HOMEBUILDERS – WAKE UP AND SMELL REALITY

Wake-UpI have taken the liberty of modifying the 1980’s adage of “Wake Up and Smell the Roses” which is probably the product of a mixing of metaphors – “Stop and smell the roses” (i.e., appreciate life) and “Wake up and smell the coffee” (i.e., get real).

The smell of roses and even coffee is usually quite enjoyable but what I am smelling lately in the homebuilding industry is something far less pleasant.  And we all need to take a deep breath of that reality and let it sink in so that we fully appreciate the implications if we are to survive and prosper in the future.  And that reality is the possible demise of the smaller, local production homebuilder who may well be forced into a permanent niche as an even smaller custom builder and remodeler. 

When I started in this business the homebuilding industry in this country was totally localized and smaller local builders dominated.  By the 1970s, the larger and more successful local builders expanded regionally and then, both through growth, merger and acquisition, the “nationals” came into being.  In recent times, aided by the downturn of the last decade, these industry giants have grown to the point that within the next couple of years they will account for over 50% of all new single family homes built in the U.S.A. and that is in addition to their overwhelming share of the multi-family for-sale segment. 

My uncle was one of those smaller local builders in the 1950s, 1960s and 1970s operating in the Chicago area and producing 30 to 50 new homes per year on in-fill sites.  He was quite satisfied to continue with that operation as vacant lots were plentiful and construction financing readily available and he made a comfortable living.  

Certainly conditions have changed – improved vacant homesites are scarce or non-existent in most locales and almost all of the choicest sites have been picked up by the nationals. Prices of land suitable for development are rising almost beyond reason and A & D financing often still remains elusive for smaller builders.  Competition is fierce with the “nationals” typically often enjoying price advantages due to economies of scale and national contracts providing cost savings and also from economies of scale in marketing. 

Instead of just rolling over and playing dead, however, I believe that there still substantial opportunities for smaller local builders to prosper in every market if they will make the commitment to properly research and analyze their markets and create a strategy for success!  That strategy will identify realistic opportunities in the market and provide a step by step program for implementation and success.  Continue reading

PERCEPTION IS AT LEAST AS IMPORTANT AS REALITY IN THE HOMEBUILDING BUSINESS

Perception #2

Perception is entirely subjective and can be an immediate reaction or one that is formed over an extended period of time.  But regardless of the time frame, I believe that what we perceive becomes our reality and this subjective evaluation applies to everything in our lives; it is why we like some people, some companies and some new homes and may not like others. 

One of my favorite restaurant servers is a young man named Scott.  We first met him ten years ago when a new restaurant invited us to their “friends and family” opening and we have followed him as he has moved to several other dining establishments since then. He is very friendly and extremely personable and that more than makes up for the fact that he is really only adequate as a server, usually forgetting to bring requested items so that we often have to ask for them several times.  We always request him when making a reservation and although the service may have flaws, the overall experience is “perceived” as delightful so that we recommend him to friends.

My favorite hotel company is Marriott.  They do not necessarily enjoy the most convenient location, they are seldom the least expensive, they are not the most luxurious and I admittedly have had problems with various stays over the years. But because they went above and beyond any reasonable expectation fifteen years ago to satisfy a special request, my loyalty is permanent as I “perceive” this company as truly accommodating and exceptional.  I not only use them for my own business and personal travel whenever I can but also recommend them when possible.

On the other hand, my wife and I decided on the spur of the moment to take a weekend cruise last month.  We wanted get away for a couple of days and were not expecting much as only the lower priced cruise lines offered weekend cruises.  Much to our surprise, the cruise exceeded our expectation and I took the time to write to the president of the company informing him of our satisfaction.  The cruise itself raised my perception of the company but the response to my correspondence, an “insert name here” forty word form letter, suggested that the company really did not care about me as a customer and reduced my perception of the company below what it was originally. 

But by far the most memorable instance where I saw perception overruling reality occurred in the homebuilding industry.  When I first started in this business I was with a merchant builder based out of Chicago and after a few years had worked my way up to become their marketing director.   We had built an affordable condominium community in the western suburbs and, in an unusual winter season that saw multiple freeze-thaw cycles, ice damming took place and leaks occurred in the majority of the homes.  This was not a design or construction defect, as such, as the design and construction techniques were typical and followed industry standards for that area at that time. 

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