THE REAL COST OF AFTER CARE

Updated: Oct 25

The typical developer who manages their own after care is likely or not, spending a great deal more money in this pursuit, than they are aware. After care is a necessary expense and cannot be ignored for any developer, least of all one who is producing volumes north of a dozen plots a year. At this point it is an unrealistic proposition to believe you can handle after care without a dedicated resource.


In this article we look at the cost as so often it stands, then we look at how to reduce this (without diminishing the standard of service). And finally, we consider the best way to budget for after care.


There are two aspects to after care that will affect your overhead, and these are:


Resource There quickly comes a stage where you cannot manage your after care without a dedicated resource; it’s not a ‘job-share’ and it won’t manage itself. Your customer expects a high standard of service and so will the New Homes Quality Code.


Defects Your contractors will let you down at some stage, this is just a fact of life. The incidence of failing contractors is currently very high. And it would be unusual for contractors to be tied into a build agreement so tightly that they attend problems much into the second year.


In terms of the resource, you cannot operate without a dedicated resource, and it isn’t possible to have an effective after care response with only 1 person (otherwise how would you cope during holidays and sickness).


We have based this example of a developer building 25 plots a year:

COST

BASIC

NI/PENSION

TOTAL

After Care Manager

£35,000

£5,880

£40,880

Car allowance

£5,580

Mobile

£660

SUB TOTAL

£70,480

After Care Admin

£20,000

£3,360

£23,360

SUB TOTAL

£23,360

TOTAL

£83,489

This is a modest arrangement, nonetheless, costing over £80,000 a year. In terms of managing defects the following considers the likely scenario in today’s market:

BUILD QUALITY

< Average

Average

> Average

JOBS (snags and defects)

15

10

5

YEAR 1 Jobs (78% of total)

11.7

7.8

3.9

Developer funds 10%

£246

£164

£82

YEAR 2 Jobs (22% of total)

3.3

2.2

1.1

Developer funds 90%

£624

£416

£208

SUB TOTAL

£870

£580

£290

Multiplied X 25 plots

£21,750

£14,500

£7,250

To explain, we know that the approximate spread of all jobs arising from snags/defects reported by the occupant are just over three quarters (78%) in the first year and the balance (22%) in year 2.


We also know that a proportion of original contractors, for myriad reasons, will fail to undertake their obligations in the first year and the developer will be forced to fund these from their own resources (around 10%). In the second year, although the volume of jobs is considerably reduced, many build agreements today hold the contactor responsible for two years, and therefore the developer will fund the vast majority themselves (90%).

Adding the two ‘cost’ tables together, results in the following:

ITEM

< Average

Average

> Average

Resource (Developer) pa

£83,489

£83,489

£83,489

Defects YEAR 1

£6,150

£4,100

£2,050

Defects YEAR 2

£15,600

£10,400

£5,200

TOTAL COST (2 YEARS)

£188,728

£181,478

£174,228

Cost per plot

£7,549

£7,259

£6,969

This is expensive – yet realistically what many developers are paying, although they may not realise it. And for those without a structured after care programme, they may well be paying even more, as problems multiply and time spent resolving issues eats into expensive management time.


There is a solution that will bring these costs tumbling. After Build's after care service will deliver significant savings and an enhanced service level:

ITEM

< Average

Average

> Average

Resource (ABL ) total

£10,625

£10,625

£10,625

Defects YEAR 1

£6,150

£4,100

£2,050

Defects YEAR 2

£15,600

£10,400

£5,200

TOTAL COST (2 YEARS)

£32,375

£25,125

£17,875

Cost per plot

£1,295

£1,005

£715

Sticking with our example of 25 plots per year, this approach would achieve a substantial overhead reduction of £156,000 over 2 years!


How realistic is this? Entirely. After Build have developed an after care service to manage a developer’s obligations, to:


1. The homeowner

2. The warranty provider

3. The New Homes Quality Code


And to achieve this we have structured our business around a trained team of Property Coordinators who understand the warranty requirements, how to handle a homeowner and how to manage a contractor. Additionally, we have made certain our service is NHQC compliant.


Their dependence of a powerful and reliable, bespoke system is satisfied by Microsoft Dynamics 365. This CRM platform is Cloud based and enables us to provide a unique service to all three parties (homeowner, contractor, and developer). As an added enhancement to speed up access and create a convenient tool for reporting defects we offer all homeowners our free App (Managing Your New Home).


This all means that we have the scale of operation capable of managing a developer’s output for a fraction of the direct cost that they would otherwise face if they were to resource after care internally.


After care should be treated like any other construction cost

It is now a fully recognised overhead, no longer avoidable in the modern house building world. And for this reason, should be treated like any other construction costs – budget for it on a ‘per plot’ basis, and don’t use this as the ‘sacrificial lamb’ if later in the build programme, costs need to be cut.

ITEM

Av. size (m2)

London

Midlands

Cost of Construction

Apartment (1-2 beds)

61

£3,700/m2

£2,462/m2

Build Cost

£225,700

£150,182

House (3 bed semi)

64

£3,150/m2

£1,750/m2

Build Cost

£201,600

£112,000

On this basis, your after care budget, based on After Build service costs, would be in the region of 0.3% to 1.1% of construction costs. If you want to deliver a great service (avoiding reputational damage) and steer clear of long, protracted complaints when a homeowner fails to receive the degree of professional support they expect in today’s marketplace, build in the cost of after care.

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