More builders are diversifying their business to include remodeling, according to recent NAHB survey research of the business activities of the association's membership. 

While an estimated 19% of the association’s building industry professionals were primarily engaged in remodeling in 2008, in a 2010 survey 25% indicated that they were primarily remodelers.

The percentage of members who indicated that remodeling was a primary or secondary business activity rose to 57% in 2010, up from 53% in 2008.

Paul Magleby, chairman of Magleby Companies in Salt Lake City, transitioned into remodeling five years ago because he wanted to expand his business offerings and had a ready market of clientele.

Magleby said many of his home building clients contacted him years after they had settled into their homes asking him to renovate and remodel their homes. So branching out into remodeling made perfect sense, he said. 

Bart Jones, chief financial officer of Merlin Contracting in Las Vegas, said his company also began remodeling the homes of its former buyers but expanded its client base to include the owners of foreclosed and short-sale homes — a large market in the Las Vegas area.

A Different Business

Builders who are now taking on remodeling projects are quickly learning that the business activities and practices they used as builders do not directly transfer to remodeling.

Remodeling requires builders to educate their work crews on working in owner-occupied homes.

For Magleby, the shift meant preparing his staff and subcontractors for a different set of client expectations and educating his work crew on working in owner-occupied homes.

“It’s different than building new,” he said. “You have to be more vigilant dealing with clients and their expectations. You’re in their living space, so they’re watching as you do the work.”

“There’s little room for error,” he added.

Clients generally contact their remodelers almost daily, a change for builders who are used to visits by new-home buyers checking on progress much less frequently.

Jones said his company provides remodeling clients with daily progress reports — including details on the personnel involved and information on any surprises or problems that need to be addressed.

“Communication with the client is extremely important when remodeling,” he said.

Tackling the Unknowns

Both Jones and Magleby had to re-evaluate their billing practices and increase their markups. Remodeling, they said, requires higher overhead costs than typical new construction.

“We charge more because remodeling is substantially more difficult. It’s all about the unknowns — what’s behind the walls and how the house was originally built,” Jones said.

Remodeling also requires additional skills and costs to bring a home into top condition. “Sometimes we have to do more to bring the home up to our standards,” he said.

In addition to the other adjustments, Magleby said he had to beef up his company’s liability insurance policy to cover potential damage to his clients’ valuables and personal possessions.

“It was a learning process for us, and we had to continually adjust not only our business practices but our expectations as well,” said Magleby.

“As more builders look to branch out into remodeling I would highly recommend that they do their research first in order to save them from wasting time and resources learning on the job,” he said.

Continuing Education Courses for Remodeling

NAHB offers continuing education remodeling designees such as courses on customer service and estimating that can be helpful to builders who are transitioning to remodeling.

NAHB is also developing training and information on business management and sales and marketing to further help builders successfully make the transition.