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Builders Told to Ramp Up Sales Efforts in Slow Market
In the current buyer’s market, home builders are paying the price for the buying frenzy they helped create at the height of the recent boom, according to Tom Stephani, an infill builder in Crystal Lake, Ill., but there are still many buyers out there for companies that know how to ramp up their sales and marketing.
“We out-produced the market by playing a game of musical chairs, raising prices and adding more chairs.” said Stephani, who moderated an NAHB “Back to Basics” teleconference last week. But “when people found a chair they liked, they didn’t play anymore, there were too many chairs and too few people and the frenzy ends.”
(At no charge, NAHB members can access the audio conference, "Ramp Up Your Sales and Marketing in a Changing Market," by clicking here.)
With prices getting out of hand, even with low mortgage interest rates, “the market eventually said enough,” he said, and there was “too much product chasing too few customers.”
“The need for quality housing in America will continue to be strong for the foreseeable future,” he added, but “the existing market must get real first,” a process that is already occurring.
While Stephani indicated that he and his panelists Bill Becker, managing director and president of The William E. Becker Organization; and S. Robert August, president and founder of S. Robert August & Company, Inc., have been in the industry long enough to have seen their fair share of housing downturns, a surprisingly large share of today’s builders and their associates haven’t experienced a slowdown before, because the last one occurred more than 14 years ago. “This is a new and scary experience for those who haven’t gone through this before,” he said.
The first step for beleaguered builders is to identify their problems, Becker said. Those can include cash flow, unsold inventory, cancellations and the loss of buyer deposits, large deposits on future communities, overstaffing, competition, slow or nearly no traffic and out-of-date models and products.
In looking for the solution to those problems, “don’t play catch-up with the competition,” Becker advised. Instead, “match it”; emphasize “what you have and they don’t” and “review your successes over the years and capitalize on your strengths.”
Some specific suggestions from Becker:
- Actively solicit testimonials from happy customers; this is “one of the best things to beat the competition.”
- Research why buyers aren’t going through with the sale. If they’re afraid they won’t be able to sell their home, “you should go to the mortgage company and say we need a certain kind of mortgage to help our people sell their existing home.”
- Allow the salesperson to offer the buyer optional products to close the sale, up to a certain dollar limit; the seller gets to keep the amount by which the incentive package comes in under the limit, on top of a regular commission.
- Look at innovative programs to reduce overhead. “Eliminate redundant employees” and have employees do more than one job. The sales manager should be on the floor and making sales. “Get the sales team together, outline the problem and let them come up with new strategies. It may call for firing the existing team and getting a new one.”
August provided more advice on how builders should re-evalute their sales team to stay on top of the marketplace when it is slowing:
- Review the performance of each individual employee and shop them at least three, possibly four times a year to ensure that the right people are in place.
- Review all of the subcontractors to ensure that they are performing.
- The management team should be getting out in the field regularly and inspecting the site, and managers should be meeting individually with employees to discuss what needs to be done to move the business forward.
- The builder should be meeting with the management team to set new expectations.
- “Take the time to go out and understand the strengths and weaknesses of each neighborhood. The entire team should go out there,” because those who haven’t been to the site will look at the neighborhood with a fresh perspective. Then a plan of action should be developed to sell out the homes in each neighborhood, giving the plan time to produce results, but constantly re-evaluating its effectiveness.
Becker said that builders should take a hard look at their current product mix to ensure that it is appropriate for a soft market:
- “Discontinue soft sellers,” he said. “Too often the builder keeps the model and forgets it isn’t selling.” It can be upgraded or dropped from the line.
- Determine whether the number of model homes is appropriate for the size of the community. For a community of 75 to 100 homes, there should be two to three models, none furnished; for 101 to 200, three to four finished models and one furnished; and 250 to 300, four models with one to two furnished. It takes 40 to 50 production units to pay for a furnished model,” he said and 25 to 30 to pay for one that is unfurnished. “Understand the model mix concept.”
