Thoughts about marketing and selling new homes

WE HAVE MOVED

2009-12-25T17:10:00.003-05:00

OUR BLOG HAS RELOCATED - PLEASE MAKE NOTE OF THE NEW LOCATION - http://www.residentialmarketingblog.com/

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BEST WISHES FOR A HAPPY, HEALTHY AND PROSPEROUS NEW YEAR.

LIFE IS NOT A “ZERO SUM” GAME BUT HOMEBUILDING MUST BE!

2009-12-14T08:36:00.003-05:00

I have always enjoyed playing games. From the time my grandmother taught me canasta and gin at age five, and we started playing for money, I have enjoyed winning even more than just playing. So learning about how games worked seemed a natural investment of my time. Although I never became as involved in the study as did my high school bridge partner who ended up as a full professor of mathematics and computer science at two well respected universities (we were done with classes at noon three days a week and that hobby kept us out of trouble), I have found that what I learned has had benefits far beyond the bridge table and the occasional friendly gin or poker game.

Basic economic principles state that in regard to housing, the supply side (i.e. homebuilders) cannot create demand, only manage and satisfy it. Housing demand is created by household formations deriving from population growth which in primary markets typically follows employment growth. As we cannot create meaningful amounts of new jobs, we cannot create more people and we cannot form more households, therefore we cannot create additional demand.

Housing is different from consumer goods – it is expensive, and you can only utilize one primary residence at a time. You cannot create demand for a product (a second primary residence) that the market cannot afford, probably cannot finance and cannot use. In the recent “boom” years, the premise of an exceptional value created by the expectation of continuously rapidly rising prices did create artificial temporary demand, to which some of the market responded by purchasing homes as investments. But we see now that success was both temporary and artificial and came back to haunt us with foreclosures, short sales, etc. The value of housing has been and will always be through its use - as a residence.

Since we cannot create demand, we are forced to rely on demand being created naturally for our business to grow. In the present economy, job formation is negative and housing demand has declined. And while the economy appears to have bottomed out, a full recovery could take several years.

However, if we understand the concept of the “zero sum game”, we find another and perhaps more effective method to grow our homebuilding business, regardless of the underlying economy. In game theory and economic theory, zero-sum describes a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero. Obviously, zero sum games are “strictly competitive”.

To benefit from this concept we must be able to take market share from our competitors and we can do that only by offering superiority in one or more of five specific areas. That is the goal of a thorough and professional marketing analysis and strategy – to research and analyze the market, the competition and the builder’s operation and create a strategy that creates competitive superiority that will produce more sales.

To achieve results in any of these areas requires investment of both time and capital:

1. Price. Without question, price is the ultimate amenity and if we can offer our homes at a superior price position (lower price) than the competition we will take sales from other builders. Successful “price” builders have redesigned and refined their home designs to create maximized cost efficiencies and forged partnerships with their suppliers and subcontractors making them true “trade partners” to deliver lower cost without sacrificing necessary quality.

2. Product. With new markets emerging and substantive changes in the economics and psychology of the marketplace, new home designs are required. Those builders who have introduced new home plans reflecting the lifestyles of the current buyer segments and included the features that the market wants today are selling, again taking sales from their competition and gaining market share.

3. Place. In the “housing gold rush” that recently ended many homebuilders forgot the basic rule of real estate that all value derives from location; they purchased land wherever it was available. It is time to return to that proven principle, building only in those areas in which the market wants to live and thereby earning incremental sales. And often those “prime” locations require innovative site planning and site-specific new housing designs to work.

4. Promotion. Those that can reach more prospective purchasers on a cost-effective basis, thereby generating increased visits first to their web sites and then to their homes and sales offices, and then provide superior sales experiences will beat the competition. This is the age of “e-marketing”; success comes with a great web site, search engine optimization, pay-per-clicks, banner ads and links, aggressive and consistent social media efforts and blogs, web concierge services and, perhaps most important, great sales people that are trained and retrained and retrained again.

5. People. The right people, both internally and externally, are the key to success. Certainly you need the best internal staff – talented sales people and managers, excellent construction and service personnel, dedicated support staff, strong leadership. And assembling a team of external professionals with expertise in architecture and site planning, research and strategy, operational and systems excellence, advertising, merchandising, promotion, sale training and motivation will allow you to successfully implement your strategy.

And that is how the “game” is played. If you are not taking someone else’s market share then someone is taking yours! And that is more than just my opinion.

Please visit our company’s website to learn more about our background, qualifications and services to the homebuilding industry – http://levitanassociates.net

ARE THERE OMENS FOR THE HOMEBUILDING INDUSTRY?

2009-12-08T19:40:00.003-05:00

The definition of an omen is “a phenomenon supposed to portend good or evil; a prophetic sign”. The Etruscans developed reading omens and auspices into a form of science and knew different means of divination, including attempting to read the future by examining the entrails of sacrificial animals. Disasters were seen by Romans as manifestations of divine disapproval and unusual phenomena as portents of catastrophe. In the modern Western world such reliance has fallen into disfavor and there is little common belief in omens today but sometimes I wonder if we just fail to heed the signs.

I am certainly not an augur or haruspex and claim no psychic powers but perhaps there are omens out there that we have just not learned to read. My wife and I went out to dinner last night. Driving up to the restaurant we noticed that many of the letters in their sign were out and my wife jokingly suggested that perhaps that was an omen and we should choose another place for dinner but we did not. We sat down at a table and were greeted by our server who introduced himself as Jerry; he seemed pleasant enough. And the manager, Tom, who we had met several times before, also came by to say hello.

From the first course, the meal was an absolute disaster featuring poorly cooked food including raw pork that was even worse when replaced fifteen minutes later. And walking out of the restaurant we realized that the experience was entirely our fault for we had ignored the obvious auguries – the first being the sign itself announcing an obvious problem to come, and the second was the fact that we had placed ourselves in the hands of Tom and Jerry.

I am convinced that there are omens every day for the homebuilding industry. These do not require examining the entrails of sacrificial animals for they are clearly visible to those who take the time to look:

· When your houses only sell after providing substantial price discounts (even with the tax credit in place), is that perhaps an omen that the market is not perceiving appropriate value in your homes?

