ShareThis

New Homes Sales Tips: Competing Against Existing Homes

The Unique Advantage of High Performance Homes

One of the biggest challenges builders face is the inventory of existing homes for sale. The financial crisis has raised this issue to a critical point because much of this inventory consists of foreclosed homes that the lenders are selling at a deep discount. Realtytrac expects 1.2 million homes will be repossessed in 2011, which is 20% more than in 2010 and would signal the peak of this current foreclosure crisis. These foreclosed homes on the market are known as the “visible” inventory. Unfortunately, the housing market will not bounce back until most of these units have been sold, as consumers are hesitant to buy if they think prices will continue to drop.  Another threat is the “shadow” inventory, which are homes lenders have foreclosed on, or will soon, but are withholding from the market because they don’t want to further depress prices. Corelogic estimates that as of August 2010 the shadow inventory consisted of 2,100,000 housing units! The other component of existing inventory, speculative new home construction, is at historic lows. As of last November there were approximately 197,000 new homes for sale nationwide, the lowest since March 1968. Therefore, a new home builder is much more likely to be competing against an existing home than a new home.

There is a silver bullet home builders can use against the competition. High performance homes that are certified by a national, or regional, sustainable program offer a cost effective sales advantage that is the competition killer. How can you leverage high performance homes? In my experience on both left and right coasts, I have collected a few observations.

1.) Note I have not used the word “green.” The term green allows the listener to jump to their own preconceived notions of what green is. Do they think of a political party in Europe? Do they equate green with expensive or untested? Or do they think of liberal activists who board fishing boats? Why risk it? Use a phrase that can only be interpreted in a positive way. High performance homes, or innovative construction technology, are phrases that describe certified homes and allow you to control the message.

2.) While the key to selling anything is to gain the buyer’s trust and confidence, you must demonstrate that your product offers the best value. Builders often think that pricing is paramount; I think perceived value is far more important. Obviously your homes can’t be priced too high for the area, but if the value proposition is properly communicated to the customer then they will not exclude your home based solely on price. After all, this is the biggest purchase of their lives! People shop for big-ticket items using the process of exclusion, therefore it is critical to convey why your certified homes are the best value for their investment. Certified homes enable you to answer the customer’s # 1 concern about homebuilders- “Do you perform?” What they are thinking is “do you fix anything” and “do you care about the homebuyer?” Satisfy these concerns and you will have gained their trust and confidence. Certified homes are better built, and thus there’s less to fix. Furthermore, the builder of certified homes, incorporating the latest building science principles, independent third party inspections and performance testing, obviously cares about the customer. Why? High performance homes inspected by third party verifiers exceed all other housing in terms of durability, occupant comfort, energy efficiency, and indoor air quality. These are benefits that homeowners care deeply about. Indoor air quality, for instance, is priceless. When was the last time you tried to quantify the importance of your family’s health? Now you have established that your homes are the best value for their investment.

Certified homes represent a tangible value to the customer, while at the same time improving the builder’s profitability. Although the additional hard costs to build certified homes vary by market, typically the construction costs range from 1.5-2% more than a code built home for the entry levels of certification. Some of this will be offset by reduced soft costs- studies show that certified homes spend less time on the market than non-certified homes. Additionally, the same studies demonstrate that certified homes sell for a premium versus non-certified homes.   

3.) Incorporating the principles of “lean building” will assist you in reaching your certification goals, while at that same time eliminating wasteful practices that hurt your profit margins. Begin lean design by conducting design charrettes with your subcontractors and suppliers. Suggestions to improve process, including in the design, purchasing, and construction departments often leads to significant savings. Incorporate these new practices in updated scopes of work and you now are on the path towards lean implementation. Best practices that are common in lean building are often the same measures that are awarded points in certified home programs. For instance, eliminating as much lumber as possible from the shell not only saves money, but it also reduces thermal bridging (the conductive transfer of heat through wood framing). When lumber is removed from the shell it is replaced by insulation and the energy efficiency of the house improves. Reducing job site waste, both by designing for optimal value engineering (OVE) and recycling trash, will save money in reduced material costs and waste hauling. These practices result in a certified home you do not have to charge extra for. Not only is that a value to the consumer, the branding opportunities and seal of approval from the certification help you gain the buyer’s trust and confidence.

Professional Builder magazine’s 2010 builder of the year, Jagoe Homes, is an example of a builder who delivers superior value to the buyer. They implemented lean building principles in a disciplined, directed fashion to improve processes and eliminate waste, and found that they could build 100% ENERGY STAR homes without increasing the sales prices of their homes. In Professional Builder,  Jagoe Homes partner Bill Jagoe describes how they “looked at all of our processes to bring those [costs] down and to get those under control.  At the same time we have actually increased the value to the consumer through this process --  Our commitment to delivering 100% ENERGY STAR certified homes [didn’t come] as a new cost to the customer.” Jagoe Homes built approximately 290 homes in 2010, and in the past two years the firm has certified over 500 ENERGY STAR homes. A key to this successful adoption of building certified homes is what they call their “Lean Blitzes”. The firm holds these Lean Design meetings with two dozen of their most important subcontractors and suppliers, and has found that suggestions coming out of these meetings have resulted in savings of hundreds of thousands of dollars! As a result of this Brad Jagoe proudly says “ENERGY STAR is included in our price. With existing homes, it’s almost impossible to make them ENERGY STAR certified. It is a great way to compete not just against other builders but also against the resale market.”

Coming up in future blogs: New homes sales fundamentals that will increase your closing ratio.

About the Author

Peter Brown

Peter is the Director of Sales for the New Homes program at Earth Advantage Institute. Having worked in the residential construction industry all his life, he has been involved in most every aspect of the business. Straight out of Miami University (Oxford, OH) he began his career as a loan officer with Ryland Mortgage Company, soon transferring to sales at Ryland Modular Homes. Bit by the construction bug early, he went to the Pulte Corporation to be a site superintendent, eventually starting his own custom home building business before returning to the production home building arena to manage a collection of homes for Toll Brothers in one of the nation’s largest PUDs. A LEED AP and BPI certified Building Analyst, he is committed to maximizing energy savings through the construction of ever more energy efficient homes.