The remodeling business is largely a service business: The
companies that give customers the best service tend to get the
best referrals. But to deliver truly superlative service,
you've got to have all the cards — and in today's
competitive market your trump card may be the ability to
My company has been providing this service for 20 years with
quite a lot of success. We have ongoing relationships with
people in the mortgage business, to whom we refer any customer
who wants financing. And a lot of customers do: Of the
approximately $3 million in business we do each year, I
estimate that our lending partners finance about half of
If handled correctly, financing can be a great addition to any
builder's or remodeler's offerings. We make no profit from
financing, but it helps us land jobs we otherwise might not
have snagged. I've seen lenders make customers jump through so
many hoops to get a loan, the customers give up in sheer
frustration; we make sure that we work only with lenders who
don't create such obstacles.
Offering financing can lead to more profitable jobs, too. Most
people today are payment buyers, and they will spend more on a
remodel if they can make low monthly payments over time.
But if you dive into financing blindly, you can easily get
burned. Over the years, we've learned what does and doesn't
work. The advice that follows — on how to make your
effort a successful and rewarding one — is based on
our own experience.
Making the Sale
Although offering financing doesn't require a lot of financial
knowledge, it does require some. I strongly recommend that you
invest six hours or so in learning about interest rates,
construction draws, and the appraisal process. You should also
familiarize yourself with real estate comps in your area, and
update that knowledge regularly.
The sales process is simple. During the first meeting with
customers, we talk for 10 to 15 minutes to make sure we're a
good match. If we are, we ask them how they plan to pay for the
job. If they're looking into financing, we tell them how we can
Our job is to refer customers to lenders and to answer general
questions. We never claim to be experts. We answer questions
about interest rates and terms only in very general terms, with
rough ballpark numbers. We always make it clear that the lender
is the only one who can give definitive answers.
We also ask customers certain questions to determine whether
they place a higher value on the cost of the loan or on the
service they'll get from the lender. Keeping them happy
requires that we have relationships with different types of
lenders — a couple of banks and a mortgage
For example, if a customer's priority is low monthly payments,
we send them to our mortgage broker, who can help them compare
rates from multiple banks.
Other customers will happily pay a slightly higher rate for
more personal service, so we refer them to a local bank. These
people want a friendly face to work with, and they like the
fact that if they need a loan two years from now, they can walk
into the bank and make an appointment with the same person who
financed their remodel.
Keeping Things Moving
We give the customers the lender's name and phone number and
tell them we'll call first to make an introduction. When we
call the lender, we talk about how much hand-holding we think
the customer will need and explain the scope of the proposed
job. My company deals only with lenders who will make loans
based on the future value of the house — that is, what
the house will be worth after the improvements my company is
going to make.
We also give the appraiser our gut feeling about what the
house is currently worth, the budget for the renovation, and
what we believe the house will be worth when the job is
We don't blindly accept every valuation. Two appraisers can
have very different ideas about what a particular house will be
worth after a job, and if we think they're coming in too low,
we talk with them. This is where keeping current on real estate
comps pays off.
We can usually get a customer pre-approved in 24 hours. After
pre-approval, it typically takes a week to 10 days to get a
design agreement. The design process can take up to six weeks,
and during that time there is continuing contact among my
company, the homeowner, and the lender.
Our ongoing relationships with lenders has made this process
easier over time. For instance, we're able to submit the
project plans when they are three-fourths done, and then go to
closing before the plans are completely finished or the permits
have been filed for.
A key to making all of this work is choosing lenders who
understand the remodeling business. Our customers are people
with good incomes, good credit ratings, and equity in their
homes. Lots of lenders would like to loan them money.
The problem is that some lenders don't want to loan on the
future value of a home, some have draw schedules that make it
impossible to keep the job going, and some are slow at getting
that final payment out.
It's important to flesh these issues out before agreeing to do
business with a bank or finance company. You need to qualify
lenders as carefully as you qualify prospective
My company has a list of stipulations that lenders must agree
to before we send our customers to them. They must:
- agree to give us a 30 percent down payment before work
- be willing to make payments by wire transfer directly
to our bank account (we don't want to hear that the check
is in the mail);
- commit to having inspectors at the job site within 48
hours after we call for an inspection;
- make final payment within 10 days of completion. We
specify that the project is finished when the final county
inspection is done, and when the homeowners have signed off
on the punch list.
We don't get these promises in writing, but we know after
the first job whether the lender is one we want to have an
ongoing relationship with.
Be aware that if you leave the lender in control of the
process, it'll kill you. The lender won't give you a deposit to
start, or it will be slow paying your draw requests, or it will
make you wait 60 days after the job's done to get paid.
The good news is that we have worked with 10 lenders in the
past 20 years and have had problems with only two or three; in
each case, the problems started because the lender got bought
by another company with different policies. We stopped doing
business with these lenders as soon as they stopped meeting our
That's the value of a good screening process.
Robert Weickgenant is president of
Star-Com Design/Build Corp., a full-service remodeling company
based in Columbia, Md.