· When a new ad does not generate qualified traffic within the first two weeks, instead of blaming the weather or a football game, could that instead be a portent that the ad is not working and needs to be changed?

· When the competition next door is outselling you four-to-one, is that possibly a sign that the buyers are not finding what they want in your community and homes and that now would be a good time to do a thorough competitive study and exit survey?

· When the area of town in which you have concentrated your developments has seen its market share slip by 50%, could that be construed as an auspice that you should be looking to build in a different location?

· When the prospective buyers and the brokers are telling the sales staff that the basic features you provide are not adequate, is that not an omen that your level of quality is inadequate and that your standard included features need to be revised?

· When the competition has designed all new homes and they are enjoying strong market acceptance (taking away your sales), would that not be a portent that the home designs that you have been building for the past five years have outlived their appeal and need to be updated or replaced?

· When the demographics of the marketplace have changed dramatically is that not a sign that it is time to change your target markets?

· When your market share continues to erode dramatically, is that not an auspice that your business plan needs to be thoroughly reexamined?

· And finally, when you are not making the budgeted profit, is that not an omen that unless you make some fundamental changes in the operation, you will soon be making some fundamental changes in your life?

I believe that the best way for a homebuilder or residential developer to read, interpret and understand these omens, signs, portents and auspices is to perform a thorough market study for each marketplace and each community and update those studies on a regular basis. "There are none so blind as those who will not see” (John Heywood, 1546). But that’s just my opinion.

Please visit our company’s website to learn more about our services to the homebuilding industry - http://levitanassociates.net/.

HOMEBUILDERS – LET’S DO WHAT WORKS.

2009-12-06T23:19:00.003-05:00

When I was in Chicago recently I was reminded how much I truly like that city. I was born and raised in Chicago and lived there until 1980 when, in the middle of a blizzard, I decided to move the family to Florida for better weather. But other than the winters, it is a truly great city with amazing natural resources, excellent food, fabulous cultural amenities, and wonderful people with a Midwestern ethic where you can still do business on a handshake. In fact, I once built a shopping center on land to which I did not have title, just an agreement to purchase after some title problems were corrected.

There is an urban legend that the “machine” used to visit graveyards, writing down the names from the tombstones to register voters. I do not know if in fact that was a real occurrence but the local newspaper purportedly did an expose on election irregularities and found over 100 deceased people in one precinct that were still on the voter lists and who had apparently voted in one or more of the recent elections. Although I certainly would never condone illegal or immoral activities, I appreciate creativity, hard work and ingenuity. And under the senior Mayor Daley, affectionately known to Chicagoans as “da boss”, Chicago was known as the “city that works”.

And perhaps that is the bottom-line lesson to be learned for the homebuilding industry – let’s do “what works”. And what works can be determined by examining and analyzing the market. A thorough evaluation of the demand and supply components (both new and used) combined with an honest assessment of the specific property and the builder and/or developer’s strengths and weakness will produce a very clear roadmap to best-case performance in any market conditions. The market may not deliver what we wish but it always demands what it wants in a clear and concise voice.

Several years ago when the homebuilding industry was booming I was retained to perform a market analysis and strategy for a potential condominium development in South Florida. The site was somewhat hidden and surrounded by older lower-end motels but it was on the Intracoastal and had some potential, especially with its attractive land cost. The market was highly competitive at that point in time but my research determined that there was an obvious “hole” in the market with a resulting viable opportunity for a mid-priced condominium product targeted to the gay community. I ran the pro-forma and the “mid-case” scenario, utilizing only a conservative rate of absorption, yielded a 34% net profit.

Needless to say I enthusiastically presented the report to the client, expecting that I would begin immediately assisting in implementing the program. Instead, the response I received was immediate and negative as the client replied “This does not work at all - I am not going to be known as the “gay developer” and my involvement with the property ended.

I watched from the sidelines as the client chose to create an ultra-luxury development on the property targeted to the mainstream “straight” market, a target market which I had examined and found to be over-supplied with competition all enjoying superior locations and I had so informed this client but the advice was ignored. Architects were retained and plans were drawn, costs and bids were obtained. An aggressive pre-sale marketing program was commenced including an elaborate off-site sales office in a high traffic upscale commercial center. Extensive print and electronic advertising was placed, fabulous brochures were created, and the leading area “carriage trade” broker was brought in to handle the sales. Eight months later, after having obtained only two reservations for the 66 residences, the sales office closed and the property was put up for sale. To the best of my knowledge, this individual has left the homebuilding industry.

Interestingly, a few months after that a new condominium opened for sale on a site very near this property. That location was slightly inferior and the product design was nothing special but they targeted the gay community with a mid-priced product and sold out all 58 condos in three months. They obviously had done their homework and followed the market to success.

Perhaps that is an extreme example but I find that even today as I examine housing markets around the country I encounter builders doing what “used to work”, wishing that things will return to what they were, instead of doing what works today. Given a choice between “what I wish” and “what works”, I would pick “what works” every time. But that’s just my opinion.

Please visit our company’s website to learn more about our services to the homebuilding industry – http://levitanassociates.net.

THE KEY TO SUCCESS FOR HOMEBUILDERS

2009-12-02T20:54:00.002-05:00

Strategy can be defined as “the combination of science and art to create an intelligent plan to realize a future goal”. An effective strategy for the homebuilding industry must include an examination of the current and anticipated factors associated with customers and competitors (external environment or, if you prefer, supply and demand) and the company itself (internal environment) and a resulting alignment of policies, practices and resources to realize that goal. And that simple process is the key to success in any market. Yet all too often as I travel across the country I find builders whose operations are suffering not because of market conditions but by their failing to create and execute a proper strategy thereby resulting in structural deficiencies that create a needless loss of sales.

Here is an example from an assignment last month. This market was relatively healthy; in fact, current and near-term demand is anticipated to approximate the average of the past twenty years. Yet this builder, who we will call “Builder T” (for torpid), has seen its market share continuously declining. Here is what I discovered:

1. Builder T builds a quality home with attractive exterior elevations that distinguish themselves in the marketplace. The interior spaces are certainly acceptable but the current standard included finishes are well below the levels provided by the competition, even the “price” builders, and are apparently below the expectation of quality by the marketplace as evidenced by comments from both consumers and Realtors®.

