Speed Trap Ahead For Homebuilders!

Leaving my home to drive to my office this morning I noticed that a motorist had been pulled over across the street by a policeman, the same location in which I had seen several similar situations over the past few weeks and I realized that my neighborhood was apparently the location of a new speed trap.  While I welcomed the fact that the local constabulary was doing their part to make the streets safe, I wondered “who were these drivers that felt it necessary to drive at excess speeds in a residential area?”  

I have been driving since I was 16 and although I may from time to time marginally exceed the posted speed limit, I have never been stopped for speeding.  But I also never text while driving nor meander along the road with a cell phone stuck to my ear, so I have avoided accidents and traffic tickets.

I was shopping a housing market last week and came to a community that arguably had the best salesperson in the marketplace.  If I was hiring a sales team, based solely on the 45 minute presentation I received, this person would be at the top of my list.  The development was easy to find and the homes were attractive, competitively priced and offered above-average features and good value.  Yet sales were well below the level being achieved by the competition and I wondered why. 

Not being a “local”, the specific location may have challenges that were not visible when I drove to the site but it appeared to me that access was convenient, right off a main road, and superior to the majority of the competition.  The property was also proximate to good commutation routes and near a state park which I perceived as a further benefit.  I checked the local area housing demographics and the incomes, although not high, were generally adequate to support the new home pricing and the existing housing values were also adequate to support the new home values. 

I am a great believer in knowledge and am constantly working to acquire as much as I can. I knew that I was still missing facts, specifically the local perspective, so I contacted a friend who is a prominent broker in the area.  She confirmed that the location was easily accessible but that although the county schools are generally considered excellent, this community was unfortunately located in what was widely perceived as the least desirable school district in the market.  And I had my answer.  

But that created another question:  “why had the homebuilder selected this location?”  And my curiosity could not be contained. 

Over the past several years I have taught a number of seminars and courses for the local HBA and SMC, I have met several of the local area homebuilders, both at these meetings and through my activities at NAHB, and I am reasonably well known throughout the industry. So I picked up my phone and called this builder, who I will call John for the purpose of this monologue.  I had never met John and was pleased when he immediately took my call.  

I explained that I was examining his market and came across one of his developments that had a truly excellent sales person and I wanted him to know how impressed I was with this individual.  I continued to compliment John on the home designs, the model presentation and his professionalism in creating what appeared to be a development that offered one of the best housing buys in the area.  And I then mentioned that it appeared to me that this property was under-performing the market and that I was curious as to why he believed that to be occurring. 

John responded that he had the same concerns and had met with his sales manager just two days before to ask him the same question.  The sales manager was currently reviewing the market and the community’s traffic and sales performance and John expected an answer by the end of the week but he asked if I had any insights that I could share.  As I was on assignment for another, competing homebuilder, I replied that I did not and thanked him for taking the time to speak with me. 

I was quite surprised to learn that the builder did not know why his sales were under-performing the market and even more surprised that, although the community had been open for eighteen months, he was just now trying to find the answer. But I was truly amazed that the sales manager did not know the answer and I wondered what this person did with his time as he certainly was not out on the field regularly strategizing sales follow-up with the sales team or conducting exit surveys with the visitors to his developments. 

As I learned the next day, in the face of a relatively strong market, and the need to find new ground to replace a development that was nearing sellout, this homebuilder had purchased REO – a bank owned tract at a “real bargain price” and that is why the homes were able to be priced to offer such good values. But as we all know, price is not the sole determinant in the customer’s buying decision and in this case, the land price was obviously not low enough to compensate for the poor schools. 

During the boom years in the last decade, many homebuilders rushed to buy ground wherever it was available, often regardless of locational challenges. When the downturn came the developments that were not situated in prime locations became the first to suffer and many of these were given back to the banks or sold at deep discounts.  

As the housing markets around the country enjoy the current recovery, I notice that many of the larger homebuilders in several markets are again on a land buying spree and included in their acquisitions are some properties situated in what I perceive to be marginal locations.  

There may be a shortage of available, entitled ground but as indicated in the situation above, price alone will not compensate for a poor location. Locational considerations are not limited to schools – they may also include quality of access, the character of the surrounding neighborhood, even environmental issues. 

Today’s homebuyers are smarter, more educated and far more cautious than ever before;  they simply will not settle for less than perfect in any respect, especially location.  So my suggestion to the homebuilding industry is to avoid the “speed trap”; as the sign suggests, slow down in the rush to buy land and do the research first.  Find the locations that are prime and in the end you will avoid having to deal with a challenged development.  Your life will be less stressful and your company’s sales and profits will be higher.  But that’s just my opinion!

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