The Weakest Link

Think you are doing an outstanding job with post-sale customer service? About a third of your buyers give you a failing grade. How do we know? We asked. First in a three-part series examining what motivates new-home buyers vs. what builders and contractors think motivates them.

Part Two: The Main Attraction

Part Three: The Right Stuff

By Christina B. Farnsworth Builder knows you don't know your customers as well as you think you do. Only 9 percent of the builders we surveyed in our exclusive research said their post-construction services failed to meet their buyers' expectations. Pretty uniformly, you think you earn a passing grade.

But guess what? One-third of first-time buyers of new homes said their builder's post-construction services failed to meet expectations. One-quarter of repeat buyers buying new homes--buyers who presumably knew what to expect--were similarly dissatisfied with service after the sale.

Dissatisfied customers obviously don't make the best candidates for referrals, yet our survey confirms the easiest sale you make could be to a past customer, so if you don't already attend to your previous buyers, do so to keep them happy in their current home while cultivating them as future buyers.

That's the big take-away from the Housing Continuum Survey, produced by Hanley-Wood, LLC, publisher of BUILDER and REMODELING magazines, and the Joint Center for Housing Studies at Harvard University. The research was sponsored by Whirlpool Corp. and the National Association of the Remodeling Industry.

Missed expectations

The disconnect between builders' perceptions of what their new-home buyers think and what those buyers really think damages new-home sales more than you might imagine. Why? Because unhappy homeowners sabotage sales.

Homeowners talk, and word of mouth is a powerful selling tool. Some pundits, in fact, say it's the most effective selling tool because it carries with it the credibility of a trusted third party, such as a friend or relative. Add to that the fact that many potential buyers are skeptical of traditional advertising, and it's no surprise that 10 percent to 30 percent, and sometimes more, of builders' sales come from referrals.

What is also very clear from our survey is that happy or not, buyers tinker with their homes practically from the day they move in. And most surprising of all is that new-home buyers don't stay in their homes as long as builders think they will.

Builders seldom think of past customers as future purchasers. Those we surveyed expected their new-home buyers to stay put roughly 10 years. However, our research reveals that many consumers buy homes about as often as they buy cars.

Making the grade

What can you do to satisfy your customers and keep them as repeat buyers? Marketing and development consultant Daryl Spradley says, "Part of the problem is that there's almost no communication after point of sale. It's not like builders turn their backs on customers. It's just that they don't communicate--unless there's a warranty request."

Follow-up, he adds, "is not a budgeted item. There's no line-item for it." He recommends that warranty/customer service be its own department with its own budget.

The biggest problem, as the Maitland, Fla., consultant sees it, is that many builders don't actually complete the new home on time. Moreover, the anxiety period for buyers peaks about three weeks before closing. Top buyer anxiety with moving into an unfinished home and receiving little post-sale follow-up, Spradley says, starts buyers with a checklist for dissatisfaction.

In addition to creating a budgeted customer-service department, Spradley recommends that builders inspect the house and make any needed repairs just before its warranty runs out. "It brings a sense of closure to the process," he says. The buyers know that the warranty is over. There is a formal inspection and repair. It lets buyers know you still care.

Spradley doesn't think buyer follow-up should be a one or two time deal. And he doesn't think that the new-home buyer, who had a name and a relationship with the builder all through the construction process, should be relegated to "Dear Homeowner" status post sale. The customer still has a name; use it to continue communication, Spradley says.

Builders should be sending postcards on a regular basis just to say hello, present special offers, and remind buyers about maintenance, such as changing the furnace filter. Many builders are big enough to offer an affinity magazine like the ones alumnae associations, clubs, and other groups do, he says. Such magazines can co-op with advertisers that serve the community.

First is not last

It's important to keep your company's name in front of owners because most want to move again. Only 11 percent of first-time buyers buying new and 25 percent of repeat buyers purchasing new consider their new home to be "the dream home in which they want to live forever." It's not that they are unhappy with their choices; more than half of first-timers and roughly one-third of repeat buyers buying new claimed they were happy with their home for now. But they said they would probably move to another house in the future.

Present buyers are an overlooked opportunity for builders. Thirty-nine percent of builders surveyed think their new-home buyers see their home as a dream home. Many think these buyers will live in that house for more than 10 years. But most of the buyers we surveyed plan to move in less than a decade, and many plan to move within three to five years.

Surveyed builders did have a handle on how often they exceed buyer expectations. Builders' own ratings for exceeding their clients' expectations closely paralleled what surveyed consumers said. Approximately 20 percent of both builders and repeat buyers agreed that the buyers' expectations were exceeded.

When asked how their new home differed from their last, 22 percent of consumer respondents said their new home had a larger living space. No other characteristic on the list of choices, from architectural style to neighborhood choice to larger yard, garnered more than 6 percent. Clearly, the desire for more living space drives the home building market.

Because more living space was so influential in the choice to move, we asked where those surveyed would like additional space. On a list of a dozen choices, the leading contenders were those we expected: kitchen and family room (each 11 percent), living room (10 percent), secondary bedrooms (9 percent), and master bedroom (7 percent).

