The recent fundamental changes in the homebuilding and residential development industries resulting from both the economic and housing market corrections have changed the nature of new home sales. A substantial number of smaller semi-custom and custom homebuilders and even many of the medium sized production builders have left the business. The regional and national merchant builders have experienced consolidation with more such action probably on the way. All of the builders that are still in the industry have adjusted their land purchase philosophies, procedures and systems while substantially reducing staff and overhead expenditures.
The result is that there has been a degradation of the new home sales and marketing processes as was historically performed by the builders through their “owned” sales operations that will most likely continue for the foreseeable future and this creates a unique opportunity for the Realtor© community.
For the next several years, homebuilders will be purchasing and developing smaller tracts of land and continuing to scavenge among the distressed developments. Builders will also be expanding into new markets (or returning to previous markets) much more cautiously with fewer developments and less overhead burden. Capital availability will continue to be restricted and residential developers will increasingly need to provide community-wide sales and marketing services for their builders.
Although new home production is currently estimated at only 600,000 units annually, demographics suggest that within a few years production must rise to 1,500,000 homes per year and that is a potential market that is simply too large to ignore. Now is the opportune time for Realtors© to develop (or expand existing) new home sales operations and reap the rewards. But to profit from this opportunity, Realtors© must change their thinking, removing their “resale” hat and truly embracing the specifics of new home sales which is a similar but unique business.
There are many differences between the business models and philosophies of homebuilders and Realtors©:
* Builders are concerned only with sales; listings are unimportant while Realtors© are taught that survival in the business depends upon listings and developing the resulting customer base;
* Builders are concerned only with the immediate sale; they may not have the appropriate product or location available to satisfy the buyer’s future needs while Realtors© believe that they will develop multiple sales from a single prospect contact including future resales;
* Homebuilders deal with a relatively “fixed” price commodity; there is usually little room, if any, for negotiation while Realtors© are used to negotiating price and are taught to ask the customer to “make an offer” as a first commitment to a purchase;
* Builders are used to the time frames involved with new construction, anywhere from 2 weeks (production) to 6 months (custom) for the purchase to be finalized plus an additional 3 to 6+ months for construction and closing while Realtors© are used to relatively short time frame – 30 days for the sale and commissions are seldom delayed more than 90 days from the contract date;
* Builders typically provide an “intangible” product, often selling a future home from plans or a model; even with an inventory home there are usually options and choices still available while Realtors© typically work with a specific “fixed” product; what you see is what you get;
* Homebuilders are used to dealing with customer service and warranties, realizing that they will be involved with the customer and the home for at least one year after the sale is closed while Realtors© most often work with existing homes without warranties; some ongoing problems may be anticipated but the seller is obligated to disclose any known defects;
* Builders typically offer a limited choice to the buyer, restricted by location, number of home plans, price range, home sizes, etc. while Realtors© have an unlimited supply of homes to sell, multiple locations, a full price range, assorted styles and designs – every home within the MLS is their product inventory;
* Builders believe that they can only make the sale when the prospect is at their model/spec/sales office; once the prospect has left the sale is lost unless they can get them back while Realtors© believe that there is always another home to show; they are usually ready to get in their car at the first sign of disinterest and drive the prospect to another home or location.
But there are also many similarities between the “new” and “resale” business:
* The players are all professionals in residential sales and make their living from the same basic product (neither gets paid until the closing);
* New and resale agents use the same trade language and terminology;
* They deal with many of the same people on a daily basis (surveyors, lenders, title companies, etc.);
* Their customers are often the very same person – a prospective buyer of a home, be it a new household formation, an in-migrant transferee, a move-up family, an empty-nester or retiree, etc.
It just makes sense for Realtors© to handle the builders’ and developers’ sales. All homebuilders today (or at least all who will survive) are actively seeking broker cooperation and who better to maximize impact in and results from the brokerage community than a Realtor©? With the extreme pressure on the builders’ and developers’ capital today, a Realtor© provided sales force is virtually capital-free as the majority if not all of the cost is incurred only when the sale is made and dollars are not at risk as in most advertising and other merchandising where the money is spent even if no sales result.
Here are they the keys to obtaining the builders’ business:
Do your homework – research the builder’s background, housing products and features, existing sales and marketing procedures and historical sales or, if new to the market, sales and marketing operations in other market(s);
Prepare a written market analysis detailing the economic, employment and housing conditions (new and resale) with a full competitive study and a strategy to achieve specific targeted sales goals – a properly prepared marketing strategy will demonstrate your professionalism and set you above and apart from the competition (if you need assistance with this task, give me a call);
Provide a written proposal for services including:
An introduction showing your knowledge of the builder and his location, product and price range your experience in successfully selling that location, product and price range;
Staffing (how many people, training, supervision, builder review and approval, etc.;
Compensation – total commission to be paid, what is (and is not) included, with splits for on-site agents and for cooperative sales;
Advertising and promotion – what specific level will be provided by you and how is this paid;; to the extent that all marketing and promotion is not included within your commission, it is imperative to detail what levels of marketing and promotion are to be provided by the builder;
Broker cooperation programs – detailing all outreach efforts and follow-up;
Marketing strategy and budget, detailed for total sellout with monthly breakdown for the initial year;
Systems, reporting and equipment – what process and procedures will be followed, what formalized systems will be utilized, what reports will be furnished to the builder and at what frequency, what equipment is required and who furnishes and pays, how often will the market analysis be updated, etc.
There is an obvious opportunity in this housing environment for Realtors© to substantially grow their business, not only through the sale of new homes but also through the potential annuity provided by these purchasers when they sell and move up or down. The key is to address this challenge professionally, first by understanding the customer (in this case the homebuilder or developer) and then by showing how you can do a better job of satisfying their needs. But that’s just my opinion.
Please visit our company’s website at www.levitanassociates.net. to learn more about our background, qualifications and services to the homebuilding industry and how we can assist homebuilders, developers and lenders achieve success.
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