GET TO KNOW TROPHIES, ON-LINES, AND GENERATION APP CONSTRUCTION CONTRACTS: KNOW TERMINOLOGY; CHECK EXCLUSIONS THE EVOLUTION OF WALL, FLOOR AND ROOF STRUCTURE Dallas • Fort Worth | February 2020 A HOMEBUILDING INDUSTRY PUBLICATION Salcedo Homes | Design + Build “Success Is All About Counterbalance” SARAH & BRIAN SALCEDO Photo by Jin Kim, Jin Kim Studio2 We lead the industry in change. No matter the location or complexity of your development, we offer customized services to fit your specific needs, including credit reporting, appraisals, property valuation, flood determination, document preparation, maps imaged data, and more. You care about your customer, and so do we. We even work with you to offer property & casualty insurance, home warranties and other convenient products to your buyer. ©2017 First American Financial Corporation and/or its affiliates. All rights reserved. | NYSE: FAF | 45147780917 CONNECTION PARK 4795 Regent Blvd., Mail Code: 2003, Irving, Texas 75063 (817) 918-2321 SMARTER PROCESSES SIMPLER SYSTEMS FASTER CLOSINGS3 Building Savvy [from the publishers] Is It Time for Follow Up on New Year’s RESOLUTIONS? F First, we hope that what you read here in Building Savvy will get you thinking and implementing better ways to construct homes. Savvy builders will agree that as with most material choices and best practices, the elimination of problems means less cost — both from the perspective of bottom line and reputation. Our February Focus Section explores how building science has advanced the common principles of framing design, structural integrity and energy efficiency significantly over the past couple of decades. But too much of a good thing can cause other problems – tight is good, impermeable is not. Finding the right balance is a topic we will continue to explore in the publication as well as in some of the Lunch and Learn events we have in the works for this year. The right balance is also a theme in the cover story on Sarah and Brian Salcedo this month. We also aspire to bring news that will help you to be on point when it comes to home designs and amenities that today’s buyers are seeking. Are you up on the expectations of the next generation of home buyers? Does your design team understand their preferences? Does your sales team know how to speak their language? Savvy Special Report offers some interesting insights on “Trophies, On-Lines and Generation App.” Last but not least, make sure you and your team are fully vested in the goals they set, and create a follow-up system to track the attainment of those goals. As Paul Evans reminds us in his Sales Savvy col- umn, “Inspect what you expect.” Now may be the perfect time for the first follow-up check to see how you are doing at meeting your business and personal success goals. Let’s make 2020 a great one! Beverly and Steve Smirnis beverly@buildingsavvy.com steve@buildingsavvy.com (817) 975-7235 ... and they drive our passion for creating your Estate Life magazine — Beverly and Steve Smirnis.4 Building Savvy [industry news] Taxpayers, subject to an income cap beginning at $100,000, may deduct premiums paid for private mortgage insurance and FHA/ RHA/VA insurance premiums. Builders with tax basis in the home (who won and then sell/lease the residence) may receive a $2,000 tax credit for the construction of homes exceeding heating and cooling energy standards by 50%. (The base energy code is the 2006 International Energy Conserva- tion Code plus supplements.) A tax credit up to $500 (subject to a $500 lifetime cap) may be claimed for installing qualified energy efficient upgrades. Any taxes that homeowners might face because of renegotiating the terms of a home loan on their principal resident, which result in forgiving or canceling a portion of the outstanding loan balance, particularly in connection with short sales is eliminated per the Mortgage Forgiveness Tax Relief provision. Approved legislation also enacted the Setting Every Community Up for Retirement Enhancement (SECURE) Act. This reduces the administrative costs of small businesses offering retirement savings plans to their employees. A longstanding exemption to the tax treatment of contributions in aid of construction (CIAC) was removed by the Tax Cuts and Jobs Act of 2017, unintentionally increasing sewer and water costs for some builders and developers. A. new bipartisan Senate Bill re- Tax Extenders and Changes, Funding Allowances Are WINS for the Home Building Industry NAHB applauds several key legislative moves made by Congress at the end of 2019. This includes renewing a number of temporary tax items that expired at the end of 2017. The legislation retroactively reinstates the following tax provisions in 2018 and 2019, and extends them through 2020:5 Building Savvy HUMAN TRAFFICKING stores tax-exempt status in the water utility’s gross income when a new water or sewer infrastructure is installed to support additional housing. Temporary tax relief for individuals and businesses in federally de- clared disaster areas were another item addressed in the year-end legislative moves. For instances occurring between Jan. 1, 2018, and 30 days following the enactment of the legislation, provisions allow certain early penalty-free withdrawals from retirement plans, provide an employee retention tax credit for employers, and offer automatic adjustments to tax filing deadlines. The Internal Revenue Service’s final regulations providing details about investment in qualified opportunity zones were also released in December 2019. The IRS will allow capital gains to be invested in more than 8,700 identified opportunity zones for periods of five, seven or 10 years to defer all or part of a gain that would otherwise be included in income. Meanwhile, a spending bills package extended the National Flood Insurance Program (NFIP), approved funding levels for key HUD and USDA programs, and boosted funding for Job Corps and YouthBuild programs providing career technical training and edu- cational programming for at-risk youth. The same bill also repealed sales tax on most health insurance plans and the Cadillac tax on certain employer-sponsored health plans. 