Several years ago I decided not to attend a Bee Gees concert. The event was in Miami Beach on New Year’s Eve and the thought of a long drive home late at night with drunks on the road overcame my desire to see a group that I have always greatly enjoyed. Following Maurice’s death in January 2003, the group disbanded and I realized that I had made an error in judgment, missing an opportunity that would never come again, a decision I have regretted for the past ten years.
Last night I had a second chance as Barry Gibb performed his first ever solo concert and it was absolutely wonderful, coming very, very close to making up for my previous mistake. I was fortunate as life seldom gives us second chances and missed opportunities are normally gone forever.
It seems to me that we are missing opportunities every day in the homebuilding industry and those opportunities, once gone, will not return.
I was in a southwestern housing market recently and shopped some of the competition. The majority of new home properties are multi-builder operations – the developer has abdicated responsibility for the sale of the homes and each builder utilizes his or her own general real estate broker for sales, competing head-to-head in the same property. In one development I saw signs for eleven brokers with several of those representing multiple competing homebuilders. There is no on-site presence except for occasional open houses and homes in these developments are sold as if they were resales.
There were a few new home communities with on-site presence, operated by the larger builders. Although I registered at every such sales office, not a single sales representative has followed-up with an email, a phone call or a letter. The sales presentations that I did experience were far less than optimal, even when presented by the two new home representatives that had apparently received some professional training as evidenced by certificates proudly displayed on their walls.
There were so many opportunities for improvement in the sales operations, not only with the sales personnel but also in sales management and supervision, that I was astounded. I realize that new home sales have been slower than desired for the past few years and that many of the sales people and their managers have been through hard times, but I have to believe that many more sales could have been made in this market, as in most others, even in the worst conditions of the past several years, if the entire sales team had simply been performing their jobs properly.
Certainly the housing markets have been in turmoil across the country for the past several years and many markets have seen serious declines in values that pose challenges on the sales floor. Appraisal values may be lacking, financing may be difficult to obtain. But the homebuilding industry has always faced challenges and while different than what now exists we have always found solutions and managed to sell new homes.
My younger son is in the process of buying his first home. He and his wife had been looking for the past ten months, narrowing their search to one suburb which is conveniently located and has an exceptional school system. As a result, it is a highly coveted location. Last month they found the home they wanted but my son had some qualms about the purchase as it was expensive and, with the recent collapse of the housing market, he was worried that his investment might not retain its value. We talked in depth about the home and his concerns and, although I do not consider myself to be a great salesperson, I asked him the obvious “bottom line” question:
“Will the purchase of this home enrich your family’s life?”
My son, as do most fathers and husbands, believes that it is impossible to put a price on his wife’s and children’s well being, so there was no longer any doubt about buying this home and the closing is scheduled for next month. I do not believe that this home will lose value but it really does not matter as this is the right home in the right location for his family and, fortunately, he understands this and his opportunity was not missed.
Returning to this southwestern housing market, the missed opportunities that I saw were certainly not limited to sales. In fact, in each of the “P’s” that I have written about in the past, the drivers of housing absorption and, ultimately, the factors for success in homebuilding, opportunities for improvement were evident.
In every new home development that I visited except one, the housing product was nearly identical without any noticeable USP, thereby reducing the homes to the status of a commodity where the only difference is price. The exterior elevations, colors and materials were the same, the house layouts were the same, the features and finishes were the same. The sole exception to that sameness in product was in a TND development where their “craftsman” styled homes were priced 29% higher than comparable homes in any other property. This community was not achieving great success as the market obviously did not perceive this difference to be worth the price.
I used the term “development” above as the great majority of the new home properties that I saw were “subdivisions”, not “communities” and therefore “place” was not properly created. Other than an occasional unmanned gated entry, there was no functional, meaningful, attractive or unique sense of arrival created and no distinct lifestyle provided, merely another tract of land on which homes were constructed and usually that equated to as many houses as could be crammed in to the site.
Not one of the developers or builders in this market apparently understands the subtleties of a proper pricing strategy as, almost universally, the developments fail to offer a sufficient range of pricing to fully cover the target market thereby giving away market share to other developments. Several of the builders with whom I spoke are selling their homes at an unacceptably low profit margin, afraid to raise prices due to competitive pressure. Even with likely continuing price sensitivity in many markets, homebuilders who are operating intelligently and efficiently will not need to give their homes away. Following is a paraphrased excerpt from an email I received from a builder last December:
“I took your advice about a price increase. I hadn’t changed my price since December 2008. I was afraid to. On October 1st I told the sales consultants there would be a price increase of 2% to 4% effective November 1st. They wrote 13 sales in October. That is over 25% of my sales for the year, written in one month, and this gives me homes to build over the winter. Thank you, Dan! I knew that gave us something we could use and I am working on implementing several of your other recommendations.”
I will save my comments on the final “P”, promotion, for another time as the missed opportunities in this category are almost endless. Effectively, the market has embraced a rather unique philosophy of “build it, don’t bother to tell anyone about it, and hope they will come”.
According to Demosthenes, small opportunities are often the beginning of great enterprises so let’s not miss any of them. But that’s just my opinion.
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