It’s not unusual for Les White, of Acorn Construction in Gulf Breeze, Fla., to get prospective buyers to spend three—and on one occasion nine—hours with him in Acorn’s showroom. His secret: 3D renderings created with SoftPlan’s architectural design software. White sits down with prospective buyers in a living room-like set up with the 3D home plans on a television screen, while the prospect makes the home their own. They can ask for a window to be added here, a wall pushed out there. They add their favorite colors to the walls and decorate with virtual furniture. By the time they’re done, White says, “They don’t even shop anymore.”
White’s strategy was just one of the best practices discussed on Wednesday when panelists from the NAHB’s Business Management Information Technology Committee turned to their audience Wednesday, at the International Builders’ Show in Orlando, Fla., to ask builders what they’ve been doing to survive the downturn and strengthen their companies. The question yielded an array of business tactics being used by builders across the nation. Here are a few highlights attendees and panelists contributed:
Sales and Marketing
- Emphasize to buyers that the price-to-income ratio for housing is back to where it should be. During the boom, that ratio ballooned up to 4.8, but as home costs have lowered, it has returned to where it has historically stood, at 3.2. And in many markets, it’s even better.
- Respond to online inquiries quickly. Steve Lewkowitz of Atlanta-based Pivotal quoted an NAHB survey showing that builder respondents typically took between 24 and 60 hours to get back to an inquiry that came in through their website, and often the response was generic. Builders who responded within four hours of the request with information tailored to the inquiry had a 50 percent greater chance of selling a home to the prospect than builders who responded in the standard amount of time with general information.
- Install Web cams on your jobsites. It’s a low-cost strategy that packs a lot of punch for buyers who are excited at the prospect of being able to watch their home take shape in real time.
- When banks won’t work with you, find creative financing. When Mitchell Bowman, a partner at Michael’s Homes in Murfreesboro, Tenn., found bank support drying up, he partnered with a developer to do spec homes and even got financing from the developer since Bowman’s homes would help move the developer’s lots. Michael’s Homes also got suppliers and some subs to give it more than 30 days to pay its bills, which helped to free up cash.
- Consider charging just a little bit more. John Jones of SoftPlan Systems in Brentwood, Tenn., noted that a 1% increase in price nets an 8% increase in earnings. If what you’re offering is a premium product, market it that way and ask for a slightly higher price.
- Incentivize subs to incentivize you. Call up your subcontractors and tell them you will pay them on time every time, and even every week if that is their preference. In return, ask for a 2% to 4% discount on their rates. This has the added benefit of building up a good rapport with reliable subs, so when the market turns, they’ll want to work with you.
- Size your home as though it’s 2003. Jones emphasized that in order to be realistic about what prospects can and will purchase, it’s critical to not let the excesses of the boom cloud your view. “Think of a world before pet care rooms and gift wrapping rooms,” Jones advises. “Nobody had a gift wrapping room in 2003.”
- Market energy efficiency. It’s more tangible to buyers than the concept of a green home, and the benefits are easier to quantify. A 2011 John Burns real estate survey showed that 70% of respondents in the market for a home said they would pay an additional $5,000 for energy-efficient features.
- If appraisers are not taking energy efficiency properly into account when they name the value of your home, educate them. It’s easier for them to understand value in terms of a dollar amount saved each month in heating and cooling, so give them the metrics and force them to give your homes the price they deserve.
- Implement safety features. These are a strong selling point with women, a demographic that makes 91% of home buying decisions. Acorn Construction builds a safe room (usually the master closet) strong enough to withstand a tornado into every home it sells.
Estimating and Purchasing
- When asking banks to work with you, go to them with careful estimates and, if you can, a history of accuracy. To build credibility, bring your estimation track record to show them what estimated costs were compared to real costs. Banks want to see that you’re value-engineering to offer the lowest price and the highest quality. And they want to see that if you’re bidding, that you’re making multiple bids. The bottom line: Go in with documentation.
- Scrutinize your home plans to make sure they use materials and time in the most efficient way. Are the dimensions you’re using cheap to buy? Is there a way to assemble more easily without sacrificing value? These questions can save a lot of money in the long run.
Land and Lot Management
- Consider more expensive communities where large, expensive lots have hit a dry spell. As companies have offloaded these lots when the large homes they had planned weren’t selling, some builders have been able to get good land at a steep discount. In Tennessee, builders with smaller floor plans have come in and offered the same, smaller product they were offering elsewhere, but in a better location and on a larger lot for much less money than a home in an expensive community would usually go for.
- Look into bank-owned lots. One builder in the session reported buying these for 60 cents on the dollar, which allowed him to build and sell spec homes for much success.
- Fine-tune your scheduling. Tim Sullivan of Ideal Homes, in Oklahoma City, reported that the company’s CIO ran the numbers to find that every extra day of cycle time cost the builder $4,700. That’s money you don’t want sitting around on lots, evaporating into thin air.
Claire Easley is senior editor, online, at Builder.