Unlike general contractors who perform construction work on a for-hire basis for the owner or owners of a development, operative builders are the owners of the structures they build and act as their own general contractors. In addition to construction, operative builders engage in land acquisition, sales, and a variety of other non-construction activities associated with developing and selling properties. Operative building has traditionally accounted for a comparatively small percentage of construction. During the 1990s, operative builders typically employed fewer construction workers than general contractors did and employed a higher proportion of non-construction employees, such as executives, salespeople, administrative staff, and other professional categories, which reflected their wider involvement in site development, property sales, and other activities not performed by general contractors.
Although operative builders were primarily involved in construction, principal industry activities also included subdividing and site development work, real estate management activities, land sales, construction-related activities, and miscellaneous operations. The vast majority (95 percent) of construction performed by industry firms involved the erection of new buildings and service facilities, as well as the installation of equipment like elevators, heating and air conditioning, and plumbing. A small proportion of construction activities involved renovation work, such as additions, alterations, or reconstruction, and maintenance and repair.
An important component of the industry’s non-construction-related activities was the acquisition of land for development or for resale in developed, undeveloped, or partially developed form to purchasers, including other builders. The decision to purchase of a tract of land is based on the evaluation of cost, as well as marketing and demographic studies conducted by the builder or by consultants. Other criteria included financial and legal considerations, governmental approvals and entitlements, environmental factors, the firm’s experience in a particular market, real estate market trends and the general health of the economy. Engle Homes of Florida, for example, primarily purchased land already “improved” for building construction, land requiring site improvements, and “options” on improved land allowing the company to buy the site when market demand warranted construction. Firms that can afford to carry the costs of a large undeveloped “land inventory” may ultimately benefit from having purchased large tracts rather than several small, expensive parcels when it comes time to construct a large master-planned community on the site. It generally takes five years to develop purchased land into master-planned communities or subdivisions, while small, conventional residential projects take two to three years to complete. The purchase of land tracts involves a “contingency period” while zoning, environmental, and other governmental and infrastructure requirements are met.