SHOW TRANSCRIPT

 

[00:00:00] Speaker 1 All right, here we are, John Jorgensen, back with you. We’ve had a couple of years hiatus. COVID was certainly a big factor in the way things have gone for us. Today, we’re recording our first podcast episode in the Stanley Martin Custom Home Studios in Vienna, Virginia. And I’ve got our president with us, Michael Schnitzer. Welcome back, Michael. Hey, John, good to see you.

 

[00:00:23] Speaker 2 Although I see you every day.

 

[00:00:24] Speaker 1 You do. Yeah, it’s good. It’s good to be back chatting in front of the microphones, for sure. So today, we want to talk a little bit about smart homes. Okay. And, you know, the interesting thing about smart homes is they were created, the buying process, the selections process, and the building process was all designed around the COVID restrictions that were put in place by the government. Correct. Back in 2020. So why did they do that? Can you explain? What was the logic?

 

[00:00:56] Speaker 2 Two things, I would say one supply chain issues. So we had to reduce the number of parts and pieces so that we could, with a much higher degree of certainty, if there was a disruption again, be able to get the parts. So for instance, Stanley Martin at the neighborhood level, at the large home building level, has a manufacturing center. Partnered with another United window companies, name of the company, and there’s a dedicated center that just builds Stanley Martin windows. It’s amazing, right? So that’s good. And you know, if Stanley Martin had at one point, I’m going to make this up, 200 different faucets and fixtures whatever, it is hard to control. But working with Kohler… Right, and other brand manufacturers, we’ve limited the number of nicer, refined fixtures to make sure we could source them and not have a problem if this occurs again. Right. So that was the big thing. The other thing was how to reduce the interactions with COVID, social distancing and whatever. So we had to remove some of the interactions to simplify the process and remove the face-to-face meetings. And we still do face- to-face meeting now. But initially we weren’t doing any face- to- face because of the lockdown.

 

[00:02:34] Speaker 1 Right, and you’re thinking also from the perspective of the design studio selections process, right? So pre-COVID, if you bought a house from Stanley Martin Custom Homes or Stanley Martin, you would have multiple, multiple, multiple meetings with the design manager. Right. And you would select your cabinets for each bathroom. You would select different faucets for each bathroom and things like that. And win. COVID came along and they created when Stanley Martin created the smart home purchasing process. Now you’re buying packages.

 

[00:03:07] Speaker 2 Packages correct

 

[00:03:08] Speaker 1 So they were able to, the design studio managers were able to go over the packages remotely, very simply, and people could easily understand what they were getting throughout their entire home.

 

[00:03:24] Speaker 2 Right. And so, you know, we created digital assets. The corporate, along with Stanley Martin Customs, created packages that some of them are highly refined. Right. Some of them our, you, know, value proposition. But so you have different tranches, different packages to resonate with the different buyer. But instead of ad hoc, I want this faucet and that faucet in this bathroom, in that bathroom, right? This tile and this vanity and this and this, and this. All of a sudden you get to a, you know, a 10 factorial, right? Where you are exploding in decisions and contacts and whatever. And so, um, I’ve had several customers from the smart home process say at the end of the process, it was the best thing they ever did because they they were unencumbered, right? Right. It was, it was very easy and, uh, they love their home. Yeah. So you know,

 

[00:04:28] Speaker 1 You know, it’s always amazing, the unintended consequences, because, you know, this was put in place because of COVID, and for me, being on the front line with the customers every day, to me, it was a big sacrifice and a step back and yeah, we have to do it because of COVID. The irony is, it turns out everybody loves it. The buyers love it. And we’re keeping the program and we’re pushing it forward. And we’re embracing it because. The feedback we’re getting from the public is, we want a new house. We don’t wanna spend hundreds of hours, picking things and going back and forth about what faucet goes with what cabinet and what countertop goes with this and that. So it’s really amazing the response from the publish.

 

[00:05:18] Speaker 2 Yeah, it’s also a better value proposition because the lift on a custom home in terms of resources, forget decision making, forget price, just the lift is so unencumbering. I mean there’s still encumbrances, using that term kind of loosely, as it relates you still have to prepare the grading plan, you have to go through the permitting process, but it is so exponentially. Easier for everybody. Look, one size doesn’t fit all. Some people want to get into the weeds and work through every decision and that comes with the price. Others were, I really like that package. Maybe there’s one or two things like, maybe I would have changed it. But at the macro level, It’s so easy, it is so easy.

