Last year wasn't just a good year, it was a great year for Hubble Homes, West Des Moines, Iowa. Sales volume increased 100 percent, to $32 million from $16 million in 2006. For a 150-year old company that initially focused on land development, it took a lot of recent re-thinking of their home building business to get such impressive results during a down year for most builders and most markets.
"We had to go through a lot of redesign, and we're still doing it," said Hubble Homes president and CEO Rick Tollakson at the International Builders' Show in Orlando on Thursday.
Tollakson credited home building consultant John Schleimer, president of Market Perspectives, Roseville, Calif., for helping his company see the light. Then Tollakson jokingly told fellow builders in the audience that they better have thick skin if they sign on to work with Schleimer, a straight talker who will tell a CEO the brutal truth. Schleimer was the moderator of the panel Tollakson spoke on. Steve Hall, president and CEO of Hallmark Homes, Savannah, Ga., also served on the panel.
Hubble morphed over the past few years from a cost-plus builder to a market driven pricing system that allowed Hubble to compete in 2007. If the market is going to allow you to sell a home for a certain amount of money, then that's what the house is worth, and it is up to the builder to redesign their floor plans and business processes to build and sell houses for a market rate and still make money, Tollakson said.
Tollakson said Des Moines is a market that requires builders to build speculative houses, and Hubble typically carries a little more than 100 specs at any given time. He said he could sleep at night with that amount of spec inventory, because there are two or three other builders in the Des Moines market who carry more than 400 spec units. That drew gasps from other builders in the audience.
"I don't have to outrun the bear, I just have to outrun you," Tollakson said of his competition.
That kind of unconventional thinking, Tollakson said, is crucial to surviving and even growing in the downturn. To make his point, Tollakson told a story of walking into the post office to mail Valentine's Day cards to his grandchildren. In front of him in line was a man who was spraying perfume on envelopes, affixing stickers to them, and signing them "guess who?" After not being able to figure out what this man was doing, Tollakson said he asked him what gives. Turns out the man was a divorce attorney looking to stir up business.
Hallmark Homes has injected that kind of thinking into its sales and pricing process. The company has a program called "Mad Money" that gives its sales agents $15,000 worth of wiggle room to negotiate with customers on all speculative inventory, and to do so without approval of headquarters. If the agent does not give all the money to the buyer, they get a bonus. The more money they don't take off the price, the bigger the bonus.
Hallmark also guarantees the base price of all its homes, Hall said. If a customer is under contract, but has not yet closed on their home, and Hallmark cuts its prices, then the company has to honor the new lower price for all its customers. But once a customer closes on their home, they no longer qualify for any price reduction. So far, Hall said, they have not had to cut their prices, and so have not had to offer the lower price to others.
The Mad Money program does not qualify, in Hall's thinking, as reductions of base prices, and so does not set off the price guarantees, he said.
Hubble Homes has roughly 20 projects operating around Des Moines currently, and is using only three dedicated sales offices. Because traffic will not support full-time sales offices in each community, Hubble has paired with local real estate agencies to help them sell, Tollakson said. Hubble's seven in-house agents sold 38 percent of the company's total for 2007, while 31 outside agents sold 62 percent.
Hubble also does a great deal of sales training, including weekly meetings for in-house agents, and monthly meetings that involve all agents. It even brings in lenders monthly, and advises its sales force each Friday of the latest mortgage rates.
Other advice Tollakson offered was to know your market. Builders should know the current economic and demographic trends for their market or markets, and should constantly shop and analyze their own products against the competition.