6 [best practices] Construction Contract Language Know the Meanings, Check your Policy Exclusions By Ross Conner, Hotchkiss Insurance Agency, LLC The insurance section of your construction contract will specify who is responsible for buying the builders risk insurance and exactly what coverage is to be included. The indemnity section of the contract es- tablishes which of the parties will be responsible for various losses that could conceivably occur during the course of construction and under what circum- stances the parties to the contract have waived their recovery rights against one another. Generally speaking, the entity that is in the best position to control the risk should take responsibility for the risk. If possible, risks that cannot be controlled should be transferred to someone else. Risks that cannot be controlled and cannot be transferred to someone else should be insured. Here are some terms and definitions that savvy builders should know and understand: Subrogation refers to the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the associated rights and duties. Many construction contracts contain a “waiver of subrogation” provision. This type of provision is included to prevent an insur- ance company, that has paid for a loss, from suing another party involved with the project that may have actually caused the loss. These clauses are intended to minimize the potential for lawsuits, cross-suits and counter-suits. The risk of loss is not passed on to anyone else and stays within the insurance company. Understanding what your construction contract says and the definitions of particular terms used in it is essential in mitigating your risks. 7 Building Savvy The waiver of subrogation in a building contract states that, to the extent that any damage to the project is covered by insurance (either the owner’s insurance or the builder’s insurance) the parties waive all rights against each other regarding such damage. Builder subcontract agreements may also contain a similar waiver of subrogation provision. If the builder’s risk policy permits the insured to waive subrogation rights in writing prior to a loss, that means the insured’s builder’s risk insurer will be obligated to pay the loss and will not be able to sue the other parties to recover what it has paid out on any losses. Indemnification is defined as the duty to make good any loss, damage, or liability incurred by another. It has a general meaning of holding one harmless for some loss or damage. Indemnity clauses in a construction contract are contractual provisions that commit one party to compensate the other for losses. A typical indemnification clause might read: “Each party agrees to indemnify, defend, and hold harmless the other party from and against any loss, cost, or damage of any kind (including reasonable outside attorneys’ fees) to the extent arising out of its breach of this Agreement, and/or its negligence or willful misconduct.” Under standard indemnification clauses, a general contractor indemnifies the owner or developer, and typically the subcontrac- tors will indemnify the general contractor and/or owner. Indem- nification can be limited to specific third-party claims (such as those related to a breach of warranty), or restricted to only those situations where a lawsuit has been filed or a final judgment has been rendered. Additional Insured may include a person or organization that enjoys the benefits of being insured under an insurance policy, in addition to whoever originally purchased the insurance policy. These persons enjoy insured status only while they pursue the business of the named insured. A business may ask a contractor to add them as an additional insured in their general liability policy to protect the business in the event of legal claims that may arise as a direct result of the contractor’s work or presence. What Builders Need to Know: Whenever a contract requires you to waive an insurer’s subroga- tion rights, check to make sure you are not invalidating or compro- mising your insurance coverage. Consider the legal and practical issues relating to the language of in- demnification agreements. Another important consideration is inter- im indemnification; unless the agreement states that you are entitled to be indemnified as costs are incurred, you may be forced to fund the matter until it is resolved and only then to seek to be indemnified. The Texas Anti-Indemnity Statute, which took effect in January of 2012, was implemented to counter the unfairness of requiring the subcontractor to accept responsibility for the actions and omissions of the owner or general contractor as a condition of being awarded the work. With the passing of the Act, broad form indemnity obligations, primarily involving commercial construc- tion agreements, are prohibited – construction contracts can no longer contain clauses requiring a party to indemnify, defend, or hold harmless another party for claims arising from their own sole negligence. The anti-indemnity statute does still allow a builder or owner to require indemnification from the subcontractor for the builder or owner’s sole negligence in the case of a bodily injury situation, just not property damage. As always, it’s important to understand the risks on a particular jobsite and prevent accidents where possible. However, prudent planning is essential in being able to transfer the cost of those risks should something occur. No builder wants an unplanned, unfunded liability. It helps to keep in the mind the Number One principle in risk management: “Don’t risk more than you can afford to lose.” Each time a sub comes onto your jobsite non-contracted and uninsured, you’re taking a risk. Therefore, be sure and use these principles to shield yourself from retaining, or accepting, an unforeseen risk. 8 Building Savvy [savvy special report] Get to Know “Trophies,” “Onlines,” & Generation App By Beverly Smirnis T Technology and the recession are