WHEN FIELDSTONE COMMUNITIES opened The Arbors in Irvine models, people knew they couldn't sign a contract, put down a deposit, or even put their names on an interest list. It didn't matter. They started lining up at 4 a.m. for the 10 a.m. opening. For a total of 74 homes available with an average price of more than $1 million, Fieldstone had 3,200 names on its interest list.
“Markets like this are fun,” says David Greminger, project manager for Fieldstone's Orange County metro division.
Fun, maybe, but also overwhelming.
“If you've been in a sales office on the morning of a release, chaos is a great term to use,” Greminger says. “There are a number of buyers crammed into one office and they're often arguing. I've never seen them go to punches, but I've heard of it.”
At high-interest projects in hot real estate markets across the United States, builders are trying a variety of tactics—from old-fashioned lotteries to Internet-only prequalifying—to make presales more fair for home buyers and more manageable for sales agents.
Get Ready, Get Set, Hit Send! For prospective home buyers at the Arbors, the record to beat is 23 seconds. That's how long it took the first person to complete the online prequalifying form after the site started accepting responses. The last person to get a house in the first phase hit “send” three minutes and 14 seconds later.
The process began two weeks before the model preview when a mailer went out to the Arbors prospect list explaining that prequalifying would be done online, starting at 9 a.m. the following Monday. The Fieldstone team felt the online system gave everyone an equal opportunity.
“We've done lotteries in the past,” Greminger says. “Although everyone understands it's fair, they don't seem to like it as much because they have absolutely no control. The guy who took 23 seconds felt he had his destiny in his hands.”
“The social security number made it a little more serious,” Greminger says. “Most people are willing to give their name and e-mail address to just about anyone. Through the process, we really started to narrow who our buyer was.”
Those who completed the pre-qualification form then got a letter telling them about the model preview, which provided a full week for prospects to look over the homes and decide whether they wanted to continue the process. That helped reduce the number of cancellations that can follow a frenzied grand opening, Greminger says. Anyone could tour the models, but only those who prequalified through the Web site had a shot at a house.
The people who prequalified were then asked to submit a complete financial package. That narrowed the list to 97 names. They were prioritized according to when they completed prequalification online, when they brought in the package, and if they were non-contingency buyers.
Starting at the top of the list, the sales staff ran credit checks on the first 30 buyers vying for the 11 houses to be released in the first phase. By the time they reached the 16th name on the list, all 11 homes were under deposit. Five people said the house they wanted was already taken and they were willing to wait for the next phase.
“That process was great—there was very little confusion on the day of sale,” Greminger says. “The buyers understood it. There really wasn't anything to argue about. We had people who were upset because they didn't get a home, but they weren't upset about the process. They didn't have to get in a car and camp out over night. It was convenient and they felt it was fair.”
The process worked so well that Fieldstone will continue to use it, says Raymond De Avila, Fieldstone's director of sales for Southern California. The number of phone calls from buyers was a fraction of what Fieldstone normally experienced, which De Avila attributes to a straightforward process. However, Fieldstone has decided to eliminate bringing in the completed financial package because of the time it took to manage the paperwork.
The five qualified buyers who took a pass won't go to the head of the list for the next phase because Fieldstone feels it's more fair to everyone to start over. But they'll have a significant advantage over the competition. They know the time to beat.
Cynthia Monaco, director of sales and marketing for Barratt Urban Development, a division of Barratt American, used a similar system to sell 138 luxury units in Seahaus, an oceanview condo and townhouse project in La Jolla, Calif., with prices averaging more than $1 million. The interest list had more than 3,700 names.
Barratt Urban opted for a Web-driven system that prioritized home buyers by four criteria: date of registration, non-contingency, prequalification with their in-house lender, and owner occupancy.
“We'll be able to distill all that down and offer units on a true priority system,” Monaco says.
New Twists On Lotteries For Metrome, a 184-unit condominium in downtown San Diego, Monaco expects the interest list to exceed 5,000 names. A blast e-mail will invite prospects to become preferred customers by filling out online prequalification forms. Those who do will receive an invitation to the grand opening; after a preliminary presentation, Barratt Urban will do a lottery drawing by phase. Those who attend the first sales event but don't get a house will go back in the lottery for subsequent phases.
