Switch Strategies From Specs to Selling Contract Homes

With the days of selling spec homes even before they've been completed long gone, builders need to adjust their strategy and business model to the current market reality.

To get through the downturn and be in a position to succeed when the market picks up, builders should focus on more than just selling off their spec homes and reducing their inventory.

Many builders already have begun shifting their strategy of building spec homes to one of building and selling contract homes. It's the smart thing to do and will help ensure their profitability ― or at least survival — through the downturn and beyond.   

But builders who are considering implementing this type of business strategy should realize that this new model requires not only a change in business tactics, it requires a change in mind-set, too.

The following are seven steps to consider when implementing a contract home strategy.

1. Forget about building conventional homes with broad appeal and focus on delivering homes that specific home buyers want you to build.
   
   The housing market is no longer about what you think people will buy; it is now about creating a system of delivering what your buyer wants. It’s a shift from selling bricks and sticks to selling your services.
   
   In today’s market, you are no longer selling a house; you are selling a 12-month relationship with your home buyer.
   
   
2. Re-establish your network of home buyer references.
   Strong and cooperative references are absolutely important in today’s environment. Prospective home buyers will still evaluate your homes in order to qualify you as their potential builder, but since you may no longer have models or spec homes to show them, you may have to show them the homes of prior customers.
   
   If you have built up a strong reference and referral network among your home buyers, you’ll be able to walk prospects through their homes by appointment. This not only enables prospects to evaluate your homes, they’ll also get a sense of the home buyer experience and how well you work with customers — an excellent way to differentiate yourself from your competition.
   
   
3. Create a great Web site experience.
   Prospective home buyers will look at your Web site before contacting you as part of their evaluation process. Ensure that your site delivers the correct content and user experience.
   
   Many industry experts recommend using less “flash” and showing more pictures of homes. Make sure you tell your story and why a prospect should select you to build their home. You are now in the relationship business, so show pictures of yourself and your staff.
   
   
4. Communicate clearly with home buyers.
   Ensure that every person who communicates with your home buyers is proficient, because everyone who comes into contact with your home buyers ― from the salesperson to the selections coordinator to the job foreman — is a reflection of your business.
   
   Also, pick a main contact person for your customers ― this may or may not be you depending on your people skills. Some training on appropriate behavior and communication techniques for whoever the contact person is may be beneficial.
   
   
5. Create ways to facilitate home buyer ideas and selections.
   Be prepared to help your clients progress from generating ideas to making decisions.
   
   Help them progress by preparing a list of Web sites, magazines, catalogs and other resources so that they can better communicate to you what they want and don’t want included in their home.
   
   Present selection boards and product samples to narrow down the limitless options and to simplify their decision making.
   
   
6. Modify processes to make it easy for home buyers.
   Home buyers purchase spec homes because it’s easier and faster for them than building a contracted custom home. If you are trying to sell a contract home, make the process as quick and easy for the customer as you can.
   
   Give them easy-to-follow steps beforehand on what types of decisions they will have to make, and when they will have to make them. Include pictures to create visual documents to help them better understand the construction schedule and allowances.
   
   
7. Selections don’t have to be made before breaking ground.
   People are inherently visual, so requiring them to make all their selections before they can see anything will lose you sales.
   
   Don’t lose those sales. Create a schedule that meets your lead-time requirements on when selections need to be made while giving your customers enough time to make their decisions based on what they can see. Spreading out the decision-making time makes it easier on the home buyers ― and can help you break ground sooner.

Evaluate every aspect of your home building business to ensure you are prepared to succeed at selling contract homes. Better tactics will improve your business in the long run, even when spec homes start to sell again.

Andy Elsbury is the founder of Indianapolis-based SelectionWare, which provides consulting services and solutions for home builders to improve the building process. For more information, e-mail Elsbury, call him at 866-585-9222 or visit the SelectionWare Web site at www.SelectionWare.com.

NAHB Has Nearly 300 Resources to Help You Run Your Business More Profitably

Go to NAHB's Business Management Tools Web pages (available to members only) for instant access to nearly 300 timesaving, moneymaking and cost-cutting business resources to help you run your business more profitably. Get guidance on accounting and financial management, business strategy, computers and information technology, customer service, human resources and more.

Resources are added weekly, so bookmark www.nahb.org/biztools to go directly to these vital business management resources.

Local and state home builders associations can link directly to www.nahb.org/biztools from their Web site and give their members instant access to these resources. It will make your HBA's Web site the place to go for the information and guidance that members need to succeed.

Add Success to Your Schedule

Missing a deadline can seriously damage your bottom line. The "Scheduling" course from The NAHB University of Housing shows building professionals how to set workable schedules and use various time-management tools.

The course teaches the benefits of scheduling and integrating scheduling with other management activities and will help builders, remodelers and site managers deal with those days when nothing goes according to plan.

Find upcoming Scheduling courses here, or call 800-368-5242 x8154 for more information.

Use ‘Cost of Doing Business Study’ to Develop Strategies to Succeed

“The Cost of Doing Business Study, 2008 Edition,” available from BuilderBooks.com, is a one-of-a-kind resource that gives an inside look at the business practices of hundreds of builders from across the country by  providing an accessible overview of profitability, cost of sales and expenses.

Several categories, including volume, operation type and land vs. no land costs are analyzed to help builders fine-tune comparisons between study results and their companies. These categories have been analyzed, where applicable, by average and by the top and bottom 25% of performers by net profitability.

Use “The Cost of Doing Business Study, 2008 Edition” to develop proven strategies to succeed in an increasingly competitive market.

To view or purchase this publication online, click here, or call 800-223-2665.

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