LGI Homes, Lennar, D.R. Horton & US Homebuilding Scale Advantages

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I'm trying to understand better how a really small builder can compete with a company like Lennar. If you're building 50, 100, or 200 homes a year, how much of a disadvantage are you at in terms of material procurement because you're buying less from suppliers? I'm trying to understand if the cost difference on that $100,000 piece is 2%, 5%, or 10%. How challenging is it for the very small builder?

We use leverage to get better pricing. However, no matter how large a national builder is, they operate like satellite offices per division. Each division negotiates most of the construction build locally. While national builders may have some national contracts for better pricing, from my experience, that's minimal. This benefits larger builders over smaller ones because they can negotiate those national contracts.

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Could you provide a rough estimate of what percentage of a home's cost falls under nationally negotiated contracts versus local ones?

It's quite small, around 5% to 7%. These are very specific items, sometimes involving back-end rebates tied to the builder's volume. Most things are done locally because it's challenging to manage on a national scale. Labor and trades are local. Only certain items like fixtures or appliances, which aren't affected by location, can be negotiated nationally. Lumber, for example, is sourced from local suppliers, making national negotiation difficult. Local distributors add their margins, complicating national deals. So, only items that can be directly managed without national issues are negotiated nationally.

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