The deadly sins of homebuilding

I believe that we are all products of our environment. I was born and raised on the “south side” of Chicago, memorialized in Jim Croce’s 1973 song Bad, Bad, Leroy Brown, and much of that heritage remains with me today.

Perhaps the greatest influence on the development of the south side was the steel mills. First was the U.S. Steel South Works followed by Youngstown Steel, Republic Steel, Bethlehem Steel, and LaSalle Steel. At its zenith, South Chicago helped make the Chicago metropolitan area the leading producer of steel products in the nation. The employment opportunities within the Chicago steel industry stimulated massive immigration in the early 20th century and the south side became a mélange of cultural influences due to its rich ethnic diversity. During my formative years I enjoyed the opportunity to learn about and appreciate cultures beyond my own and I was exposed to cuisines from around the world which shaped my palate and food tastes forever.

Much of the population on Chicago’s south side was Catholic, including large components of Irish, Polish and Mexican residents and the church permeated every resident’s life, regardless of whether or not you were a member of the flock. I will always remember that I lived in “OLP” (Our Lady of Peace) Parish and, although I was not Catholic, my friends drafted me into their church choir for one year as they apparently needed voices regardless of the owners’ religious beliefs. Festivals celebrating various saint’s days were universally attended and Fridays were meatless, including grilled cheese in the public school cafeteria (although my preference has always been pepper and egg sandwiches).

I was constantly being cautioned by my friends against sin and warned about the prospects of hell if I did not change my ways. The Catholic Church typically divides sin into two categories: venial sins, in which guilt is relatively minor, and the more severe “mortal” or “deadly” sins which include wrath, greed, sloth, pride, lust, envy, and gluttony. Although I must admit that I was not immune from all of these, I managed to survive my youth and have so far avoided the prospect of a very warm end although I do live in Florida and it is hot here now. But who knows the future.

I would suggest that the original deadly sins have equivalents within the homebuilding industry and, while probably not recognized by theologians, are usually equally fatal. As the housing markets return, we must be certain that we have put these sins behind us so that we are ready to take advantage of the prosperity that is available in the future.

1.  Denial — Failing to regularly perform an unbiased analysis of every development from the perspective of the consumer. At any point in time there are always opportunities to improve every residential development and those improvements must be based on the perception and experience of the potential purchaser.

Even as the markets recover across the country, purchasers will continue to be more cautious than ever before and willing to wait on their purchase decision until they are faced with overwhelming reasons to purchase. To overcome hesitancy and facilitate that buying decision we must be perfect in very way and constantly improving our operations – maximizing our presence on the web, creating a better arrival environment, providing the latest features and benefits, optimizing sales performance. We need to learn from other industries and reinvent ourselves every six months to provide the market with a “new”, “improved” and “better” product and experience.

2.  Arrogance — Believing that you are immune to market conditions and therefore failing to regularly perform thorough marketing strategy updates. As the markets are in a constant state of flux due to both external and internal conditions, lacking the most current information is tantamount to failure regardless of previous success or position in any market.

In the past few years we have seen the largest and most established homebuilders in several markets go out of business and in many cases the cause was their failure to change and adapt. We need to know the current status and trends in the competition (new and resale); we need valid current data on population and employment trends, household composition patterns and psychographics. Knowledge gives us the power to make intelligent decisions,

3.  Lethargy— Failing to quickly respond to market changes when they occur. In the recent downturn, many homebuilders both large and small appeared to be paralyzed, failing to adjust to the new realities of the market. Unsold inventory became stale as prices were not adjusted to force the sales, generate cash flow and keep the operation running. Land inventory was not liquidated and more than any other factor, failing to act rapidly and decisively was the cause of many of the smaller builders being forced to cease operations.

Even today, there are builders and developers still holding inventory in the hope that the market will return. But when the market returns, it will have evolved and the old, far out locations may not be attractive with gas at $4.00/gallon and the older home designs will not satisfy the “hot buttons” of the new homebuyers nor provide the perceived value necessary to overcome hesitancy to purchase.

4.  Mediocrity — Failing to continually strive for excellence. In the recent “challenged” housing markets, sales training was all but removed from homebuilders’ budgets in many companies and sales management positions were eliminated across the country. When the market gets tougher, sales professionalism becomes even more essential yet our industry cut back on the most essential investments necessary for success.

As I visit communities across the country, I see homebuilders’ new home sales representatives that are new to the business and have not been trained in the specific skills necessary for success. They do not understand the “critical path”, they do not utilize “interview selling” and they do not understand the benefits of “relationship selling”. They are often pleasant and friendly people but are merely filling a seat in the sales office while sales are being lost! If we are operating with less than optimal sales personnel today, how many homebuilders are truly prepared for the housing recovery when the market will return but we will still have to fight for every sale?

5.  Self-Delusion — Believing that what may have marginally worked in the past will continue to work in the future. Home designs are not like wine and cheese, they do not improve with age. “Old” home designs quickly become stale and unable to compete with the new and improved homes that are brought to market.

Even in the challenging times of recent years, those builders that properly responded to the changes in the market dynamics by creating new and exciting home designs have been selling homes and making a profit. One homebuilder who designs a new product line for every new community had their best year ever in 2010 and sales for the first half of 2011 are up by an additional 20%. I visited several new communities in South Florida this past week, still one of the most “challenged” markets in the country, and found new home designs stimulating abundant success – sales rates of 8½ to 15 per month.

6.  Intolerance— Failing to recognize that success in the homebuilding industry is a team effort. There have been several very strong leaders in merchant building companies who became well known in the business. Some had a reputation for being somewhat intolerant of opinions that conflicted with their own ideas and a few of those have now departed, perhaps due to this failing.

To be successful, we need the honest input from every member of the team – the sales staff, be they “in house” or brokerage personnel, the construction staff, the subcontractors and suppliers, the marketing consultants, the advertising agencies, the merchandisers, the lenders. All opinions must be sought, considered and respected.

7.  Snobbery — Believing that the market will buy your brand simply because of who you believe you are (and that self-image image that is not always shared by the consumers). Customers buy location and community first, and then they purchase the specific home that fits their budget, satisfies their needs and delivers adequate perceived value. The builder’s experience and reputation is certainly a factor but only when the precedent requirements are met.

This lesson has been learned the hard way in recent years by several of the more upscale builders around the country, one of which just had to reduce prices by over 25% when, after selling only three homes in two years, they finally realized that the realities of the marketplace could not be ignored.

Avoiding sin may be difficult but we must all make the attempt if we are to be successful in our lives and our businesses. Of course, that is just my opinion.

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