- When designing the community, do not make the lowest-price model the first one the buyer sees. Put first the middle of the product line or the home you are making the most profit on.
- “Take a trip to the competition and look at what they are showing,” and “shop the product, the presentation, the approach you get at the entrance; talk to your competitor’s buyers.”
- Review demand and absorption bi-weekly, monthly and quarterly — including the competition’s.
- Visit the building department to take a look at communities in the planning and zoning pipeline to see what is coming down the road.
- Review the closing prices of competitors and compare them against the base price to see how much is being sold in extras.
Restoring balance to the inventory is the leading challenge in many of today’s markets, August said, but it is important to “preserve the curb appeal of your present product” because it’s “your one chance to make a good impression” with the 40% or so of prospects who show up because they were driving by and happened to see the for-sale sign. Signage and landscaping should “look sharp” and the building sites should be debris-free. Every home and street should “look perfect,” conveying a sense of quality.
Other pointers from August related to the inventory:
- Re-evaluate your lot holdings and determine how quickly they are being absorbed. “It may be important to sit down with the land developer and renegotiate the lot schedule.” And rather than staying the present course, “sometimes it’s better to walk away from a large lot line-up.”
- Cut your overhead by determining what works. Maintaining a scrap book of promotional campaigns and more provides a good archive of what was successful.
- “Sign all of your own checks so you know what you’re paying for, what you ordered and what is being developed.”
- Reduce speculative building; it’s better not to have the inventory.
- Pay a standard real estate commission.
- Eliminate personal liability notes.
- Strive for zero defects within the home and the buyer will become “an outstanding ambassador for the builder.”
- At least one model should be a standard product, with upgrades and options introduced in the second model.
- Use furniture and sales displays professionally, concentrating on what has worked previously in other model homes.
- Train and retrain the sales staff. Make sure they understand the importance of paying attention to details and that they are “expert closers.”
- Offer personalization programs, focusing on one-of-a-kind luxuries.
- Take the time to learn from vendors and subs.
- Set up a grid system to pinpoint where buyers have been coming from and to identify the areas most worth targeting for prospects through direct mail.
- Advertise online; 84% of all prospective buyers say they go online before actually heading out into the marketplace.
Some further pointers from Becker on cutting costs:
- “Don’t worry about market share, that’s an economist term, not yours,” he said. Instead, focus on cash flow and turnover. “How many houses do I have to sell this week or month to keep my cash flow going?”
- Go to banks, insurance companies and suppliers and tell them you are looking for their help. Some suppliers will even send their own people into a community to assess what’s going wrong; “take advantage of their national services.”
- “Don’t start a house until you have a signed contract.”
- “Maintain total liquidity.”
- Find a strategic partner. Work with an ad agency and ask them to prove why their campaign should be adopted.
- Review all cost areas, including overhead, subcontractors, vendors, advertising and anyone who benefits from your company.
To keep lenders on board, August advised:
- “You need to review all of the prospective buyers and determine what it will take to get them to buy” and identify programs that will be helpful to them. Only 5% of salespeople on the floor have been following up with prospects on a regular basis, when they need to be working to understand the specific needs of each buyer.
- Review all mortgage programs best-suited for your customers. “Consider buy-down and innovative permanent financing instruments that will help your customers today and after they move into their homes.” However, builders should beware of interest-only and other “exotic” loans for marginal home buyers.
- Have at least two preferred lenders, and use them to provide education to your sales staff and marketing team member so that they know how to fully qualify and process a mortgage loan through closing.
- The salesperson should determine who the appraiser is for the mortgage. “Contact the appraiser to schedule an appointment to review the home at a time that does not conflict with consumer sales,” and “prepare and review the best comparables for the appraiser,” he said.
Hundreds of pages of the most up-to-date information on running your home building business in today’s buyers' market are available to NAHB members online. Click here to access “Back to Basics — NAHB’s Toolkit for a Changing Environment.”
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