Risky Business
Contractors are the crapshooters of the building trade
By Sandy Sims
Photographs by Kathy De La Torre
At 6:15 a.m. Los Gatan Vern Easthouse climbs into his truck and heads for Los Altos. His truck is 6 months old, and the odometer already registers 30,000. The 62-year-old general contractor stops to buy a cup of coffee near the site where he's building three 2,600-square-foot houses.
He will head up to Menlo Park later, where he's building three high-end houses of 6,000-square-feet each. He's building all six houses on speculation or "spec"--when the house is built before a buyer is found--for a developer he's worked with for 25 years.
Easthouse has had three-plus years of good, steady income. But the market is changing. Residential building permits in Santa Clara County are dropping in number. According to the Construction Industry Research Board, last year's first quarter permits totaled 632. This year's totaled 453--and the houses Easthouse is building are not selling.
"When the houses don't sell," Easthouse says, "the developer shuts me down." Two weeks ago the developer told Easthouse he wouldn't be building any more houses "on spec," after these are done.
The building industry rides the tide of the economy perhaps more than any other business sector. The industry is so sensitive to the state of the economy that its ups and downs serve as one of the country's primary economic indicators.
"It's time for me to get out and shake the bushes," Easthouse says. The market for additions and remodels is still going strong, he says, and he's got a couple of bids out now. Easthouse has been in the business for 45 years, 25 as a general contractor. This down-turn is nothing new to him.
"You can't be insecure and be in this business," Easthouse says. It's like riding a roller coaster."
The economic boom that started in the early 1990s, fueled locally by Silicon Valley's high-tech industry, has been good for contractors, says Paul Conrado, owner of the Conrado Company in Saratoga. "We've had our pick of customers," he says, "but with the market slowing down, that will change." At age 48 Conrado has built a niche for himself building new homes for wealthier professional people.
In his decorated Saratoga conference room, Conrado compares general contracting to the restaurant business. "Few make it," he says. "I'd say 90 percent of the people who try general contracting go out of business in the first two years."
He explains that making the shift from tradesman to businessman is difficult. Conrado was a civil engineer who received his master's degree in business administration. Then he became a contractor.
"Contractors are known for not returning calls or not showing up, when they say they will," Conrado says. "They don't understand," he says, "that this is important to be successful."
"Most contractors come from a family in the building trades," says Ellen Scrodin, owner of Contractor's License Course. Scrodin prepares aspiring general contractors for their licensing test. It seems to be a man's trade for the most part, Scrodin says. Less than 1 percent of the people who come to her are women.
Easthouse's father, grandfather and uncle were all in the business. One of his son's is in the business, too. "I've built thousands of homes," Easthouse says. "I never wanted to do anything else."
Home Improvement: Advice for consumers seeking a contractor.
Getting Down and Dirty
"Here, sit down in my office," Easthouse says and pulls up two plastic chairs. Sitting in the open garage of one of the three homes he's building in Los Altos, Easthouse looks relaxed in a white T-shirt, Bermuda shorts and work boots. Little piles of sawdust on the garage floor give off the smell of recently cut wood.
Easthouse has been doing this work so long, he doesn't have to write everything down. Building a house is visceral now; instinct tells him what's next. He knows when to call for the subcontractor-- or "sub," the specialists of the building trades.
I love the action, Easthouse says, and he makes a sweeping gesture with his arm, as if introducing a Broadway show. In front of the house on our right a CAT tractor grinds back and forth; a painter in white pants and a white T-shirt carries two buckets into the house. He glances toward Easthouse and smiles. At the house on the left, a young man guides a vibrating machine the size of an industrial vacuum cleaner over reddish ground cover.
A tall thin man walking up to the garage nods, and Easthouse jumps up to help him lift a round cement cone out of Easthouse's truck. "That's the clean-out for the cable and telephone lines," Easthouse says as he sits back down.
Mike, a man with long dark hair and an earring, steps out of the door behind us and heads for a table saw to cut a length of molding. A faint ring jangles the air. Easthouse reaches into his right pocket and pulls out his cell phone. It's the electrician at his Menlo site.
Most contractors says they love their work. They love the mess, the action, moving big equipment, and they love building things.
Stan Gadway, retired commercial contractor living in Morgan Hill, says, for a time in the late 1960s and early 1970s he specialized in fire-damaged buildings.
"I did a lot of schools," Gadway says. "I'd put on old clothes and gloves and dig around in the mess. I'd find out if the floors were OK and then crawl in the attic to see if the rafters were burned. I loved it" he says. "Then, I enjoyed making it come out looking nicer than before the fire."
