He could have raised prices on 83 new houses. A Coast homebuilder took a $3M hit instead.
The COVID-19 pandemic and supply chain difficulties have companies in South Mississippi facing challenges unheard of two years ago, Brandon Elliott told the Gulf Coast Business Council Thursday.
The president of Elliott Homes in Gulfport — who came to the Coast as a pro hockey player and stayed when he founded the company — illustrated the issues with a story from his own business.
At the end of last year, he said, the cost of lumber soared from $380 per 1000 board foot to $1,700 per 1000 board foot, quickly increasing the of price of their average home on the Coast — just for lumber.
The company had 83 homes that were pre-sold and in various stages of the building pipeline.
“So we were looking at a $3 million hit to the company,” he said.
Elliott reached out to home builders and trade groups across the country and asked what they were doing about additional costs.
They were raising the price on their homes, he said, including homes that were pre-sold. And they told him their customers were understanding.
Those builders are in markets where the price of a home was much more expensive than South Mississippi, he said, and they raised the price by about $100,000.
Elliott spoke with his executive team members that run Elliott Homes. They also had talked to peer groups around the U.S., he said, and decided they should join the others and pass along the increase to the buyers.
“So they set off to put an action plan together to raise the prices of these 83 houses that we have sold,” he said.
But it wasn’t as easy as talking with buyers to see if they wanted to move forward with the increased price. There are contracts and legal issues involved.
Two days later, the executive team flew into Gulfport unannounced and were sitting in the conference room of Elliott Homes on Pass Road in Gulfport. On the 30-foot long wall of the room are printed Elliott Homes’ core values.
“It’s our whole culture. It’s our who. It’s our intrinsic value to society, and what we bring to the world,” Elliott said.
One of those values is “promises made, promises kept.”
Contractually and legally the company had every right to raise the prices, the team said to him.
But would Elliott do it? The team had to decide if that core value was worth $3 million.
“Well, needless to say, ‘promises made, promises kept’ is still on our wall today,” he said. “We didn’t raise prices. We took the hit, but the thing that it taught me as a leader was the importance of understanding where we want to be in 10 years, not today.”
The issue, he said, had nothing to do with the performance of Elliott Homes.
“It was totally an inflation market, supply and demand driven thing,” he said.
Given the continued increases and fluctuations in the cost of building materials, Elliott Homes since has changed its policy about setting the price of a home when in the building process.
“It really sucked to lose that money,” Elliott said. “But we looked at where we want to be in 10 years, and that was the decision we made.”
This story was originally published February 28, 2022 at 5:50 AM.
