DIANA ROLSTON, CO-OWNER OF Land Ark Homes in Ottawa, Ontario, remembers the days when her company's model homes showcased only standard items. Buyers were sent to suppliers all over town to purchase upgrades. They got confused and didn't spend much money. Now, the builder, which closes on 22 houses a year, displays $146,000 worth of merchandise in the model center.
Like kids in a candy store, Land Ark's customers want what they see, shelling out an extra $110,000 on average to outfit their $500,000 homes. “We found we can sell a lot more upgrades when people see them in place,” Rolston says. “Many of our clients choose all the items in a model because they can see what it will look like.”
Like hundreds of small to mid-sized builders around the country, Land Ark can't compete option for option with the large, dedicated design centers big builders use to lure buyers and add revenues. Not long ago, builders of 100 homes a year or fewer didn't even try. But today, these smaller companies are finding creative ways to give customers the personalization they crave, while minimizing the organizational burdens that can drain staff and siphon profits.
Land Ark, for example, commissions local interior designer Brenda MacPherson, owner of Inspired Spaces, to shop for and decorate its model homes. Although buyers choose their cabinetry at a supplier's showroom, all other selections take place in a 10-foot-by-20-foot room in the model basement. Buyers get four hours of consultation time with MacPherson, who speeds the selections process by color-coordinating exterior materials and organizing the choices in each category. Land Ark makes things easier on everyone by editing the products its customers care least about. There is one standard lighting package, for example, and the plumbing package has just one upgrade, which is shown in the model. “We found our clients aren't interested in spending the time to customize their lighting,” Rolston says. “We'll cap the openings if they want to do their own after move-in.”
Land Ark's operation is small enough that it requires only one administrative person to round up the 25 or so selections and fax them to the trades. And the model showcases have been so successful that the builder added three elevation choices to its original four offerings. “Our model houses are our biggest sellers,” Rolston says.
Packaging For Profits The key to the success of options and upgrades programs, of course, is to give buyers plenty of choices, but to offer items that can be delivered profitably, and in palatable chunks so as not to overwhelm. Compared with the warehouse-size showplaces of big builders, small selection centers may do a better job of preventing frayed nerves. Baywood Development Group in Newport Beach, Calif., which sells 50 homes a year ranging in price from $700,000 to $1 million, presents its upgrades in three model homes and has a small showroom next to the sales office. Buyers choose from about two dozen options totaling upward of $300,000. In Baywood's Sentinel community of homes with a base price of $800,000, some customers have snapped up everything the builder offers.
Marketing director Martha Pedersen lends the personal touch, shepherding buyers through three phases of selections. First they choose plan modifications that will be incorporated into the structure of the house. In stage two they pick out appliances, cabinets, paints and drywall finishes, ceiling fans, and HVAC systems—enough items to bring the house to the drywall stage and set cabinets. Finally, checklist in hand, buyers meet with the company's suppliers to finalize the remaining materials—typically just flooring and countertops, though executive vice president Neal Pedersen notes that price-sensitive clients never have to leave the model home.
When clients are sent out of house, “our subs have the responsibility of dealing with the buyers directly,” Neal says. “They in turn send us a completed order form with the buyers' signatures.” He adds, “I think the advantage of a design center is that you have a single on-staff person coordinating everything. But because we are small and meet with buyers individually, we have a close handle on what selections have been made in each house.”
Brown-Midwest, a builder in Olathe, Kan., teams up with a retail design center to supplement its model-home merchandise. No design expertise or floor space is needed, however, to present the three tiers of energy and convenience packages the builder sells right in the office. The choices couldn't be clearer. On the energy upgrades, for example, buyers pay $1,850 for the bronze package of exterior foam and caulk, main-level storm doors, programmable thermostats, and insulated exterior garage walls. The $4,700 gold package features an additional five items, including an HVAC humidifier, a 92 percent–efficient furnace, and a 12-SEER air-conditioning unit. Comparably priced convenience packages cover things like remote garage-door openers and central vacuum and security systems.
“Grouping things together improves the viability of the options, which helps improve the bottom line,” says owner Mike Brown, who closes on 70 homes a year ranging in price from $180,000 to $280,000. “And from a scheduling standpoint, it makes it very simple.”
In-House Technology Builders with slightly larger sales volumes are using sophisticated technology to fast-track selections and offer a wider range of options under one roof—their own. Simonini Builders in Charlotte, N.C., for example, splits its operation between high-end custom homes and semi-custom homes totaling 90 closings a year. On custom work, the world is the buyers' oyster; they pick out whatever they desire from Simonini's trade partners all over town. But Heydon Hall, a community of 129 homes ranging from $500,000 to $1.5 million, follows a different concept. The builder set up a 2,700-square-foot showroom in a model-home basement, spending $150,000 on software and another $150,000 on merchandising the space.