The “price” position in this market is already firmly established with three other builders aggressively fighting it out while the “value” position, consistent with the builder’s overall design and quality of construction, is wide open but cannot be achieved and secured with the current basic included features.

2. One local quadrant of the market accounts for less than 30% of all new home sales yet is the location of 75% of Builder T’s operations. With an extreme concentration of operations within a limited geographic area, absorption is being lost due to the failure to serve other specific geographic areas and cannibalism of the limited local market that does exist must result from the builder’s excess of opportunities available within this single market area as the communities are competing directly for the same buyer with the same price points and also, in several cases, the same products.

It appeared evident from just a cursory review of the market that merely by replacing one of the existing communities with a different location (one not currently being served) that total market share could be increased by as much as 25% while simultaneously increasing production efficiency and lowering G&A.

3. Builder T is further cannibalizing its own potential market, both within several of their communities and between several of their communities. The offer the same home plans in three proximate developments with little price or amenity variation. They also offer the same home plans within two neighborhoods in two of their same communities needlessly confusing the customer and failing to force a buying decision by creating urgency or unique opportunities for purchase.

Our builder also has failed to implement a proper pricing strategy (please see a previous blog for details - http://www.residentialmarketingblog.com/2009/11/a-little-help-for-my-friends-in-the-homebuilding-industry/). In the majority of their communities the overall pricing spread is insufficient thereby losing as much as one-third of the target market. Substantial gaps exist in the pricing spread in all of their communities leaving an additional 20% of their potential market unaddressed by price. And in many other cases the prices are so close together that the buyer is not forced to make a price/value decision to purchase.

And the majority of their homes are priced in the 5th quintile of both the “new” and “total” home market which is especially challenging for a production builder as competition includes the semi-custom and custom builders (which offer almost unlimited choice for the dollar) and therefore is often best to be avoided, especially by a builder that also offers far more affordable housing, does not have an exclusive upscale market position and is therefore constantly subject to competitive attack.

It’s painful enough for builders today without having to endure self-inflicted wounds. But lack of an effective strategy is exactly that.

And one of the best ways I know to learn how to create an effective strategy is by taking the Institute of Residential Marketing’s Course “Marketing Strategies, Plans, and Budgets” (IRM II) (http://www.nahb.org/generic.aspx?genericContentID=74821).

Please visit our company’s website to learn more about our services – http://levitanassociates.net/.

WORDS TO THE WISE FOR NEW HOME SALESPEOPLE

2009-11-24T11:35:00.003-05:00

In response to my last blog on “Failure To Communicate” I have gotten numerous requests for copies of an article I wrote in 2004 for Sales + Marketing Ideas magazine and republished in Nations Building News so here it is again.

Recently my wife and I were enjoying dinner at an upscale chain restaurant when, after completing our salads, our server inquired, “May I retire your plates?” I answered yes and then, realizing how wonderfully refreshing that phrasing was, stopped him to ask whether that was an original choice of words or had been furnished by the restaurant during training. His response was that those were his own words and, after trying several others, he believed it would leave a unique and positive impression on his customers. His professionalism was rewarded as I was certain to leave a generous tip when we departed and ask for him again the next time we visited the restaurant.

This afternoon I was driving down the street and noticed the service truck from Rooms To Go parked in the driveway of a home. What struck me as unique was the identification slogan painted on the side of the truck. Instead of the typical “SERVICE,” this truck read “CUSTOMER SATISFACTION.” What a wonderful image to convey through the simple process of using a creative choice of words.

The power of words is truly amazing. For nations, words can mean the difference between war and peace. For a married couple, the wrong words can lead to divorce. In the new home sales arena the choice of words can often mean the difference between life and death (of the sale). Yet most of us seldom take the time to be certain in advance that the words we choose to use will have the desired effect.

Over the past years I have had the opportunity to shop thousands of new home sales people and brokers around the country. And the majority of time the salesperson will inadvertently say something that could create a negative impression, either about the home, the community, or the builder, and thereby destroy the sales “moment.” My favorite, which I heard again just last week, goes something like this: “Now let’s take a look at the small bedrooms.”

Having used that phrasing, the salesperson has now suggested that he or she thinks the secondary bedrooms are small and has transferred that perception to the prospects, whether or not they previously believed it. I do not believe that anyone wants “small” bedrooms, especially, in this case, in a $300,000 home.

Using negative words such as “small,” or “interior” to describe a homesite location cannot possibly enhance the sales process. Yet without proper thought and training those words which naturally permeate our everyday vocabulary will inevitably leak out at the most inopportune times during the sales process. And the only way to prevent the use of these negative words is through behavior modification.

There is no question that words are powerful and, in new home sales, a poor choice of words used by the sales staff can often negate an hour or more of the sales agent’s efforts toward consensus building and buyer interest. So how do we modify that behavior? By training and practice! One of the tools I use when training new salespeople and in teaching the CSP program is to introduce a list of what I have termed “Power Selling Words” and require the group to use them in sentences describing their homes and communities. These words are simply common adjectives and adverbs that can be used to add positive connotations to the features in our homes and communities.

As I believe in both positive and negative reinforcement, we continue that process with a take-home assignment of putting down in writing 20 such sentences each morning for the next week. We keep a jar in the sales office and every time the salesperson uses a negative word he or she is fined $2 which is added to the jar (we trust the sales staff to self-police on this issue). Every month we use that fund to send flowers or a special thank-you gift (on behalf of the sales staff) to a local broker who has recently promoted our homes and brought us prospects. Within the first few months that fund shrinks dramatically as the learning process firmly takes hold but we are happy to make up the difference from the income generated from the extra sales.

Be aware of the power of your words and you will be surprised at the difference it will make!

Please visit our company’s website to learn more about our services - http://levitanassociates.net .

HOMEBUILDERS – “WHAT WE’VE GOT HERE IS A FAILURE TO COMMUNICATE!”

