What to Know About Modular Housing

The construction and purchase of modular housing has gained popularity, including on the South Fork of Eastern Long Island.

Modular housing, once considered inferior to “stick-built” on-site construction, has not only overcome that stigma, but is considered by many to be superior and less expensive than the more traditional home.

Reasons offered include the fact that modular is constructed off-site, in a factory, making weather conditions a non-issue. They must meet strict quality controls, and every component of every home is manufactured in precisely the same way each time. Volume discounts on materials and automation keep prices low. According to the National Association of Home Builders, while the time to construct the modules depends on size and style, factory work completion is one to two months, and delivered to the home-site 70 – 90% complete, which has the benefit of expediting occupation by the buyer, and reduces the costs to the buyer financing the purchase.

When financing modular homes, banks typically go through two stages: a construction loan and a permanent loan. When construction is completed evidenced by a certificate of occupancy issued by the local buildings department, the loan will convert to a permanent mortgage.

In New York State, rules and regulations for modular homes are promulgated by the New York State Department of State. The Division of Housing and Community Renewal is the state agency that administers the program. The manufacturer of the modules need not be located in the State of New York, but each plan must bear the signature and seal of a New York State registered architect or professional engineer licensed to practice in the State of New York. A plan approval remains in effect for two years from the date of issuance, unless earlier revoked.

As each section is completed in the factory it is inspected by the Division of Housing and Community Renewal that affixes an insignia, a stamp of approval, before it leaves the factory. All fees and costs of the inspection are the responsibility of the manufacturer.

I spoke with local buildings department representatives who said the local code requirements for “stick-built” and modular are the same. There is nothing in the public records to indicate whether the construction was modular or “stick” nor is it indicated when the sale is recorded with the county clerk’s office. For these reasons, I was unable to quantify the number of modulars as opposed to stick-built, but I did solicit opinions of real estate professionals who have had experience with both types of construction for their thoughts.

 In order to get a sense of relative resale value, if there was any, I posed the question to Peter Halstead, a licensed appraiser of many years of experience who is located in Remsenburg, if an adjustment is made on the appraisal of a modular home?  He said no adjustment is made and there is no indication that the resale value is any less because it is a modular home.

Another important aspect of modular development relates to the issue of insurance.

I spoke with Benjamin Dollinger, an insurance advisor who has thirteen years experience with the Amaden Gay Agency in East Hampton. Dollinger identified the types of insurance that apply to modular construction. From the time the modules are constructed in the factory and delivered and affixed to the site, the modules are owned and insured by the modular company. From that point on, the contractor who sets  the modules on the foundation procures a general contractor’s insurance policy, and the property owner procures a builder’s risk policy which will be required by the lender if the project is financed. After construction is completed, the builder’s risk policy is replaced with a homeowner’s policy. He saw no difference with respect to insuring “stick-built” as compared to modular.

Htun Hahn,  Managing Broker of Hamptons Realty Group in Amagansett, shared his experience with modular homes. He said he has been involved in quite a few deals, from a property owner building from scratch, to a builder building a spec house. In almost every instance they were financed with a construction loan leading to an end loan, a permanent mortgage. The draws [progress payments made to the contractor] are the same as for “stick built” homes, usually three  to four draws, based upon the percentage of completion.

JR Kuneth, a real estate agent with Brown Harris Stevens,  gave me information on three modular homes in East Hampton that sold between in 2015, 2019, and 2020, for $2,350,000, $2,600,000, and $2,300,000. He too saw no difference when compared to prices for stick-built. He also made the point that customization and added amenities affect the cost of construction, which offsets any savings that modular might offer. So far, he has seen modular homes resale prices of up to $5 million.

Having gathered this information, I then spoke with two general contractors with experience in the construction of modular homes.

Patrick Glennon, President of Handy Hands, Inc. located in East Hampton, has been in the construction business since the 1970’s. He built his first modular home in 1987 and has built approximately 137 modular homes since then,15 of them “knock-downs.” He has seen the same sale price increases for both types of construction. Glennon works with a modular manufacturer located in Pennsylvania, he says, due to the limited number of modular manufacturers in New York. He and two of his men do the finishing work when the modules are delivered to the site and set on the foundation. Glennon’s customers are typically cash buyers, which avoids the issue of financing during the construction period.

Jon Sirkin, owner of Hamptons Modular, LLC, located in Southampton also uses a manufacturer located in Pennsylvania. He says that the labor costs are cheaper than local, and while amenities do affect price, most of them can be done in the factory. Buyers who do finance the purchases get construction loans that become permanent loans and are required by the lender to purchase builder’s risks policies which then become homeowner’s policies. Sirkin explained that most factories deliver the modules to the site but do not set them on the foundation. That becomes the responsibility of the general contractor who either does it himself or hires a company who does that kind of work. He does both for his sites and for other contractors. He has also done a number of “knock-downs.”

I reached out to Christopher D. Kelley, Senior Partner with the law firm, Twomey, Latham, Shea, Kelley, Dubin, & Quatararo, to inquire if he had experience representing clients involved in the sale and purchase of modular homes in the Hamptons? He told me that he and Joan Morgan McGivern, Counsel with the firm, are representing clients in a lawsuit involving an out-of-state modular construction company, and a local general contractor, due to problems that developed during assembly. The project ended up substantially over the fixed-price budget, had numerous defects, and took considerably more time to complete than stated in the contract. Kelley’s advice: “the lesson for your readers is to be wary of out-of-state modular home manufacturers, and to make sure they are protected in the contract with the manufacturer so they get a warranty and can sue in Suffolk County if things go wrong.”

Finding a parcel of land suitable for development that will satisfy the buyer’s needs, can be accomplished by finding a real estate broker who knows the area and preferably, has experience with modular homes. An attorney familiar with local codes and other issues unique to the area is also an important choice. This is also true of local general contractors, appraisers, insurance professionals, and lending institutions.

The consensus of those I spoke with is that modular construction has been rising in popularity, attributable to the time factor, lower costs, and the ability to customize. Their estimate of prices ranges from $400,000 to $2 million.

Comment: The complete Rules and Regulations for modular construction in New York are available on the New York State Department of State website.