Because of the economic problems affecting the modular housing industry including record price increases and long lead times, builders and project developers are now going from one factory to another to have their projects built.
And just like no two people are the same, every modular factory is different and you need to ask some tough questions of them before you enter into a contract to build modules for you. The following questions are some of the most essential ones that you need to have answered before committing hundreds of thousands or even millions in business to them.
Here are the 9 key questions you need to ask every factory you talk with:
1. What are the payment terms and are they negotiable?
The modular housing industry is unique in how payment for product is made. Cash on delivery, certified check, prepay, assignment of funds and EFT are all common methods. What is not happening is any kind of delayed payment. Don’t be afraid to ask what their terms are.
2. What will my total costs be?
Just because you’ve been a modular home builder or developer for many years with a factory and completely understand how they work does not mean that every factory works the same. I have seen a lot of builders handed invoices after delivery, sometimes adding thousands to the total cost, that they never knew they owed. Talk to the factory’s CFO and nail down final cost and late invoices.
3. How do you work with their Service/Transportation department?
Oh boy, this is one area where the gloves can come off. If the factory delivers a product that has defects or shortages, many factory service managers try to minimize their costs by either dragging their feet or simply denying the chargeback. Why? Because their department is a cost to the factory rather than a profit center. Ask to speak to the service manager and ask the tough questions.
4. Who is the factory selling to in your area?
If you’re a builder buying their homes, you want to make sure they don’t sell it directly to the end user or to a competing builder in your market area. However, if your area is Boston, Philadelphia or DC, then you should not expect to be able to handle 4 million people. Or even want to. Expect competition with builders buying from your existing or new factory.
5. What happens if materials don’t arrive?
It’s inevitable that materials will sometimes arrive late to the production line. But what happens then? You want to find out whether your new factory will hold the modules until the materials arrive and complete them in the yard or will they ship the house to you and then (hopefully) send a service truck to complete the module on site.
6. Under what circumstance might the price change?
You need to be prepared for the factory to spring price increases on you. Ask them what determines a change in price. Is it tied to inflation or an industry index? If prices go up, how much notice will you receive? Conversely, if a supplier’s costs go down, will your price go down, too?
7. Do you have a volume discount or rebate?
Often factories offer incentives. You want to ask about discounts you could be eligible for. If you agree on a certain purchasing goal and reach it, find out if you can receive a discount or a rebate. Even though these incentives might still be available, look for most factories not offering them any longer.
8. How many projects do they anticipate putting on the production line?
Until a few years ago this was not a major concern when shopping for a new factory. Today it is critical. If the factory has contracted 300 line moves to projects like multifamily housing, dormitories, etc, that could be half their yearly production and you may not get your home or your project when you thought you would.
9. What is their current backlog?
Some modular home factories don’t have a lot of projects but their backlog could be well over a year. Many factories that primarily build single-family homes are seeing a sharp rise in production as developers have discovered the many benefits of using modular construction for their communities. Even with all the shortages of material and labor and related costs and inflation, long lead times are still the norm.
Related Articles:
- “Why Change?” Is Always A Big Question In The Offsite Construction Industry
- Change Is Inevitable – Just Watch Your Step!
- Why A Developer Shouldn’t Own A Modular Factory
Gary Fleisher is the Editor in Chief of Modular Home Source and Offsite Builder. Email at [email protected]
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