2009-11-19T11:37:00.003-05:00

Cool Hand Luke is a truly great movie. For those of my readers who are too young to have seen it when issued in 1967, I would recommend renting it one night or downloading it from “on demand”. The film earned Paul Newman one of his ten Academy Award nominations and won George Kennedy the Academy Award for Best Supporting Actor. It is included in the American Film Institute’s “100 Years...100 Heroes and Villains” (number 30 greatest hero) and “100 Years...100 Cheers - America's Most Inspiring Movies (number 71) and was placed in the Smithsonian’s United States National Film Registry in 2005. It is classic Paul Newman at his best playing the role of an anti-hero with an indomitable spirit. And the tag line captioned above is outstanding, applicable to almost every aspect of life these days but, perhaps, especially relevant to the homebuilding industry.

Lack of proper communication seems to be pandemic these days. At a restaurant last week I had ordered a salad in lieu of side dishes and was unpleasantly surprised when it was served with my entrée. When I mentioned my dissatisfaction to the server she replied rather haughtily “well, you should have specified that you wanted it first.” Without thinking, and slightly taken aback by the attitude, I responded “that is true or you could have been proactive and asked if I wanted it first.” This was an instance of failure to communicate with both parties sharing the blame and both parties suffering for the error. I did not eat my salad; the server received a less than generous gratuity. Not an earth-shaking consequence for either party, just annoying and, more important, unnecessary.

I wrote an article a couple of years ago for Sales and Marketing Ideas, reprinted In Nations Building News, titled “WORDS TO THE WISE”. I suggested that “the power of words is truly amazing. For nations, words can mean the difference between war and peace. For a married couple, the wrong words can lead to divorce. In the new home sales arena the choice of words can often mean the difference between life and death (of the sale). Yet most of us seldom take the time to be certain in advance that the words we choose to use will have the desired effect.” If you would like a copy of that article, please send me an email and I will be happy to forward it to you.

During my career I have had the opportunity to shop thousands of new home sales people and brokers around the country. And the majority of time the sales person will inadvertently say something that could create a negative impression, either about the home, the community or the builder, and thereby destroy the sales “moment”. In this case, failure to properly communicate will have serious repercussions both for the salesperson and the builder.

Communication is a bi-directional process and what is said is often not what is heard. As we teach in the CSP course, there is tremendous “interference” in the communication process as each of the parties exists in his or her reality based on experiential factors and personality. And it is not just communication that often is deficient but also perception and these deficiencies are not limited to the sales process but, instead, permeate throughout the entire homebuilding operation and process.

I had an assignment several years ago to analyze a builder’s operation and recommend opportunities for improvement. When commencing the assignment I sent the builder a questionnaire requesting that among other items he detail his market position. He responded that he built a superior home with exceptional value and his advertising and marketing materials strongly promoted this “value” position.

After reviewing the sales and traffic reports and completing my field inspection in which I had visited all of the builder’s communities as well as many of the competitor’s operations, the builder’s self-proclaimed value position was not evident to me so I asked him to elaborate. He responded “it is obvious in the kitchens and baths of my homes as I hand-build all of my cabinets. In fact, this is costing me well over $1,500 extra per home”. As I did not remember anything special about the cabinets, I returned to one of his models and found primarily 30” base cabinets with flat panel wood doors (lacking automatic closures), uneven and streaked dark stain, inexpensive hinges and hardware, no inserts or dividers in the drawers for silverware, and none of the special features such as lazy Susans or tri-fold doors in the corners that I had come to expect to find in this mid-priced range of homes. This builder perceived quality; I perceived something less and I am convinced the market shared my perception.

In interviews with the builder’s sales staff, many of the sales people told me that they and the market shared my belief about the cabinets but, having once broached the subject with the builder, his very vocal negative response quashed any further discussion. And the sales people further shared with me that they had not discussed other customer feedback with the builder as they knew he would not be receptive and they did not wish to encounter further abuse.

When I completed my analysis I found that, in fact, this builder had created the “price” position in his market, not the “value” position. Several other builders had far more attractive home designs and higher levels of standard features and had locked in the “value” position in that market. Because my client included certain unnecessary features which increased the price and he did not market his actual advantage, sales were being lost. Additionally, this builder had a substantial land position in two outlying areas – locations in which more expensive homes were not selling but those priced at the more affordable levels were enjoying good absorption.

My completed report was presented in a meeting attended only by myself and the builder; he did not wish his construction or marketing team members present (which I found rather unusual). I was proud of my work as, based on my analysis of the market, the builder’s operation and his land position I had created what I believed to be a very logical and detailed operational and marketing strategy to sell more homes, expand the builder’s market share and increase profitability utilizing the price position. I was rather surprised, therefore, when the builder rather vociferously rejected my conclusions and recommendations stating that “he would rather not make any money than be known as the cheapest builder in town”. Quite possibly I had made an error, failing to properly communicate to the builder the facts and opportunities available and presenting them in such a way that they created the self-evident profit potential that I saw. And apparently the builder did not hear what I was saying as the interference of the less expensive product, which he interpreted as “cheap”, conflicted with his image of himself and his company. A failure to communicate that unfortunately resulted in the builder getting his wish as he is no longer in business.

Communication must be a two way process, giving and receiving. Certainly the builders have the final say in all decisions but If builders will not listen to the market, and to the sales people and consultants that speak for the market, then the most important people in the process, the customers, are being left out of the decision making process. Whether or not you like what is being said, there must be proper and open communication throughout the entire operation and process or sales are being lost and money is being left on the table. But that’s just my opinion.

Please visit our company web site to learn more about our services – www.levitanassociates.net

WE ARE MOVING

2009-11-15T20:33:00.001-05:00

EFFECTIVE DECEMBER 1ST, 2009 OUR BLOG WILL BE RELOCATING - PLEASE MAKE NOTE OF THE NEW LOCATION - http://www.residentialmarketingblog.com/

BACK TO THE FUTURE FOR THE HOMEBUILDING INDUSTRY

2009-11-15T20:27:00.006-05:00

Many of the pundits in our industry are suggesting that there has recently been a radical change in the nature of our business. I was a child of the 60’s and I understand the concept of “radical” change. I marched for peace and for civil rights. I was at Grant Park during the 1968 Democratic Convention. I remember Woodstock, can still recite the lyrics of most of Bob Dylan’s early protest songs and while there can be no doubt that “the times they are a changin’” for the housing industry, it is not by any means a radical change. There is no “battle outside ragin' to shake your windows and rattle your walls.” Instead, these changes are simply the evolutionary cyclical turn of the wheel.

