for instance, is with major remodels. Tear-downs comprise about half of that. But, people are, as always, interested in remodeling their kitchens and bathrooms, he said.

Drew Maran Construction in Palo Alto is also one that specializes in big jobs. It's a matter of efficiency, said president and founder Drew Maran. A bigger job has higher overhead and more extensive management needs, and Maran is set up for that. Small-job contractors aren't. But the process for finding a contractor for a big or small job is the same: Ask around, do your homework and have your project as well thought-out as possible.

Harrell Remodeling in Mountain View is one contractor who does many big and small jobs, said CEO and founder Iris Harrell. The design-build firm has been getting a lot of business from people seeking kitchen and bath remodels as well as family room additions, she said. "There's a lot of activity," she said. "I think business is back."

Harrell increased capacity in 2001 to keep up with demand, so they are only booked out about two weeks for large and small jobs, she said. But business is brisk. "We had a really good 2004," she said. "Most contractors I know had a good 2004."

Kacey Fitzpatrick of Avalon Enterprises in Mountain View agrees. "Business has been picking up over the course of the last year," she said. It's "much better than three years ago," she said. Avalon, a design-build company, is currently booked with design work until summer. "I am talking to new clients now who want to start design by this summer and complete construction in 2006."

Most Avalon customers are doing total home remodels or tear-downs, Fitzpatrick said, adding that the frequency of this type of remodel has trended up considerably in the last five years. She credits the rebounding economy with fueling bigger home remodels. "People are feeling more confident in the economy, and it is clear they want to invest in their home environment," she said.

Experts agree that the market affects prices, and the market is affected by the economy. Contractors are able to bid "more competitively," effectively driving up prices for homeowners, Farrell said. So it's no surprise that prices were slightly depressed during the bubble's burst and are rebounding now.

High-end materials and technology are also driving up costs. Farrell has lots of clients who want to incorporate integrated wiring systems where security systems, sprinklers and other features can be controlled via computer. He calls it "Internet access on steroids."

People more and more -- especially on the Peninsula -- tend to want hardwood floors, granite countertops and maple cabinets, McGinley said. "What people want is generally a higher cost," he said.

Maran agrees, but also notes that costs have stabilized on average across the past several years. A sharp increase in labor costs ended in 2002, he said. But then materials costs shot up, including a doubling in the price of steel a year ago. Those two factors have more-or-less canceled each other out, he said, making prices consistent over the last five years.

One Palo Alto homeowner currently going through a tear-down and rebuild project is Ken Brownlee. When his family of six decided they needed more room than their 1,400-square-foot house provided, he discovered that finding a contractor required some patience, but wasn't impossible. He talked to several contractors before he found the one he felt comfortable with. "Some contractors were quite busy and bid high because they could take it or leave it," he said. "One had a low bid but we didn't get the feeling that he would do a quality job."

Before they found the contractor they ended up using, they sent letters to their neighbors informing them of their plans. One of the neighbors happens to be Rob London, president of State of the Art Builders in Palo Alto. London told Brownlee he was interested in the project, and Brownlee ended up choosing London as his contractor.

Not that London needs to search for work. "We're inundated with work," said London, who's booked for the next six months, but, "nothing like it was in the dot-com boom, by any means," he's quick to add.

So far, Brownlee is pleased with the work. It's going "quite fast," he said. Brownlee has chosen to have a prefabricated home constructed on his lot. A company called Deck House produces the beams, posts and wall sections in its Massachusetts factory. London built a standard foundation and is now completing the framing. "He puts it together sort of like Legos. Everything pretty much clicks into place."

Happy with his experience so far, Brownlee has some advice for people looking to hire a contractor: "If you're a little nervous that someone is giving you a pat answer instead of a thought-out one, trust your gut feeling," he said. "Talk to your neighbors. We heard some great stories and horror stories, so we knew what to look out for."

"It's not that scary," McGinley of the Builders Exchange said. "You hear all these horror stories, but what you don't hear is all the people who say it went well."