"We are proud of our work," Conrado says, of himself and other contractors.
It takes some 52 different tradesmen to build a house, and each one of those might have a crew of three or four. Usually, however, the general contractor and the painter are the only ones who get to see the finished product.
"If a homeowner has a close-of-construction party," Conrado says, "and invites all the subcontractors, 100 people might show up. The subs like to bring their families to the party and show off what they built.
"When we start a job, everyone is euphoric," Conrado says, of the clients and the contractors.
"You get that tractor going," Easthouse says, "and you've started to create something. He says, "It also means money's coming."
Vern Easthouse, a Los Gatos general contractor, confers with his son Chris about the fence they are building between an old house and one of the ones Easthouse is building.
Anything can happen
But making money in the world of contractors can be a crapshoot. First, there's the bid. It takes four to five weeks to get a bid together. "It takes at least 50 hours of my time," Conrado says, "and also three or four hours from each of the subs."
After the contractor signs the contract, anything can happen. He hits a water main, materials cost more than estimated, subs want more money, a customer won't pay.
"Any contractor who says 'I've never lost money,' hasn't been in business long," says Saratoga resident Bill Brown, owner of Bill Brown Construction.
"People think we make a huge profit. But the average profit is between 5 and 7 percent," Brown says. "It all averages out. You lose money on one house and make money on two," he says. "The best way to make a bigger profit is efficiency, have a good system for getting the work done."
But that doesn't always work. When power blackouts shut down the concrete-batch plant, Brown had whole crews waiting around without concrete. He had to absorb that cost.
Sometimes contractors gamble everything. In 1980, Easthouse put $250,000 of his own money in a condo project in Sunnyvale. "I put up my house." Then interest rates went to 18 percent, and the bottom fell out of the market. "We sat on those condos for two years," Easthouse says. "Almost lost our home."
Easthouse cashed in CDs and took money out of his retirement fund to live on. "That retirement would be pretty fat by now," he says. They survived, but Easthouse says he never really recovered that money. "I'm proud to say, though, that in all these years, I've never applied for bankruptcy, and I've paid my bills."
General contractor Vern Easthouse stands in the circular stairway of one of the homes he's building.
The Toll on Relationships
The lean years were tough on Easthouse's marriage. "My wife hates the insecurity of this business," he says. "It's the thing we argue about the most." He says his wife is worried about the current downturn in the economy. She wants a steady income, he says. "But you can't have that in this business, and I've never wanted to do anything else."
Brown says most contractors' wives hate the insecurity of this work. "At one point, when things were bad," he says, "my wife told me to make money or get a real job." Brown's wife Diane says, "I hate that part of the business, I just hate it."
Diane is the financial controller for a software company. She says her husband loves to build things, but construction is the first to go when the economy changes. She doesn't like the slump in today's economy. "It's scary," she says. Last week Brown's three large jobs that he had lined up were canceled or moved to a later time.
"We went through a couple of very bad years in the 1980s," Diane says, "and it was hard to stick with it," She says jobs have to be signed up far in advance. "When building slows down, you have to let your employees go," she says, "and it's hard to decide when and how."
"It's painful," Easthouse says. "You just get your workers honed, and then you let them go." With the developer shutting him down, Easthouse let four men go. "They might not come back later when I need them," he says.
Conrado says it's hard to find good subs. Contractors don't share their lists. Our subs are our collateral, he says. "Everyone loves my painter, and I have lots of subs like that," he says. I don't tell anyone about them."
Paul Conrado says communication is one of the key things to success in the contracting business. 'We have to educate our clients on the building process, so they understand what's going on.'
Relating to the Customer
Diane Brown also understands the customer's point of view. "I'm pretty educated," she says. "I studied architecture for two years, but when we went to remodel our house, Bill and I had some miscommunications."
For example, she says, Bill put a utility access cover that says 'sewer' right in the middle of the walkway that leads to the front of the house. "Bill thinks it's really cool," she says. "I think it's ugly. But it's one of those things we never thought to discuss." She says that kind of thing happens between customers and contractors. Communication is very important.
Dealing with residential customers is one of the tougher parts of building--the constant questions, the fear of making decisions, the wanting a bargain, the hand-holding and the changes.
Stan Gadway went into commercial building because it's easier than building for homeowners. Bill Brown tried being a general contractor for a while, but says his frank temperament isn't suited for it. Easthouse has been working with homeowners for so long, he's relaxed about it. Conrado enjoys it. They all say the worst nightmare is when they can't please the homeowner.