Do you remember housing cycles or, if you have not been in this business long enough to experience one, have you at least heard of them? The Baby Boomers, which have been the major drivers of housing demand in this country for the past 40 years, have pretty well run their course in regard to conventional housing. We have built more than sufficient move-up product recently and the additional homeownership opportunities for this market segment are probably limited for the most part to active-adult (55+) communities

While the demographics suggest that the Echo-Boomers (or “Millennials” or “Generation Y”, if you prefer), will, in time, more than replace their parents’ generation and become the next major driver of housing demand, the present economic conditions and the ever tightening grip on credit will make it difficult for these potential home buyers to match the homeownership rates of their predecessors by the time they reach their 30s and 40s unless we act intelligently to assist them. Married couples without children (including empty-nesters) will be the fastest-growing household type, followed closely by single person households.

I would propose that the solution is to “go back to the future”, to the housing products with which we were successful in the late 60s and early 70s for the Baby Boomers, maintain that cost effectiveness but update them for the 21st century with the design and features that the new markets have come to expect, and ride that wave to success and profit. These were initially smaller, affordable homes but with integral expansion capabilities and with some forethought we can design and build them better today to reflect the new markets and their needs and wants.

And to fully and properly service the new target markets and help them in achieving their goal of home ownership we will have to provide the same services and assistance that we did thirty or forty years ago but updated with the current technology and tools that we now have available.

Additionally, as household growth among Hispanics and Asians is anticipated to continue to accelerate, adjustments in community and housing design are required including product for the multi-generational households which are more common within these ethnic groups.

As George Santayana wrote in his The Life of Reason, Volume 1, 1905, “Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.”

So let’s not repeat the mistakes of the past, especially the recent past, instead remembering the past while also learning from it. Study the underlying reasons why we sold houses to the Baby Boomers, then implement the obvious changes for today’s markets and enjoy the well deserved success and profit from going “back to the future.”

Please visit our company’s website to learn more about our services and feel free to contact me for further details on what I believe are the necessary steps to maximize our success with these new target markets - http://levitanassociates.net/default.aspx.

HOMEBUILDERS PLEASE LISTEN - IT’S JUST NOT FUN BUYING A NEW HOME

2009-11-05T14:03:00.006-05:00

I think that everyone enjoys having fun. Next week I am flying to California to again judge the National Sales and Marketing Awards (http://thenationals.com/) and I made it a point to take an early flight so that I can spend the day with my older son at Disneyland, the second most magical place on earth.

I do not mind visits to doctors and can usually fall asleep in the dentist’s chair while my teeth are being cleaned. But one experience that is not fun for me in any way is hospitals, whether as a patient or merely visiting one. My wife and I spent 7½ hours Friday night in our local hospital with my mother-in-law, first in the emergency room and then waiting while she was admitted for observation. We finally got home at 3:30 AM totally stressed and exhausted even though our patient seemed to have fully recovered from her TIA by 10:30 PM.

The stress was not necessarily from her episode but rather from the entire hospital experience where it seems to be the rule that information exchange is non-existent, unreasonable and lengthy delays are required and treatment is delayed, if provided at all, until everyone is confident that they will not be sued. It is my wife’s opinion, and she quite possibly is right, that hospitals should be avoided at all costs as they will kill you if you give them the opportunity. Fortunately my mother-in-law seems to be fine now and once they balanced her Coumadin levels they sent her home. So it appears that we have concluded another hospital experience without catastrophic results. But I am of the belief that not even doctors and nurses enjoy hospitals.

It is time for me to buy a new car as the lease on my wife’s car will shortly expire. This is another experience that until recently I found to be both unpleasant and stressful. I am not really “in to” cars and never have been. Perhaps that is due to age but mostly I consider a car to be transportation, not an ego statement, not a replacement for lost youth nor the fulfillment of some unachieved dream. I have owned many cars over the years. Some were fun when they were running including both the used TR3 and XK140 I bought in my youth, both of which I thankfully had for only a short time.

I enjoy having a new car and I enjoy driving one. The “new car” smell is great; the cleanliness is a pleasure; the new “toys” are fun. I almost even enjoy (in a somewhat masochistic way) the frustration in becoming familiar with the relocated controls. What I did not enjoy in any way is the process of acquiring the new car, from the difficulty in actually obtaining the final price to the demeaning process where I have to receive the “blessing” from the sales manager seated “on high” to approve the deal. And I really do not think that the process should take three hours or more, especially if you have previously purchased several cars from the same dealer, when there is no vehicle being traded-in and the purchase is paid in cash.

So last year I adopted the practice of buying a car from the dealer that gave me the least grief and aggravation. It took visits to seven different dealers before I finally found one which treated me as I wished to be treated. My last car acquisition was almost a pleasure and this dealership will probably be our first (and possibly only) stop when we begin the search for my wife’s new car. For a stress-free experience and the bonus of a nice car, I personally recommend Lexus.

And now we come to the process of buying a new home.

I shop communities across the country on a regular basis and even in 2009 I have walked into sales offices and been greeted with “May I help you?” Another one that I hear frequently is “Hello, what brought you out today?” My immediate mental response to that one, which I usually stifle, is “first my car, then my feet”. Perhaps I am overly picky (and I will gladly allow the many excellent sales trainers in our industry to improve on my answer), but it seems to me that a proper greeting would be something like this:

“Good morning and welcome to Graceland. I’m Dan Levitan and it is my pleasure to be representing what I believe is one of the finest new home communities in Memphis. Please take a moment to tell me a little about yourselves so that I can assist you in your search for your new home.”

To my way of thinking that would provide a simple, warm and friendly introduction that begins the qualification process, provides a positive image for the builder and the homes, allows us to begin to obtain the additional information we need and opens the door to building the personal relationship that must be created before we can assist that visitor in purchasing a new home.

But it is not only the welcome (or lack thereof) and quite probably the rest of the sales presentation that could be improved but also the entire homebuying process so that, hopefully, it is not only stress-free but also an enjoyable experience for everyone.

• What happened to the children's play area that we used to build into the sales offices for "family" housing product?

