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Let Buyers 'Option Up' With More Packaged Options
The first in a series about how to ramp up sales and marketing in a changing market.
One key to getting to the next cycle in the housing market is to cut costs and let home buyers “option up” their homes through pre-priced structural options much like automobile dealers sell cars, said Ross Robins, MIRM, of the Lee Evans Group/Shinn Consulting Inc., an operations and marketing consulting firm based in Littleton, Colo.
Robbins discussed how to strengthen company financials during NAHB’s free hour-long teleconference, “Ramp Up Your Sales & Marketing in a Changing Market,” on Dec. 12. Bonnie Alfriend, MIRM, of Alfriend and Associates in Pebble Beach, Calif., and Dan Levitan, MIRM, Levitan & Associates of Fort Lauderdale, Fla. also participated in the teleconference.
“The problem that we have had is that we have been living high on the hog for a long time,” Robbins said. “We’ve outpaced our buyers’ ability to buy the homes we have for sale. With the new loan standards that we have we are facing issues to get the costs out of houses.”
Robbins said that builders could learn how to cut costs and restructure sales from automobile dealers. He suggested that builders should be offering fewer single options or amenities and, like automobile dealers, package options and let home buyers choose from various packages to upgrade their homes.
“We could do well to learn from these people and configure the houses in different ways pre-priced for our buyers,” said Robbins. “For example, if you have a flex space that could be an office, nursery or artist studio, you could configure those spaces and have those pre-priced packages for whatever direction your buyer wanted to go.”
Be Prepared for 2008
Because price will be critical to selling homes next year, Robbins suggested five basic things builders can do to effectively prepare for 2008:
- Reassess every component in the home you build.
- Get good market research data on your buyers.
- Realize that buyers have changed.
- Find out what the buyer will pay for; it will probably be different from what you think.
- Go back to zero based specifications; determine what items and specifications are necessary before adding them to the home.
Cash Is Critical to Surviving the Slowdown
Robbins said that cash will be critical to businesses that are working to survive the housing slowdown. Credit lines can dissolve, he said, but cash has staying value.
In addition, opportunities will arise when the market enters its next cycle and cash will be needed to take advantage of them.
“We may be closer than we think to that part of the cycle,” Robbins said. “You need to minimize your financed land and inventory, get your cash out and your properties sold, or even walk away from deals if you have to.”
“Too many specs or widgets can take you down,” he added. “Sell them for what you can get, and get out of there. If one or more of your inventory homes is aging, cut your prices now, not later.”
“Have some preplanned action points, say, 30-, 60- or 90-day holding periods and what you will do at each of those points,” Robbins suggested.
A company can survive a down market as long as it stays above the break-even point, Robbins said, adding that no one knows how long that will be.
Cut Overhead But Keep Key Team Members
Robbins said companies should cut as much overhead as they can, but not so deeply that they would lose key team members.
“In order to be ready for the next cycle, you need to have a team of capable people that can take you to the next level,” Robbins said. “You need to identify who they are ahead of time. They may be doing more jobs, but they must remain intact.”
Don’t Over-Enforce Buyer Contracts
Levitan, of Levitan & Associates, warned teleconference participants not to go overboard when enforcing buyers’ contracts during the slowdown. Builders can realize short-term benefits by strictly enforcing their customers’ contracts, but if they do they probably shouldn't plan on staying in business too long in their current location.
Builders should consider the negative publicity and repercussions that could arise if they decide to aggressively sue buyers who are not adhering to their contracts.
“I’m involved with a number of builders around the country,” Levitan said. “Some of them are enforcing 100% of their contracts. They are suing buyers that have not performed. Most of these people are not going to be in business in that community long term.”
“You have got to come up with a position of where you want to be long-term, and what you’re willing to put up with for the short term,” he said.
Renegotiate Credit
Builders should also focus on asset protection in order to survive the slowdown. “If you haven’t already done so, get an attorney and make sure that you are going to be around for the long term,” Levitan told listeners.
Levitan also encouraged builders to work closely with their lenders. Lenders, he said, are dealing with many of the same issues that are confronting builders and better and more effective solutions can be achieved if builders and lenders work together.
“The lenders have to understand that they are your partner with this issue and that you are better than anyone else at working out this existing job,” Levitan said. “If they foreclose on the deal or if they take the land back, they are going to dump it at a substantial loss.”
“It’s better for you and for them for you to stay in the deal somehow and work out any issues that arise,” he said. “To keep you in the relationship means everyone will get a higher return on investment.”
 Teleconference Recording Still Available
A recording of the teleconference, “Ramp Up Your Sales & Marketing in a Changing Market,” is available free to NAHB members on the NAHB Web site.
The hour-long recording includes a panel discussion by industry veterans who have been through market shifts in their careers. They discussed what sales and marketing changes are needed in order to thrive in today’s market.
Topics discussed include:
- Minimizing objections: Understanding buyer needs, wants, abilities and fears
- Being innovative and offering incentives to buyers and employees
- Assessing your sales team
- Strategizing product mix — shopping the competition
- Reducing inventory
- Cutting costs
- Exploring legal means of collections
- Renegotiating credit
- Mortgage credit options for buyers
- Contingency contracts
- Financing tips
- Maximizing vendor, lender and supplier relationships
To listen to the teleconference, members can click here.
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