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Jill Johnson, director of marketing for Capital Pacific Homes in Denver, says getting buyers into its Denver homes isn't the problem. It's getting them to make a purchase.
That's typical of the Denver area, where net sales dropped nearly 27 percent from 3Q2006 to 2007. But Capital Pacific is trying to close deals. The company launched its "Make It Happen" advertising campaign, where it will work with people who are facing bad mortgages and have trouble qualifying. To move those homes, it's also enlisting the help of an unlikely source.
"We're actively communicating with Realtors and looking for them to be part of the buying process, and trying to keep our inventory in front of them to keep them happy," Johnson says.
That's a different story than builders were telling a few short years ago. At that time, builders were pushing Realtors away. Their commissions cut into profit margins, and they had the potential to steer prospective customers to other developments. "There was a time that new homes probably sold themselves," says Kelly Spencer, president of Denver's Builder Realty Council (BRC) and a Realtor with Keller Williams Realty.
That's no longer the case. Now, Realtors represent a valuable pipeline for customers and an effective closing tool.
Johnson is a representative on the BRC, which has tackled issues such as Realtor commissions and builder marketing. But she's found other avenues to reach out as well. She advertises in Realtor publications, sends e-mail blasts to Realtor lists, and has her agents visit Realtor offices with an inventory sheet.
"A lot of it is getting in front of Realtors and letting them know their product exists," Spencer says.
But it takes a good commission to get a Realtor's attention. In its struggling "Make It Happen" communities, Johnson offers a 5 percent commission. The industry standard remains at 3 percent.
Capital Pacific isn't the only builder that works to get in front of Realtors. Even before the Denver market took a dive, Kathy Curtis, vice president of sales and marketing for Taylor Morrison, welcomed Realtors.
Taylor Morrison's perks for its colleagues in realty may be a $500 or $1,000 gift card, or it could be a party to celebrate the opening of a new community. For a short period at the end of 2007, the builder offered a 4 percent or 5 percent commission. Even at a 3 percent commission, Curtis estimates that Realtors cost Taylor Morrison $10,000 to $15,000 on most sales in the Denver market.
"[That cost] is significant, but we feel like the positives of staying with the Realtor community outweigh the cost," Curtis says.
Journey Homes uses strong Realtors to leverage its name in the market, offering co-ops of 4 percent and $500 bonuses.
"In our Ft. Collins project, the Realtor has a very strong foothold on that market and is very well recognized," says Journey partner Larry Buckenard. "They have a good network. A lot of buyers come to them first. We've tried to play off that. We've gone to the dominant real estate player in that market and tried to work a deal with them."
Although builders are partnering with Realtors and offering incentives in many parts of the Denver area, the incentives vary by location. For instance, Capital Pacific only offers 5 percent commissions in its "Make It Happen" communities. But in its Lowery community, which is an urban infill development in Denver, it offers standard commissions. In Denver County, sales increased 15.4 percent in the 3Q2007 compared to 2006, according to HWMI. "That area is not struggling," Johnson says. "We advertise those homes at full price."
Even in some suburbs, Capital Pacific isn't going out of its way to court Realtors. Johnson says the Tallyn's Reach community in Aurora is doing well, for instance.
On the other hand, there are homes in Aurora where Capital Pacific has offered as much as $129,000 off. "The homes in Aurora have too many upgrades for that area," Johnson says.
In general, Curtis says builders are offering discounts ranging from $15,000 to $75,000 and options such as free land-scaping and upgraded kitchens. Taylor Morrison has been offering a promotion with gourmet kitchens, including stainless steel appliances and granite. And buyers usually get discounts on top of these offers.
"Buyers are programmed to ask for incentives as soon as they walk through the door," Curtis says.
Right now, buyers can ask for these deals because there's a lot of product on the market. At the end of 3Q2007, there were 25,396 total units of unsold detached inventory and 14,776 attached units in the Denver area, according to HWMI. Then there's the resale inventory on the market.
But Curtis cautions that this won't always be the case. With low unemployment, job growth, a high standard of living, and reasonable home prices, there's a lot to like about Denver.
"We're looking to hang in there in 2008 and plan on things being better in 2009," Curtis says.