• Why did we stop personalizing our ongoing contact with our prospects and customers throughout the homebuying process in favor of automatically-generated generic letters, emails and tweets?

• In the mortgage application process, is the mortgage processor as vested in the home sale as the builder and the new home salesperson? We have selected a mortgage company with good rates and probably the lowest cost to us, but have we also selected based on customer friendliness and quality service to the applicant and, perhaps, most important, their ability to continually confirm the decision to purchase from us?

• The selection process as another step where we may have lost or way. Centralized design centers are profitable and cost-effective but have we created a situation where we place pressure on the customer to upgrade beyond affordability? Are the “base” selections not only adequate but acceptable, with multiple choices available and termed the “sapphire level” (with the upgrades being the “emerald” and “diamond” levels) or something similar to provide a positive connotation instead of the buyers believing they have to settle for less? Have we properly trained the personnel handling the selections in new home sales skills so that the home purchase decision is constantly reinforced?

• In the construction review process, if proper procedures exist at all, the potential for customer stress and dissatisfaction is endless. This year I witnessed a major homebuilder prohibit the customer (in writing) from viewing the home during construction and also barring any customer input until the home is ready to close. What could we hope to accomplish and what message do we send by telling the buyers that they cannot look at their home during construction (which we all know they are going to do anyway) and if they see something amiss we do not care?

• In the closing process we typically turn the buyer over to another department or outside contractor who I guarantee was not selected based on customer friendliness or their ability to continually confirm the decision to purchase from us.

Please do not get me wrong. I am not opposed to standardization and operational efficiencies which are essential for production builders. But I think perhaps we have gone too far in concentrating our operations toward the production side of the business and have forgotten that it is the marketing side that makes the cash register ring. We have taken the salesperson, on whom we have relied to create a personal relationship with the purchaser, out of much of the ongoing process, substituting people untrained in new home sales and potentially lost control of our customer.

Back in the days when the homebuilding business was booming, Larry Webb, then CEO of John Laing Homes, implemented a homebuying process that was the most professional, comprehensive and consumer-friendly program that I have seen. Included among many features were a brochure explaining the entire homebuying and homebuilding process and an accompanying coloring book for children so that they could not only be a part of the process but also to make it enjoyable and relieve some of the fears of moving. (By the way, NAHB has a children’s coloring book on-line - http://www.nahb.org/coloringbook)

What makes Larry different from most homebuilding executives is that he came from the marketing side of the business. In fact he is one the very few homebuilding executives to have taken the time to earn the MIRM designation. He understood that housing is a retail business selling the most expensive consumer item and that his company should be operated accordingly, not as a manufacturing business. Larry was deservedly recognized in 1997 as a “Legend of Residential Marketing®”.

Volkswagen demonstrated that “fun” can change the way people act - http://www.youtube.com/watch?v=2lXh2n0aPyw. Can we not do the same with homebuilding? In this era of commoditization of housing, with all the builders competing head-to head with virtually identical product, there is an absolute need to create a USP (unique selling proposition). Would a better and friendlier homebuying “process” not be the perfect vehicle to be more fun for everyone and allow a builder who truly cares to differentiate itself from all of the other builders in a positive and memorable way?

Please visit my company’s website to learn more about our services - http://levitanassociates.net/default.aspx.

HOMEBUILDERS AND SUSHI - PART II

2009-10-30T13:28:00.004-04:00

I had lunch again at the local sushi buffet. For those who follow my blog I am pleased to report that yes, they are still in business. In fact, the restaurant was crowded. On my way in I picked up a copy of the New Times, a free alternative newspaper, to read at lunch. If you live in a major metro area, I am sure that you have similar newspapers available. The editorials are typically aimed at a local politician and are vitriolic; the dining and entertainment sections are extensive.

What caught my attention at lunch, however, was the substantial collection of ads for pain management clinics, comprising 14 of the 72 total pages in the publication, with the majority offering "dispensing on-site". Apparently I am not as “current” as I thought as I was unaware of the extent to which the drug dealers in my area had apparently become legitimate businessmen.

Many of the homebuilders and developers today are certainly feeling pain. But, rather than visiting one of these thinly disguised drug dispensing facilities, I would suggest that a visit with your marketing team, whether in-house or outside consultants, might be more beneficial and have longer lasting results.

Several weeks ago I received a call from a client asking for my advice. He had opened a community a few years ago and sales had been very good until the market downturn in 2007. Recently in reviewing this community he realized that three of the eight home plans that he offered are accounting for over 80% of the total sales. In the good market he saw no need to analyze the operation as he was selling as fast as his production capacity allowed but now that the market is much slower, he was concerned that he might have a problem.

There are many factors that influence a homeowner’s buying decision and often the builder inadvertently creates additional factors that will favor certain home plans over others. As a development that only sells a few of their home plans can quickly become stale and repetitious in the eyes of the buyer and retard future sales, it is important that the full spectrum of home designs be purchased for the optimal success and profitability of a community

I asked the client what had his updates to the original market strategy shown and he replied “we have not updated nor even looked at the report since we opened for sales”. As this was a client with whom I have worked on several assignments over the past years, I gave him some free advice. Here are the suggestions that I provided which I believe are valid whenever a community is not selling as expected:

1. Do an exit survey of your traffic and your buyers to determine why they chose a specific competitor's community and home over yours or purchased one of your specific home plans versus another. Understanding your prospects and buyers and their motivation is essential to determining and satisfying their needs and desires.

2. Shop your competition to determine which home plans they are selling and compare those to your product offering. Do you provide all of the styles and designs of homes that the market desires within your targeted price points?

3. Examine your traffic and buyer profiles. Has your prospect or buyer traffic changed from what you anticipated in your original strategy? Are you providing the correct home designs, styles, features and pricing for what is now the realistic target market? And is your advertising and promotion targeted to those markets?

4. Examine the competition to verify that your homes are appropriately priced for the perceived value they provide and make adjustments in pricing and features as required. Raise the prices on the better selling homes and, instead of lowering the price on the other models (which usually tends to decrease the value of the entire product line), consider actions that increase the perceived value of these homes such as including additional features and incentives.

