AMERICANS ACROSS THE country are knee-deep in summer fun, slapping on the sunblock and claiming a place by the pool. For a growing number of homeowners, that place is just a few steps from home. Back yard pools have grown in popularity; and builders are taking note, forging alliances with pool contractors and even bringing pool services in-house.
In Sacramento, a third of new home buyers will add a pool within four or five years of move-in, says Gene Wells, a retired pool builder and pool consultant in the area. Billy Littleton, division president for Sun West Communities in Scottsdale, Ariz., reports that in Maricopa County, 80 percent of the 67,000 new homes built last year will include a pool within two years' time. Arizona and California are among the top five states for the number of in-ground pools sold in 2003, along with Florida, Texas, and New York, according to the Association of Pool & Spa Professionals, which is based in Alexandria, Va.
For builders whose overhead is already established, a pool division is a way to add profits. Wells says that whereas pool builders aim for a 5 percent to 7 percent net profit and a 22 percent to 28 percent gross profit, home builders can push gross profits to 40 percent. But the learning curve is steep. Wells calls the pool industry “infantile,” lacking solid education and standards, so it's often hard to find managers who are sticklers for quality and safety. Then there are timing issues, which affect risk exposure and closing dates. The pool is the last thing completed, so a run of bad weather can hold up the close of escrow. And because it must be filled with water as soon as the plaster goes on, a pool is a liability until the homeowner moves in.
SELLING WIDGETS JTS Communities in Sacramento ran into some of those problems when it brought pools in-house, and it is currently in the process of revamping its sales and management systems. When JTS started a pool program with outside companies seven years ago, it became frustrated with contractors who didn't have disciplined estimating procedures and production schedules, and who were lousy at managing buyer expectations. Three years ago, the builder launched a pool division, even hiring someone from within the pool industry to manage it, but it wasn't successful. “We were doing about 500 houses a year, and 10 percent of our buyers wanted a pool,” says Daryl Whiteside, managing partner. “When we went in-house, those numbers stayed the same. We should be able to do 100 pools a year.”
Part of the problem, he says, is that the pool industry veterans aren't accustomed to consistency. His manager started out selling templates, but soon began allowing variations here and there that bewildered buyers and siphoned profits. “From a home building standpoint, the most important thing you can do is standardize construction so you can deliver to the buyer's expectations: the skimmer in this location, the wall this height, the waterfall this way,” Whiteside says. “There are multiple points of exposure for failure and miscommunication, particularly with the level of labor force that has to do these jobs.” Gunite subcontractors resist offering a bid in advance, he adds. They prefer to shoot the gunite, measure it up, and send a bill. Other subs skimp on pumps or plaster, resulting in callbacks. JTS is working to standardize the process and the product—establish, for example, 10 pool packages at preset prices, and pre-contract with trustworthy tradesmen to install them.
SWIM TEAMS Sun West Communities offers pools through a local pool contractor, and Littleton says the key to success is working exclusively with one large company that consistently produces top-quality work and is financially stable enough to construct several hundred pools at a time. Sun West will sell 387 homes this year priced from $260,000 to $525,000, and half of the buyers will purchase a pool. Their contract is with the pool company, but Sun West charges $500 for administrative expenses, and buyers must select their pool within three weeks of signing the house contract. A superintendent coordinates the pre-start checklist of code-compliant items such as fencing, locks, and alarm systems, and technical requirements like extra electrical and plumbing lines.
Sarasota, Fla.-based Lee Wetherington Homes had a less satisfying experience with its pool contractor. After the contractor went bankrupt in 1999, the builder launched its own division, LeeSure Water Pools, and since then things have been looking up. The number of pools it builds annually has increased from 80 to 220, with pool revenues at $15 million. “If you're going to bring it in-house, you should do at least 100 pools a year,” says president Lee Wetherington, who expects his company to close 340 homes this year. The pool division includes six people—three in the field, one in purchasing, and two in sales; mechanicals are subcontracted. “Pool companies aren't professionally run in our area, so it took getting the trades to understand work orders,” Wetherington says. A pool is included in the price of the house (only 1 percent of customers opt out), and buyers spend 40 percent more on upgrades. “A total pool package is usually 10 percent of the cost of the house and lot,” he says. “We try to run it on a 12 [percent] to 14 percent net profit, the same profit margin as on homes.” However, upgrades are marked up 50 percent to 100 percent, compared to the 30 percent to 35 percent for house upgrades.
Whether working with outside contractors or bringing pool services in-house, builders are getting their toes wet—and seeing some added sales dollars.
Learn more about markets featured in this article: Phoenix, AZ.
