Most economists and industry pundits agree that the housing market in 2014 will continue to improve but there is no doubt that we will still be faced with strong competitive conditions and cautious buyers. My recommendation to my developer and homebuilding clients throughout the country to assure their success is to return to the basics and create a strategy for every new community prior to commencing development and also for every existing community reflecting the current market conditions, just as if they were starting the community from scratch as of today.
For every community, an examination of the specific site conditions, the existing and probable future competition, the local economy and the market conditions is essential to provide the analysis that defines the “playing field” from which a realistic strategy for success can be developed.
Although most housing markets are performing well, certainly in comparison to recent years, over the past few months I have been asked to evaluate several communities in several different geographic locations that were not performing to the homebuilder‘s and developer’s expectations. As part of the background data I had requested each client to send me the original research and strategy documents. The replies, which were amazing similar from each developer, was that as they had been building in their markets for several years, they had seen no need to do any research or prepare a written strategy.
When I completed my analysis of these developments and their markets, the reasons for the lack of sales were crystal clear and, not surprisingly, consistent throughout most of these communities:
– They were offering stale, dated home designs that had not been changed for the past five years, or more;
– Their product lines failed to provide a full spread of designs, styles and pricing to satisfy the target markets within a given segment;
– Their locations were often further “out” than anything that had been fully accepted by the market and newer, competing developments were now available that were closer “in”;
– More importantly, many of their new developments had been acquired primarily due to the attractive land pricing, often distressed existing communities wherein other builders had failed but were brought to them at a substantial discount that was simply “too good to pass up”;
– There were four or more other builders in nearby locations competing directly with their communities, many with almost identical product and most offering something “special” (better pricing, better value, better features);
– Their sales staffs had been with them for some time and, as they were “experienced”, had not received any training in years;
– Their advertising and promotional strategies and budgets were the same that they had used ten years ago when their markets were very strong.
As my primary business is as a consultant, I am loathe to turn away business but it was sad to see that every situation was almost identical and that most of the problems should have been foreseen and could have been prevented. Having not been prevented up-front, the cost and effort to correct these failings was now substantially greater than if they had been recognized and addressed in the beginning.
For every community, there is one optimal development and marketing strategy that will maximize sales and profitability under foreseeable market conditions. While it may take a little time and effort to properly create such a strategy, the value is immeasurable and well worth the effort.
We must research the market and determine the underlying local economic conditions, the competitive marketplace and the opportunities. What is the quantifiable actual demand with specific attention to location, product design and style and price? What portion of the demand is already being satisfied? What is happening with the resale market – remember it is an integral component of the demand quotient. Where is the hole in the market? Contrary to what we may wish, we must remember that demand is outside of our control and does not expand merely because we enter the market.
We must take an honest look at ourselves with attention to our property, our products, our company and our identifiable specific identity. What are the comparative strengths and weakness of our location? How does the marketplace perceive our company and our product and what impact do those perceptions have on our ability to do business? Have we created an identifiable Unique Selling Proposition (“USP”) that is meaningful to the consumer? If not, we are merely another seller of the same product, probably at the same or even a higher price.
One of the first “absolutes” that I learned in this business is that real estate values are defined by three simple components – location, location and location. I have found that adage to be true throughout my career, in good markets and in bad. Inexpensive ground in a bad location is still bad ground and the cost to make it acceptable (though over-amenitizing or home price reductions) is almost always substantially greater than the initial savings on the land price.
My regimen for success is simple. Although most of us are well beyond school age I would suggest that a simple return to “homework” is the best regimen for success and is equally valid for homebuilders, developers and new home sales professionals. Utilizing thorough research, create a strategy that:
– Identifies a good location;
– Creates the necessary community environment;
– Provides housing products that satisfy the needs of the market and are noticeably better in some way than competition;
– Formulates and implements a marketing, merchandising and promotional campaign that gets the message to the target market on a cost-effective basis;
– Professionally presents the unique homeownership opportunity to the market with cutting-edge sales skills.
Wishing all of my readers a healthy, happy and prosperous New Year!
If you are planning to attend the International Builders Show in Las Vegas in 2014, please stop by to say hello – I will be speaking on Tuesday, February 4th at 10:00 AM in Room South 220 on “Marketing for Profit & Growth: Exploit Your Niche”.
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, lenders and Realtors© achieve success.
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