5. Examine the pricing of your homes. Is the pricing spread between your homes too narrow so that a distinct value proposition is not being created for each plan with the result being that the purchasers are not required to make a "dollar" choice? If all the homes are effectively the same (or very similar) price then a vital factor in the decision making process is eliminated. Remember, pricing is determined by the market, not by cost.

6. If the better selling homes are those that you have selected to feature as furnished models, consider adding another furnished model. Model homes typically outsell the other plans by two to one and the cost of an additional model can usually be recaptured with just a few additional sales as the “fixed” operating and marketing costs have already been covered.

7. Motivate your sales staff to make an extra effort to sell the less accepted plans through incentives, increased sales commissions and contests.

8. Make certain that the “available” homes (this builder’s market favors inventory or “spec” homes) provide a complete choice of home plans to those prospects needing short term occupancy. All too often builders who create inventory favor the plan that last sold thereby perpetuating a prejudice in selection.

9. Restrict certain of the more desirable homesites so that only a few of the home designs are permitted there. Often the choice of a premium homesite will help sell that home plan.

10. Keep the community new and vibrant by introducing new home plans and designs every year or two. “New” sells and provides a valid incentive to the market for a return visit.

I then reminded my client that the marketing strategy does not end with the opening of the community. Instead it is an ongoing dynamic process that must be continually examined, analyzed and updated to insure the optimization and profitability of the development.

The best news, at least from my perspective, was that after considering my advice the client retained me to perform the community and market analysis and provide an update to the marketing strategy so I will not be requiring a visit to the pain management clinic and can, instead, again return to the sushi buffet.

Please visit my company’s website to learn more about our services - http://levitanassociates.net/default.aspx.

LIFE IS TOO SHORT FOR HOMEBUILDERS (AND EVERYONE ELSE) TO WASTE OPPORTUNITIES

2009-10-23T18:12:00.005-04:00

My wife and I went to see Leonard Cohen in concert recently. The concert was excellent and if it is scheduled in your area I would recommend the investment of time and money. When we spoke to our children a couple of days later my older son was somewhat surprised that we were fans as he apparently pictured our tastes in music as more limited, directed primarily to the Doo Wop oldies groups which we admittedly have seen on several occasions.

I explained to him that contrary to his perception, our tastes in music are actually quite catholic, including opera, classical, jazz, country, R & B, pop, folk and rock, although we admittedly have not embraced the heavy metal, alternative rock, techno and hip-hop/rap performers that abound today. We were, in fact, just as likely to see a performance of Turandot or La Traviata (we prefer the Italians), concerts by Andrea Bocelli, or Sarah Brightman, the Manhattan Transfer or Susannah McCorkle, Billy Joel or Elton John, as we are a show that features Kenny Vance.

We missed the opportunity to see the Bee Gees in Miami several years ago as the show was a New Years eve performance and I (my fault entirely) did not wish to fight the traffic and drunks on the way home nor pay the premium price for New Years eve tickets. When Maurice Gibb passed away six years ago, I realized my error in judgment and vowed never to repeat it again so we have made it a point to see the “greats” of every genre whenever possible under the assumption that we might not have the opportunity to do so in the future.

Some of the performances we have seen were admittedly less than stellar. We walked out of Liza Minnelli’s recent show at intermission. In my opinion, Tony Bennett, on the night we saw him, needed a wheelbarrow to carry a tune. And my wife, who had made me promise to take her to see Barbra Streisand if she again performed in concert anywhere in North America, admitted that the concert we saw last year (fortunately for me it was in South Florida) was an occasion that we did not need to repeat. Other performances, however, were truly great concerts. Four of my favorites were Itzhak Perlman playing a small matinee venue in South Florida twenty-five years ago, the Three Tenors in Miami in 1997, Simon and Garfunkel’s reunion concert last year and even Celine Dion’s concert at Caesars two years ago during IBS, which I had agreed to attend only after pressure from my wife.

The point to this lengthy introduction is that often in life, in both business and our personal lives, we have only have one opportunity and if we do not grab it, it is gone forever. And life is too short to waste any of those opportunities.

I had lunch this week with a good friend of mine (we’ll call him Frank) who had phoned me looking for my advice on what he should be doing to make a living. He had been developing residential property in Florida for the past ten years and enjoyed some success but lately the potential was not there. In early 2006 his group purchased a parcel of land consisting of one hundred forty acres, formerly orange groves, in central Florida (north of Orlando) for $25,000/acre. At that time the housing market was booming and retirees were flocking to the Sunshine State in droves. The group proceeded to have a site plan prepared for the property yielding 444 single family patio homes and began the process of entitlement which was estimated to take 15 months to complete.

Six months into the approval process, a national builder contacted them and offered to purchase the site for $9,000,000 (slightly under $65,000/acre) subject only to final zoning and site plan approval. Frank, who believes that “a bird in the hand is worth two in the bush”, thought that the offer was reasonable and was ready to accept the deal. In fact, in his mind he was already spending his share of the profit. But his partners believed they would be “giving away the land” at that price, leaving as much as $3,000,000 on the table, and turned the deal down.

The group proceeded with the approval process and they were successful. But we all know what happened to the housing market in the past two years and central Florida was as hard hit as anywhere except, perhaps, Michigan. In the middle of this year the group sold the land back for orange groves at $2,000,000 ($14,500/acre) and was relieved to have the debt off their books. They were actually lucky to be able to sell the ground at any price. A wasted opportunity, a difference of $7,000,000, and Frank was now looking for a new business or a job and I picked up the check for lunch.

I know of a builder who opened a new community in the Midwest a couple of years back. Prior to opening the development the builder was advised by his marketing team against this undertaking, as they believed that the price and product were wrong for that location. In fact, they provided a rather thorough analysis of the market supporting that position. The builder, who has been very successful over the years doing what he thought was best, ignored the advice and proceeded with the development. Sales have been virtually non-existent. On several occasions since then he has requested recommendations about what needed to be done to increase sales; the recommendations from his marketing team, which included changing the product and the price point, have been ignored.

Although the new home market in this builder’s location as in many others has been hard hit for the past two years, and quite possibly even if he had followed the original recommendations the market response would have been less than enthusiastic, some improvement was certainly likely. But this builder did nothing, instead continuing his ill-conceived development without success, carrying the improved land and incurring in excess of $1,250,000 in interest expense. Several chances were wasted and the result was costly.