However, 28 percent of new-home purchasers said they wanted more space in "other" areas not listed.

Builder profit center

Living space isn't the only area in which builders can help buyers and themselves. One astonishing discovery from our survey was that everyone who buys--whether purchasing a brand-new or a used home--remodels! And soon--typically within six months to a year of move-in.

First-time new-home buyers spend an average of $3,500 on remodeling, whereas repeat buyers buying new spend an average of $5,100. At the time they purchased their home, 68 percent of first-timers and 73 percent of repeat buyers planned to remodel. Builders are leaving thousands of dollars in upgrade sales at the closing table.

One way to make inroads in customer-satisfaction scores may be for builders to add remodeling services as a potential profit center. If done well, remodeling could also be a means to increasing repeat sales. Just as car dealers service cars and stay in touch with past customers, builders could offer remodeling or fix-it services to build brand allegiance and sell previous new-home customers another home three to five years down the road.

What they buy

We probed respondents not only about their satisfaction with their homes, but also about how they came to develop and exercise their housing preferences (such as buying a brand-new house vs. a used one). We also asked what housing products and features were most important to them when they bought.

The characteristics of those we surveyed dovetail rather nicely with the results of the American Housing Survey done by the Census Bureau in 2001, says Kermit Baker, senior research fellow at the Joint Center for Housing Studies. In other words, we can believe the results (see www.census.gov/hhes/www/ahs.html for details). For example, the average number of bedrooms among all homeowners the Census Bureau surveyed was 3.2, and the average house value was $180,000. (The survey, done every other year, covers an average of 55,000 housing units.)

Similarly, according to our research, the typical first-time buyer purchasing a brand-new home chose one with 3.1 bedrooms and an average house value of $192,000. (Repeat buyers choosing new houses tended to purchase larger, more expensive homes averaging 3.5 bedrooms with a value of $276,000.)

Unlike the Census Bureau, which did not distinguish between new and used homes in its survey, we broke our respondents into groups, including first-time buyers purchasing a new home and repeat buyers purchasing a new home.

Our survey also interviewed buyers of existing homes who remodeled. (The results of that part of the survey will appear in the January 2003 issue of our sister publication, REMODELING).

New or used?

Responding new-home buyers cited having a worry-free home as the main reason they chose to buy new rather than used. The desire to avoid maintenance headaches also means these buyers care that their new homes be free of defects--another reason to deliver great customer care.

Customer satisfaction isn't the only disconnect between home buyers and builders, our research found. The two groups also disagree on the importance of quality in the decision to buy a new home.

Surprisingly, only 12 percent of the new-home buyers surveyed said that the main factor in their decision to buy new rather than used was that they thought the quality of a new home was better than that of an existing home. Of the pros surveyed, however, 49 percent said their buyers bought new for reasons of quality.

It is arguably true that new homes are better than their existing counterparts, especially in terms of energy-efficiency. If that's a message that has been lost on consumers, then it's a message that needs to be carried more effectively to the home-buying public.

Twenty-three percent of new-home buyers surveyed said they bought a new home because it was less expensive than a used home. We could not ask open-ended questions to determine why; however, the realization that sales price isn't the only cost of homeownership may factor into the smart buyer's equation. Even if the sales prices of new and existing homes are the same, lower utility costs (because new homes are more energy-efficient) and lower maintenance costs (because everything is new) result in overall savings to buyers.

A few unhappy campers

Most new-home buyers like their homes, but when put on the spot and asked what they're unhappy with in their homes, 8 percent said they were unhappy with their yards, the leading dissatisfaction contender in our survey. Many builders leave the yard for their buyers to finish. Maybe they shouldn't.

Improving customer satisfaction may mean adding landscape options to the new-home package. Neglecting new-home buyers' desire for landscaping may mean you're leaving money on the table, since 84 percent of new-home buyers improve or change their landscaping soon after moving in.

Builders are way off the mark on how they think their buyers judge fit and finish: 17 percent predicted their buyers would be unhappy with the finish work. But this aspect of their homes dissatisfied only 2 percent of the new-home buyers surveyed.

Builders also assumed that 8 percent of their buyers would be unhappy with the storage space in their homes, but, once again, only 2 percent of those surveyed named storage as an issue of discontent.

Adding to the bottom line

Past customers can be future customers if builders meet or exceed expectations regarding post-sale satisfaction. And builders may not only be failing customers in satisfaction but they may also be leaving money on the table by ignoring what all new-home buyers do--remodel.

Gathering the Data

Hanley-Wood, LLC, publisher of BUILDER and REMODELING magazines, and the Joint Center for Housing Studies at Harvard University produced the Housing Continuum Research project. Media, Pa.--based International Communications Research (ICR) surveyed, via telephone, 1,509 U.S. consumers during the spring of 2002. Within the past two years, 507 had purchased a newly built home, 502 had purchased an existing home, and the remaining 500 had spent $5,000 or more on a remodeling project done with remodeling contractors. ICR also surveyed, via the Internet, 459 contractors: 324 home builders and 135 home-improvement contractors. The Joint Center assisted with the project's research design and did data analysis. Whirlpool Corp. and the National Association of the Remodeling Industry sponsored the survey.