 

[00:06:13] Speaker 1 And I think to summarize, you’re choosing your floor plan from the Stanley Martin Library of Plans that they’re currently building, then you’re choosing your finish package, right? We right now have four price levels. So we have the classic, the signature, the tailored, and the premier. And when you choose a package within those levels, you have four different options. In finishes. So you have classic A, B, C, and D. You have signature A, B, and C, D. So, for example, if you pick signature B, that denotes all of your finishes for the entire home, right? And then beyond that, there are things you can choose a la carte. For example, appliances, right. And what other things can you choose a la carte?

 

[00:07:08] Speaker 2 If you want to add outlets, things of that nature. So there are some a la carte, I mean, it’s toned down so that it’s not a plethora, but there are a la Carte finishes, features maybe that you can pick from. So, for instance, I’ll just give you an example, and this is really jurisdictional driven. But in Montgomery County, by By code, you have to put in a car charger, right? Not so in Virginia. So, Virginia, it’s an option. In Maryland, we force the option by selecting it, right. I mean, obviously, that’s kind of a nid, but there are things out there that we have to bring in and people have to choose. But there are some things that customers can select. Right, right. But it’s significantly less. And for the most part, I would say there are things that customers say, oh, yeah, that makes sense. I’m glad I can add four outlets or whatever because I want to put an extra. Multimedia outlet over here and blah blah blah. So there’s just some of that that we have to do.

 

[00:08:30] Speaker 1 Yeah, and you want to be able to have some customizations, correct? Yeah, right. So so back to the summary. So the Buying process is simplified. Oh, yeah It’s yeah Because you’re choosing your floor plan and then you’re adding your options like a morning room or a side guest suite or finishing The red room five-car garage. Yeah, so you’re using your options from a menu Then the selections process is simplify because you’re chosen one of the 16 packages Yeah.

 

[00:09:00] Speaker 2 Four collections, and within the collections there are some things that you can do. But I think saying that you have nominally 16, that becomes too much. So within each package there are changes, but I would say there are four packages.

 

[00:09:19] Speaker 1 Four packages, and then you have some different options within each package, but it is a standard purchasing process. You’re choosing all your finishes for the whole house by making that selection.

 

[00:09:32] Speaker 2 People, they love it. Again, I know I’m being redundant, but some people are like, wow, why do you have me boxed in? But that’s the…

 

[00:09:39] Speaker 1 I think the vast majority of the people like it, yeah, because it just simply frees them up to focus on their life instead of designing a home.

 

[00:09:47] Speaker 2 I can tell you, I’m going through this now with… Custom home customers and our smart home customers, right? So you take customer removes contingency, boom, I get them the plan and it’s done, right. I’m still got to go in for permit within a couple of weeks, two weeks done, right. Right.

 

[00:10:04] Speaker 1 Right, right.

 

[00:10:05] Speaker 2 For custom homes, where people are making changes and looking at it, and then I’m doing sketches and whatever. Two weeks, no, two months, maybe three months, maybe. It’s not that we’re slowing down the process, but they’re like, what if we do this? And what if you do that? So let me see this and let me see that. And what’s the price of this? What’s the price of that? They kind of go down a little bit of a rabbit hole and I let them go because it’s their Experience. Experience. Right. Right, and it just takes that timeline and expands it tremendously.

 

[00:10:41] Speaker 1 Yeah, and for the most part. Exactly. Yeah, exactly. So simplified buying process, simplified design process, simplified building process, planned development.

 

[00:10:52] Speaker 2 Process. Plan development, yeah. And then simplify build process because the trades have built the same homes with the same options many many many times. Right. And they’re not having to look through a menu of 300 non-standard changes. When you get into that, you’re getting into the potential for human error. You’re getting into the absolute added costs where now instead of a trade saying, oh, you’re building a Stanley Martin house with these options and it’s kind of like a la carte, boom, they can send their trades out and get the work done. Oh, you building this home, I’ll just use the framer, and you have 25 options from all kinds of really nuanced stuff, it takes a lot of time Right. To get that right. And to check it, and to review it, and sometimes to make changes in the field, it’s just a. It’s like two different animals, right? Yeah, it is. One’s a zebra and one’s an elephant and they’re totally different. Right.