The software contains a database of every component the builder offers—more than 8,000, priced for every floor plan. “It took us a year and a half to set up, and a whole lot of brain damage,” says Bill Saint, CFO and vice president of operations. “But the payoff is great. Our customers get immediate feedback on pricing. The software generates all of our purchase orders, which go right to the vendors, eliminating a lot of confusion. All the details the clients signed off on go out in a package to the field superintendents, so they know exactly what goes in the house.”
In designing the showroom, Simonini strove for the sales and options services of a high-end retailer. “We wanted to use concepts like Nordstrom or the Ritz-Carlton, rather than the Gap,” Saint explains, “with display walls that are exciting and convey luxury.” To assist customers, the builder hired two full-time consultants with well-rounded backgrounds in design, sales, and service. Buyers typically spend 10 percent of a home's value on upgrades and get the job done in three to five visits—less than half the time required of Simonini's custom-home buyers. Since Heydon Hall's opening in June 2003, homes have been selling at a pace of three to four per month.
Two years ago, Pohlig Builders in Malvern, Pa., launched a similar system to offer options and upgrades in a golf-course community of $950,000 carriage-style homes. In addition to a custom division, the homes represent 44 percent of Pohlig's $40-million-a-year operation. Owner Don Pohlig spent $250,000 on software that turns selections into subcontractor and supplier orders. A ceiling medallion in the foyer? No problem. The software figures in the extra bucks a rough carpenter needs to split the joists. “Without the system, a superintendent would need extra personnel in the job trailer,” Pohlig says. “And with 20 sales a year, we may have needed two selections coordinators, vs. the one part-time person we have now.”
In a 1,200-square-foot design center on the lower level of a model, customers choose everything except light fixtures, spending an average of $150,000 per unit. The virtually one-stop computer system allows the builder to offer tons of items not on display. “We took every option we had and made sure there was enough selection that people didn't feel like they had to go anywhere else,” Pohlig says. “They select a lot of high-end stuff, such as variable-speed furnaces, different types of air cleaners, and the option for temperature zoning.” Overseeing it all is a staff person who had worked for both a builder and an interior design firm. Pohlig says that combination of experience has been crucial to setting up the database and helping clients feel comfortable with their decisions.
FORGING PARTNERSHIPS In order to expand their smorgasbord of offerings, many builders are leveraging partnerships with outside firms of one kind or another. Years ago, Brown-Midwest was selling almost everything out of a small model-home showroom. The system took a toll on the sales staff, which was scrambling to write contracts and schedule selection appointments. “We were not only burning out our agents but also leaving money on the table,” Brown says.
He spent hundreds of hours building a relationship with Kopp's Decorating Center, a local retailer where customers make about 25 selections from more than 2,000 options storewide. “Because the design center isn't just geared toward builder product lines but also retail, it stays up-to-date on trends in the marketplace,” Brown says. “They help us offer stylish things in the model homes, and also as options to our buyers.” In choosing a decorating center, Brown scrutinized its ability to order, warehouse, deliver, install, and cash-flow the orders. As selections are finalized, the forms are dispatched to Brown-Midwest electronically and tracked to the budget, schedule, and construction.
The builder works with one salesperson at Kopp's, who's been trained to grasp what buyers are after and reduce the thousands of options to a few dozen in a matter of minutes. In its entry-level and first move-up markets, “we typically see an upgrade amendment to the contract in the $2,000 to $5,000 range,” Brown says.
By partnering financially with another builder on a lighting showroom, McDonald Construction in Apple Valley, Minn., has more control over its options and service. When a lighting company came up for sale a few years ago, builder Bob McDonald purchased it with a partner to service buyers, other builders, and the public. The partners lease showroom space in a 5,000-square-foot design center, a one-stop shop where its buyers spend their discretionary money. Within two and a half years, the showroom was turning a profit. “We knew we could make a go of it just based on the amount of business we do,” says McDonald, who sells 140 homes a year priced around $500,000. “We can control the quality of the items, get better service for our customer, and make a better profit center.” For builders of modest size, that's the name of the game: devising new ways to offer exciting amenities and reducing risks while pushing profits to the limit.
Cheryl Weber is a freelance writer based in Severna Park, Md.
Design Center Resources Because of limited display space, one of the challenges for small design centers is helping customers visualize how the selections will look in their home, says Jaimi Julian Thompson, president of the Artisan Design Group in San Diego, a consulting firm for design center managers. Two other important issues are managing buyers' expectations for product performance and creating value, or overcoming the perception that design centers are overpriced. Thompson recommends the following support and technology services to help builders manage and sell options.
These sites offer Web-based virtual technology that interacts with a builder's floor plans and product database, allowing buyers to view their finish selections in 3-D.
Check out these sites providing software tools for design center management, sales, and marketing.