Across town in San Diego, Rick Jarrett, division vice president for McMillin Homes San Diego, has been dealing with the same kind of interest at Liberty Station, a mixed-use community on the site of Point Loma's historic Naval Training Center. The interest list contained more than 5,000 names competing for 349 houses in three different neighborhoods.
The builder developed a lottery for all three projects for prequalified buyers. The public drawing was conducted by an independent company at a nearby hotel.
In hindsight, Jarrett says he would have changed one thing. Buyers didn't understand that there were separate lotteries for each of the neighborhoods, so they signed up for all three, thinking that it would give them a greater chance to be selected for at least one of them.
“In reality, it didn't help, but it did skew our numbers quite a bit,” he says.
The names drawn in the lotteries formed the basis for Liberty Station's priority lists for phase releases. Anyone on the list could pass and wait for a different location or their preferred plan in another phase. If they passed, they moved up the list as other people bought or dropped out. New people were added constantly as they completed the prequalifying information.
The system worked so well that Jarrett is using it for all his projects now. “We just opened two new projects,” he says. “I have over 400 people on the list. We'll lose 100 to 150 people between phases, but we're constantly adding new people as we go along.”
Drew Smith had to talk his builders into a random drawing for sales appointments at Verrado, a master planned community in Scottsdale, Ariz. With more than 7,000 people registered, Smith knew the process could get out of hand in a hurry for the 150 homes available during the first two preview weekends.
“We sat down and talked to all our builders,” says Smith, the marketing director for the 8,800-acre community under development by DMB. “They said, ‘We're selling $300,000 to $400,000 homes. We won't have more than two people interested.' …The builder with the highest prices had 90 requests for appointments and sold more than 20 homes the first two weekends.”
Smith went with the drawing because he didn't want camp-outs.
“Is that a high-quality customer experience?” he says. “Is it fair to families where both parents work, to out of state buyers? [The drawing] worked flawlessly.”
A common registration form was used across the community, and DMB hired an accountant to oversee the drawing. No one had to be present for the drawing because DMB didn't think it was feasible for all types of buyers.
Those who registered on the Web site could attend the first preview weekend, when 100 homes were released. Anyone who wasn't chosen the first weekend got a second chance during the public opening the following weekend. No more than 20 percent of the release group was set aside for employees of the builders and the developer, as well as a few VIPs.
Like Greminger's experience with the Arbors, Smith says that separating the sales appointments from the model preview kept people from making hasty decisions.
“Going through a model is an emotional experience,” Smith says. “Coming back on their own one-on-one reduced the cancellation rates.”
A small percentage of buyers who wanted to buy that day expressed frustration with the process, but the sales agents explained that it was for their own benefit.
“We want them to understand the place,” Smith says. “How can they understand it after 15 minutes and throwing down a check?”
Join The Club The only way to buy from John Laing Homes is to join the John Laing Advantage program online or in a sales office.
“We try to make it fun,” says Richard Staky, Colorado region president. “Everyone likes to be a member of a club.”
Only Advantage members who are pre-qualified are invited to sales events at which lots are released. Their priority status is determined by when they registered.
“Otherwise you get chaos and people fighting over lots,” Staky says. “It's a much more organized and fair way from the home buyer's perspective to get in the queue.”
At the sales event, the person with the highest priority can buy or defer if it's not a lot or product they want. If they defer, they retain their priority for the next release, but the price isn't guaranteed.
Regular communications keep members informed about upcoming releases and their position on the list. And monthly sales events keep things exciting.
“They get to meet their future neighbors,” Staky says. “They see other people making the purchase decision and say, ‘I can't wait for my turn.'”
The steady contact and events also help keeps prospective buyers out of the market while they're waiting to move up the list. Being able to check their position on the list at any time also helps buyers who need to sell a house time when they put their house on the market, or just see where they are in the process.
“It's a nice tool for us as a builder,” Staky says. “Some people would get frustrated and go buy from someone else. This way, we get to hang on to them.”
Learn more about markets featured in this article: Los Angeles, CA.