"It's wonderful when you can hand the keys to a couple, and the wife gives you a big hug," Easthouse says. "But that's a tough thing to do by the end of a project."
Contractors have to be educators, therapists and hand-holders, while also watching out for their own interests.
The business sign on Vern Easthouse's truck includes his contractor license number. The '2' at the beginning of his number means he's been in business for a long time--more than 30 years. More recent numbers begin with '8.'
Worlds come together
"We know what the homeowner is getting into, but they don't," Brown says. "Here come some cigarette-smoking, gum-chewing men. They tear your world apart," Brown says. "Contractors love that. I love the big equipment, pushing dirt around, pouring cement, building walls. We see the next thing to do," he says. "The customers see the chaos and the mess."
Conrado refuses to do a job with homeowners living in the house. He says it's too stressful for both sides. It's hard for workers when the client is watching and questioning everything they do.
"Clients I deal with are the kind of people who are in charge in their world," Conrado says. "Now they are spending a high amount of their net worth on a process they don't understand."
He says the average house he builds is 7,000 square feet. The smallest was 4,000 square feet, the largest 12,500 square feet. He says he teaches his clients about the building process. He is building 12 houses right now and sets up a meeting every week for either himself, or his project managers, to meet with each client.
"My clients want perfection," he says. "But, I tell them up front, I can't build the perfect house. There is no such thing," he says.
Conrado points to where his conference room door molding meets the floor. "If this molding isn't quite to the floor, a customer might say 'rip all the molding out, and do it over.' That could cost me $10,000 to $15,000 by the time I'm done." He says, "and it's impossible to rematch paint."
There are 2,000 decisions to make when building a house, Conrado says. Clients worry about the color of paint or the kind of floor. "They don't understand that their professionals won't let them make a big mistake," he says. "Six months after the house is done, the client forgets all those decisions."
During Silicon Valley's economic boom, Conrado has had clients with unlimited budgets. He says this actually makes decisions harder. "There's no sense of scale," he says. "The client is trying to make decisions on the basis of art, when they have no artistic reference."
"I put everything on my proposal," Easthouse says, "exactly what I will and won't do, and then I talk with the customer on a daily basis." He says there're always changes.
Clients don't realize that every time they make a change it costs money and probably causes other changes, Easthouse says. Five hundred dollars here and a thousand there add up pretty fast.
"People want upgrades," He says. "But, if they're not careful, they can spend $20,000 or $30,000 on windows. Changes can push a job out as far as three months," Easthouse says.
To cover these changes, contractors write change orders and have the client sign them.
Paul Conrado maintains the vineyard he planted five years ago, in front of Saratoga's Sacred Heart Church. He also maintains vineyards he's planted on several clients' properties. The Sacred Heart vineyard produced grapes that won an award for his wine at the Santa Clara County Fair.
Sticker Shock
At the end of a project, a client is sometimes amazed at the price tag. They don't realize how many changes they've made, Conrado says.
Kay Chleboun, assistant vice president at the Better Business Bureau, says she gets calls from clients who want to renegotiate the cost of the contract. Easthouse says he's had people ask if they can do a payment plan. "I don't do that," he says.
Clients get beaten down by the end of the job, Easthouse says. The process sets up anxiety between a husband and wife. Their friends tell them to watch out for this and that. They're looking for problems. They don't trust.
"During the building process," Easthouse says, "I can say there's a time when I'm not the most popular guy on campus. I take it with a grain of salt now because I know this happens." He says, "It happens, mostly, when you are finally coming down to the end. You've called for a notice of final completion and can't get it because parts, pieces and equipment are on back order. It all rests on your shoulders," Easthouse says. "You are the bad guy."
"But I can say I've gotten that hug more times than not at the end of a job," Easthouse says.
Conrado says he used to be run by his clients' emotions. "Now I let it run off my back," he says.
Usually, when a job is done, clients end the relationship with their contractor, Conrado says. But he's found a way to continue these relationships. He plants vineyards on his clients' property, some small and decorative and some large, depending on the property. Then he bottles the wine for them and has a wine party every year. "This year I had more than 40 past and present clients at my party. That's unusual," he says.
At about 6 p.m., Easthouse turns his truck into his driveway. He might do some paperwork tonight. Last week, he went backpacking with friends--got away from all the noise and activity and rested. When he came back he signed a contract to build an addition on a house. Then the developer asked him to build another high-end house in Menlo Park.
"It all works out, he says. "It's the journey, not the destination. You gotta have a thing called faith."
Los Gatos, California Since 1881
