Referrals are the mostcost-effective way of generating traffic and sales in your communities. If you’re not asking your home buyers for referrals, you need to start today.

“A referral brought to you by a happy homeowner has a conversion ratio of one out of three,” says Houston-based new-home sales trainer Tom W. Richey. “If you don’t have referral sales, you have very high marketing costs.”

When should you ask for a referral? Every chance you get. Richey recommends asking for referrals at:

  • Contract signing

  • Loan approval (if the builder provides the financing)

  • Options selection

  • Construction orientation meeting

  • Pre-drywall meeting

  • Move-in orientation (final walk-through)

  • One month after move-in

  • Four months after move-in

  • Eight months after move-in

  • One year after move-in

The last three contact points are the most productive, Richey says, and the least practiced. That’s because sales associates are often trained to ask for the referral from the time of signing the contract until three months after move-in and then stop, he says. That’s a mistake. “Homeowners say they’ll give the referral after the builder has proved himself,” Richey says. “The [optimal] time to ask for referrals is from move-in up to one year later.”

The easiest way to make sure the process is followed every time, he says, is to create a matrix with the contact points, with a goal of generating five names, addresses, and phone numbers from every sale.

“It’s in the computer on a sale-by-sale basis,” Richey says. “Salespeople have to be given structure or they’ll fly all over the place. They need to be coached on it and monitored on it.”

It’s a system that’s worked wonders for Jesus Ruiz, president of Ruiz Homes in Laredo, Texas. Approximately 50 percent of the company’s sales come via referrals, which staff ask for pretty much every time they talk to a customer. Like many builders, Ruiz Homes offers its buyers a cash gift to refer their friends and family members. For every sale that closes, it pays its customers $500.

“From inception, when the customer meets with the sales agent through time of closing, we’re always asking for referrals,” Ruiz says. “After that, the sales agent continues to follow up with the client. We tell them, ‘If you’re pleased with the quality of the construction, the product, and the service, please refer us.’ That’s the system we follow.” Duluth, Ga.–based Bowen Family Homes offers its homeowners a referral fee of $500 for the first referral that leads to a sale, $750 for the second, and $1,000 for three or more.

Plus, everyone who refers a buyer is invited to the company’s annual casino night party and is entered into a drawing for an incentive trip.

With the increasingly challenging market, some builders have expanded their referral program beyond their home buyers to employees, trade partners, and anybody else who’d like to get in on the action. Suwanee, Ga.–based Touchstone Homes has passed out thousands of flyers for its referral program, which pays $1,000 for the first referral, $1,500 for the second, and $2,000 per referral after that, says Tina Bennett, Touchstone’s acquisitions and development administrator. Plus, if the friend the person refers visits a Touchstone Homes sales center, the builder sends him a $50 gift card to either Chili’s, The Home Depot, Kroger grocery store, or QuikTrip gas station.

For builders that aren’t comfortable with cash incentives for referrals—or can’t offer them because of state laws prohibiting them—there are other ways to thank people for their referrals such as options from the design center, upgraded landscaping for their yards, gift cards, get-away vacations, or a contribution to their favorite charity.

John Laing Homes, based in Newport Beach, Calif., recently expanded its Friends and Family referral program to “anybody and everybody,” says Denise Bader, director of sales and marketing. Instead of a cash incentive, the builder offers gift cards to 1-800-Gift Certificates as a referral award so the person providing the referral “can issue themselves a gift card to a multitude of stores.” The buyer who is referred also receives an incentive at the design center.

Even small builders without a formal referral program have used referrals in successful—and creative—ways. Sarah Lee, director of marketing of Chesapeake Development in Chamblee, Ga., noticed that about 30 percent of its buyers in one community had come from the same neighborhood. Based on that, the builder threw a housewarming party for three buyers who had recently moved into their new homes. The homeowners were encouraged to invite their friends and neighbors from their old neighborhood. Chesapeake handled the invitations and provided food, beverages, flowers, and party clean-up.

“We had a wonderful turn-out of over 150 people who got to tour through our homes, meet the other homeowners, and get a real sense of what it is like to live in a Chesapeake home in this community,” Lee says. “Based on this event, we have several families that are planning to move into one of our homes.”

Of course, no referral program is going to be successful in the absence of a great product and outstanding service.

“A quality home delivery is a synergy of construction, sales, service, and support working in concert to deliver a highly satisfied buyer, plus the dividend of the referral sale,” Richey says. “When you have all those working together, you will get referral business.”

Learn more about markets featured in this article: Atlanta, GA, Riverside, CA, Houston, TX.