 

[00:12:07] Speaker 1 Yep, so when you’re building a smart home, how much more quickly is the home built versus a customized home?

 

[00:12:18] Speaker 2 Um, I, if I get rid of utilities like safety and things of that nature, I would say we’re building the smart homes at least. Less building a custom home is at minimum double the time as building a neighborhood series. It’s building a smart home. Right. Could be more. Depends how big it is and depends how nuanced. Right.

 

[00:12:45] Speaker 3 Right? Right.

 

[00:12:46] Speaker 2 So if, uh, if we’re building a home, let’s say in five months, I’m just picking right, um, it wouldn’t surprise me that a neighborhood series, a custom home is 10 months is 16 months, right? If we get into some really refined customization, I mean, it’s, there’s a lot going on shop drawings as bill draw. I mean there’s just a lot to it and people just don’t understand.

 

[00:13:13] Speaker 1 Right and then and then there’s a lot more work for the customer too, and that’s going to be another episode We’re going to talk about that next in another recording, but but so simplified buying design Planned building right and then And then it reduces the timeline and it reduces The customers commitment to the process throughout absolutely it just absolutely. Yeah, absolutely Yep, so for our buyers that are busy, many of our buyers have families that they’re trying to raise, getting kids to soccer, getting kids to school, they love it. They love it, and it was really an unintended consequences. We had to do it to survive COVID. We had create this program to manage the supply chain issues, the social distancing, but it turns out it’s an amazing thing.

 

[00:14:06] Speaker 2 And I would say as a one-to-one, if you look at the three buckets again, we always talk about house, site, and land, right? So land’s not getting any less expensive. Site is also not getting any less as expensive based on jurisdictional requirements that continue to burden the plan development and the cost to developing the site. So the only thing that we can truly affect is the house price. And that’s by offering this smart home process. Yep.

 

[00:14:41] Speaker 1 Home plan yep so as we start to wrap up I want to just ask you about some of the things that happen with buyers like for example somebody wants to buy a smart home and they’ll say to me John we don’t want the sink in the island we want the sync over here and can we make changes like that in the smart home program so

 

[00:15:07] Speaker 2 when we get into this nuanced bag, it’s kind of like we’re standing on the edge of a cliff, because one turns into two, turns into three, then my trades say, this isn’t what I signed up for with the value price. And then we get in to eroding our margins. It’s just, it’s an unintended consequence. If it’s something like, can you move my sink and my dishwasher? The answer is likely. Yes. Right? But technically… Technically, no. Right. Technically, No. We want to build the way we’ve packaged this program or it will break down. Right. And we will not be able to offer it.

 

[00:15:50] Speaker 1 Right, so the commitment from our subcontractors is that if we buy the home, build the home following the same policies and procedures that Stanley Martin corporate has in place. Here’s the price, you’re good to go. Exactly, so as soon as we start moving the sink and this and that, now we’re getting extra charges number one.

 

[00:16:11] Speaker 2 Because they’ve got to put now they got to revise the plan yeah revise the plan revise the cabinet layout the the electrician and the plumber have to revise where the rough ins are it’s just a cascade of little things and now they’ve gotta dedicate back office their back office right to get this right and you know then they’re like oh what if something goes wrong in the field now so now we better I don’t know this for a fact we may need to change our how much it’s costing to do this. It’s just a cascading memory. It gets to be a mess. It gets be a mass.

 

[00:16:45] Speaker 1 Whole business model of the smart home program. Right. And it ruins it for other buyers. Right, it will absolutely take it down. Right so we got to be careful with that. Very careful. So I think is there anything else, so it’s great program, we love it, the buyers love it. The subcontractors love it our project managers love it is there, anything else that you want to add about the. I would say more in the

 

[00:17:07] Speaker 2 I would say more in a little bit of a joking sense, we can only sell it to people who are smart. That’s all I can say.

 

[00:17:15] Speaker 1 Yeah, that’s perfect. All right, Mike. Well, listen, it’s great to have you back in the studio. It’s been five years since we sat down in a real studio. We’ve been recording remotely in various places. So we now officially have our first recording in the can at the Stanley Martin Custom Home Studios in Vienna, Virginia. Great. Good seeing you, John. All right, good to see you. Bye-bye.