significant variables dividing the millennial generation. In fact, Rebecca Lindland, founder and consultant at rebeccadrives.com, spoke on the topic to a group of auto dealers at a recent auto show I attended while wearing my other hat — that of an auto journalist. I’m always fascinated by the similarities between the automotive and homebuilding industries, particularly when it comes to demographics and buying habits. For example, Lindland noted that car buyers are concerned about afford- ability, and more shoppers are being pushed toward used inventory. She said consumers are doing more research online and visiting fewer dealers in person. Does any of this sound familiar? And here’s an interesting note: 61 per- cent of buyers who recently purchased or leased a vehicle said their most recent purchase experience was the same or worse as previous purchases. Could auto dealers be guilty of putting focus on enticing them online but fal- tering in simplifying in-person process- es and experiences? On their list of top annoyances: filling out paperwork/ contracts, negotiating price, dealing with a salesperson, searching invento- ry, valuing their trade-in, and applying for financing. So, what did Lindland have to say about those millennial minds we are all trying to understand? She started by defining the “Trophy Generation,” born between 1978 and 1988. The oldest among this group was 8 years old when the internet became available to the public. “Trophies” were hugely impacted by 9/11 and the 2008 Great Recession, which hit when they were 20 to 30 years old. As parents, Tro- phies seem to be more like their own parents, the Boomers. Trophies: • Were coddled and protected by “helicopter parents.” • Seek experiences rather than pos- sessions (live for the moment). • Include their children in major life decisions. • Are image-conscious, motivated, and optimistic. • Expect instant gratification. • Embrace diversity. • Are not responsible for failures. (Everybody gets a trophy!) • Are environmentally conscious. • Are tech-savvy. When it comes to vehicles, according to Lindland, Trophies seek an “aspira- tional” brand but are open to brand resurgence and new brands. They value “in-your-face,” statement-mak- ing design and technology. In their teens and young adult years, Trophies wanted premium Hummers and Audis. Today, they still want Audis and have added Tesla and Land Rover to their list of favorites. Delivery and service experiences are critical to loyalty; the vehicle must be “responsible for itself.” The homebuilder take on the Trophy Generation: • Focus on the sales and delivery experiences. • Staging and merchandising are important; sell the life experience. • They’ll look for killer home designs with high-tech bells and whistles — things that impress and make life more convenient. (Life is not supposed to be difficult!) • Low maintenance is a must; they’ll expect someone to remind them and perform it for them. (Sell or refer maintenance services.) • Wow the kids; remember, they’re part of the decision-making process. • Build your brand. Younger millennials in the “Online Gen- eration,” as Lindland calls it, were born between 1989 and 1999. While they 9 Building Savvy 5M 4M 3M 2M 1M OM share many characteristics with the Trophy Generation, the post-recession years during their young adulthood had a more lasting effect on them. Many grew up in comfortable lifestyles that were abruptly halted by the Great Recession and its aftermath. They are confident yet cautious, with an eye toward authenticity; they are willing to put off a full-time career for life expe- riences and stamps in their passport. The Online Generation is ambivalent about vehicles and is the first gener- ation not defined by car ownership. Technology is their ticket to freedom; Uber and Lyft are a way of life. They are quick to adopt shared mobility models and ready to embrace autonomous vehicle technology, with Tesla reigning supreme as their favorite brand. The homebuilder take on the Online Generation: • If your marketing is not online, get ready to retire. Don’t rest on brand longevity, either; the new guy has an equal chance. • Remember that buying a house isn’t at the top of their priority list; talk up the investment upside/resale value. These are not emotional buyers. • Don’t try to push them toward the highest end or most amenities — they will fear getting in over their heads. • If they don’t have children, don’t assume they want to. • Don’t expect them to embrace to- day’s mainstream housing product; for one, they may not want a garage. • They may embrace mid-century modern because this generation spent more time with their grand- parents, Lindland says. What’s Next? Like the Onlines, Generation App (aka Gen Z), born after 1999, has a combi- nation of baby boomers and Gen Xers as parents. While Gen Xers treat kids like friends and indulge their every whim, Boomers are more strict and traditional parents, which makes this generation difficult to generalize. This generation is causing the most disrup- tion and angst for marketers because their mindsets are diverse, splintered by the broad age range of their par- ents and influenced by technology now adopted in months and years instead of years and decades. Generation App has no recollection of life before smartphones, the internet, social media, and Uber/Lyft. Steve Jobs is a historical figure to them — the oldest in this group was 12 when he died in 2011. What will we build for them? Rebecca Lindland’s demographics expertise and Beverly Smirnis’ veteran homebuilding industry experience are a powerful combination! Contact us about training your sales and design teams to understand and anticipate the buying habits of today’s and tomorrow’s homebuyers by emailing thesavvylist@gmail.com. Born in: Age In 2020: Total U.S. Population by Age and Generation (as of December 2015 per Viz of the Day by Tableau Public) PERSONS GEN-Z 73.61M MILLENNIALS 789.41M GEN-X 65.72M BABY BOOMERS 75.52M SILENT GEN 28.32M 62139557492 201519991981196519461928 ONLINESTROPHIES Next >