Defying Down Trend, Builders Report Profitable 2007
Contrary to popular belief, not every builder suffered a downturn in 2007.
During an educational seminar at last month’s International Builders’ Show in Orlando, three entrepreneurial builders shared their “lessons learned” and successful business strategies on how they survived 2007 and managed to turn a profit.
The first step is to stop procrastinating and develop a “call to action” plan, said John Schleimer, MIRM, CAASH, president of Market Perspectives, a residential and commercial real estate consulting firm based in Roseville, Calif.
A key element of that plan is compiling comprehensive data on competitors, he said. Assess the standards and features of their homes, noting ceiling heights; approximate room, deck and patio sizes; and specialty rooms and flex space.
After evaluating what other builders are putting into their homes, the next step is to conduct a comprehensive product review of your own business — including front elevations, plan design quality, standard features, pricing and value-engineering, said Schleimer.
“Find out where you are priced in the market,” he said. “Conduct focus groups with buyers and prospects to find out what floor plans work. Don’t let the purchasing staff make design and feature decisions that should be made by the marketing team.”
While it may sound counterintuitive to some builders, Schleimer said it is vitally important to allocate sufficient resources to marketing in down periods.
“You need traffic-generating ads with sharp headlines to bring in qualified buyers,” he said, adding that an effective Web site and properly trained sales staff are essential elements to a successful marketing operation.
To survive in 2008 and position their business for next year, Schleimer said that builders should also consider diversifying into infill projects, 50-plus housing or affordable attached and detached homes.
Knowing Your Market
Rick Tollakson, president and chief financial officer of Hubbell Homes in Des Moines, Iowa, said that knowing your market is essential to succeed.
“I want to know what the competition is charging for the same product,” said Tollakson.
Hubbell Homes is constantly evaluating current plans and amenities along with pricing, and its sales team recommends changes based on market comparisons. The company is well diversified, building homes tailored specifically for first-time buyers, empty nesters and growing families.
“A big focus is on green home building,” said Tollakson. “We are the only home builder with geothermal as standard on all our brownstones.”
A top-notch Web site is an essential selling point, he added. “We direct all e-mail leads through a dedicated sales agent. We get at least two to three Web leads per day. People want to communicate instantaneously. The only way to do that is with a dedicated Internet sales associate.”
Looking ahead in 2008, Tollakson says his firm will be focusing on hard costs, streamlining the production process, raising its Web presence and increasing its sales.
Diversification the Key to Success
Steve Hall, president and CEO of Hallmark Homes of Savannah, Ga., credits diversification with the success of his firm, which just celebrated its 25th year in business.
“In 2000, by taking advantage of the opportunity to buy bulk land and develop a master planned community, we diversified our construction efforts by focusing on production housing,” he said. “We now succeed in building homes starting at $140,000 as well as homes into the millions. We are currently building in 16 neighborhoods, closed 164 homes in 2006 and in 2007 topped that with 235 closings.”
As the market began slowing in 2007, Hall acted on several fronts to adjust to the changing landscape.
His firm streamlined operations by combining its buying power with builder affiliates.
“Sharing expenses reduced the margin between the cost of materials and allowed access to a wider range of materials and vendors,” said Hall.
Hallmark Homes also instituted a zero-defect punch list, set a tight building schedule, streamlined policies and procedures for its custom division and created a customer care department.
To meet customer niches, the firm created a more diverse product line, and it changed designs to provide consumers what they were asking for.
Another useful marketing strategy is to provide sales representatives with $15,000 in leeway to negotiate a price on-site. “If the sale goes through, the sales rep gets part of the action,” Hall said.
To assuage consumer fears that prices haven’t hit bottom yet, Hallmark Homes also provides its customers with a one-year price guarantee to honor the sales price if it drops in the community.