Six years ago, when she was 18, Danielle Addington had a dream of starting her own home building company. Since she was 16 she had worked as a site supervisor for her parents’ business, which at the time was building one spec home a year. When she was ready to go out on her own, though, there was one problem: She only had $3,000 in the bank.
“We had to come up with a system where the client would be responsible for the [construction] financing,” recalls Addington, who spoke with BUILDER last week. So the business model and marketing hook she devised for Axiom Homes, the custom-home business she launched in her native Edmonton, Alberta, would be to charge buyers a flat fee of C$35,000 (US$29,617) for management services, and wholesale rates for building materials.
Last January, she expanded Axiom into neighboring Calgary, Alberta, with a sales office there. And Addington—who holds Professional Site Manager and Graduate Master Builder certificates from the Professional Home Builder’s Institute of Alberta—is now talking about taking her business model to other western Canada cities, and eventually to the United States.
Addington says her company is saving customers as much as C$100,000 per house when compared to homes built by competitors, which she says regularly overcharge buyers for building products, sometimes above even the retail selling price. On its Web site, Axiom Homes provides a breakdown of the retail and wholesale costs for various products, to show how much buyers can save by using Axiom as their builder. For example, the site notes that about 70 cubic meters of concrete go into an average home’s foundation. That works out to C$17,780 at retail, compared to the wholesale price of C$15,610. So using Axiom’s math, the buyer would save C$2,170.
Commodities pricing has come down a bit lately in Canada, which has allowed Axiom to keep its $35,000 fee stable. However, the same can't be said for labor, primarily because of the province's booming oil industry. Axiom's margins are thin, so this builder has to be “super sharp” in its operations, says Addington. Her company has only four headquarters employees, including her husband, Lyle Barfett, who handles its marketing.
The builder also has sophisticated systems in place through which it requires all customers to communicate. For example, Axiom allows buyers unlimited access to the job site. If they see something they aren’t pleased with, they can then go to Axiom’s site and fill out a “Builder Alert” form. Change orders require another electronic form.
All invoices that Axiom receives from subs or suppliers go directly to its buyers, who are required to pay them within a certain time period to keep the project moving forward.
(In Canada, people having homes built negotiate a “construction” or “draw” mortgage that reimburses them for expenditures. “But they need to have $50,000 to $100,000 in cash to get the project going to get to the first draw payment,” explains Addington. And because Canada’s banking laws are tougher than those in the United States, first-time buyers are less likely to be able to secure that kind of loan. Consequently, Axiom Homes typically works with buyers who already own homes “and have some equity in them,” Addington says.)
Addington points out that other builders often base their final pricing on the projected appraised value of the house. Axiom, on the other hand, uses the appraised value as a selling feature by comparing that figure to the total (and significantly lower) costs that its buyers pay when using Axiom as their builder.
For example, the builder's Web site points to a 2,529-square-foot, two-story house, which Axiom completed this spring with total construction and land costs of C$624,966. The appraised value of that house upon completion was C$850,000, so the owners’ “instant equity” was $225,034.
As of last week, Axiom Homes had 29 units in various stages of construction. Addington says her company builds around 30 homes per year, and its cycle time runs between nine and 12 months per unit. But Axiom Homes is building in a tough market right now that is expected to be soft for at least another year.
Canada Mortgage and Housing Corporation, Canada’s version of the National Association of Home Builders here in the States, estimates that housing starts in Edmonton this year, at 5,600 units, will about one-third of what they were in 2006; through the first three months of 2009, single-family starts there were off 39%. Starts in Calgary, at 17,000 in 2006, are expected to drop to 7,200 units this year. Both markets, though, are expected to recover in 2010 and 2011.
Addington isn’t too worried about competitors copying her company’s formula because “it would take them five years to get their systems in place, like it did us.” But she admits that Axiom Homes could be handling more business. And opening a sales office in Calgary has whetted Addington’s appetite for expansion. Her goal is to grow into other markets in western Canada, including Regina, Saskatchewan, and the vacation resort town of Colona, British Columbia. She’s also looking at Vancouver, but strictly as an infill market.
Ultimately, she’d like to see if her business model can work in the United States, and already she’s eyeing Denver as a good possible first choice for several reasons, one of which being that it has roughly the same climate as Edmonton.
John Caulfield is senior editor at BUILDER magazine.
Learn more about markets featured in this article: Denver, CO.