Life is too short, especially in the building business, to fail to respond quickly when the market demands action. There is a saying I use when teaching the IRM courses and discussing standing inventory, “houses are not like wine and cheese; they do not improve with age.” My intent is to make it clear that standing inventory does not become more attractive or more valuable the longer it stands; in fact it decreases in value daily. The same is true for most aspects of homebuilding. When the market suggests that an error has been made, it is almost always the proper and most cost-effective course of action to make a change as soon as possible for there may never be a second chance.

This past week this builder again contacted his marketing team to inform them that he had now decided to change the product, on at least a portion of the property, and he was requesting their opinion of this revision. They again looked at the market and the competition and prepared a brief report that summarized competitive activity and recommended specifics of the revised development including home sizes, styles and pricing and the residual land value that would permit the development to pro-forma. I was asked to review the report and I believe that it was a logical and practical approach that conservatively would yield an increased sales rate of 750% or more over the next few years.

As Leonard Cohen says, “There is a crack in everything, that’s how the light gets through”. Perhaps the crack in the builder’s ego has finally allowed the light to get through. For this builder the cost of the interest carry, while needlessly painful, was not terminal but for many other builders and developers a missed opportunity, especially in this market, may not be survivable.

And on September 7th, Robin Gibb revealed that he and Barry had agreed that the Bee Gees would reform and perform on the BBC's Strictly Come Dancing on October 31st, 2009 so just possibly I too will get another chance and, if so, I promise not to waste it.

Please visit our company’s website to learn more about our services:
http://levitanassociates.net/default.aspx.

HOMEBUILDERS AND NORDSTROM – WHAT’S THE DIFFERENCE?

2009-10-18T00:15:00.007-04:00

I called a builder two weeks ago to inform him of a new program that I had come across that I thought would be perfect for his operation. This builder is not one of my clients but I have known him for several years and we are on a first name basis when we see each other at one of the homebuilder conventions and meetings.

I first reached the company’s automated phone directory system and, when I could not find the builder’s name listed, was connected to the operator who then connected me with the builder’s “office”. The person who answered then grilled me for ten minutes as to who I was and why I was calling, then informed me that the builder was out of the office but would leave him a message. Twelve days have passed and I have yet to receive a return phone call.

Yesterday I placed a call to Blake Nordstrom, the president of Nordstrom’s department stores. I had previously sent a letter to the company in regard to an issue that I had with one of their stores and, having not received a reply after what I thought was a reasonable time, I decided to follow-up.

The human operator who answered the phone asked me to whom I wished to speak and I replied Blake Nordstrom. I had anticipated being connected to someone in customer service but, to my surprise, I was immediately connected to Mr. Nordstrom who picked up the phone himself. Perhaps this was merely serendipity and the operator had mistaken me for the other Dan Levitan, the one who founded Maveron, took Starbucks public, and is based in Seattle (as is Nordstrom) but no matter, for I was speaking with the President of Nordstrom. After I briefly explained why I was calling, he apologized for his error in not responding to my letter which he said he had not received and he gave me his personal email address so that I could send him a copy of the original correspondence. Two hours later he personally called me back and spent fifteen minutes on the phone with me addressing my concerns.

With 171 retail stores and scheduled to open 25 new stores in the next couple of years, 52,000 employees and $8.5 billion dollars in annual sales, Nordstrom is certainly a larger operation than is the builder’s who I had called and is comparable in size to or larger than any of the homebuilding giants. But Nordstrom is a unique company with a history and corporate culture directed to serving their customers which takes precedence over everything. For many years, new employees were given a copy of the famous Nordstrom's Employee Handbook – a single 5 x 8 inch gray card containing only 75 words:

Welcome to Nordstrom
We're glad to have you with our Company. Our number one goal is to provide outstanding customer service. Set both your personal and professional goals high. We have great confidence in your ability to achieve them.

Nordstrom Rules: Rule #1: Use good judgment in all situations. There will be no additional rules.

Please feel free to ask your department manager, store manager, or division general manager any question at any time.

I have always enjoyed shopping at Nordstrom as I have found it to be a “classy” operation. The first of their stores that I visited was in Oakbrook, IL and I was immediately impressed with many of their visible special features such as the concierge desk and the pianist playing the grand piano in the grand foyer. My wife, being far more practical, was attracted to their expansive shoe, purse and cosmetic departments. But having now personally experienced their commitment to customer service, I have become a customer for life. And perhaps that’s why Nordstrom continually makes it onto Fortune’s list of the “100 Best Companies To Work For” at #36 last year.

My average purchase in their stores has been around $200 yet the president of the company not only took my original call but then personally returned the call after researching the issue. A national homebuilder’s customer probably spends $250,000 today. Do you think, however, that if you were a homebuyer and called the corporate office of Pulte, D.R. Horton, Lennar, NVR or K Hovnanian you would be connected to Richard Dugas, Don Tomnitz, Stuart Miller, Paul Saville or Ara Hovnanian? I don’t think so!

My former partner and Residential Marketing Legend™, Andy Greenman, had a favorite saying that he claimed was passed down from his grandmother, “a fish smells from the head”. I would think that is apropos here.

Now I am certainly not suggesting that the fact that the leadership of the major homebuilders in the country is not reachable by their customers would, by itself, be the reason for the challenges which the homebuilding industry faces today. But if you have recently visited the “builder implode” website (http://builder-implode.com), you would find a list of 82 major builders that have either filed bankruptcy or gone out of business since late 2006 plus 53 smaller builders who have experienced the same troubles. And how many of the top builders in the country have made it on to Fortune’s best companies list?

Successful retailers can teach us so much, not only in regard to customer service (according to the book "Discovery-Based Retail" {http://www.discoverdbr.com/}, customer service is the "sum of acts and elements that allow consumers to receive what they need or desire from your retail establishment") but also in our pricing systems, from the hours that we are open for business, to how we merchandise our wares (what retailers call in-store marketing), and to how we market, advertise and promote our business to our customers. Homebuilding is a retail business, especially at the production level, and unless we are prepared to embrace proven and successful retail practices then we cannot achieve success.

Please visit my company’s website If you are interested in learning more about our services - http://levitanassociates.net/default.aspx.

HOMEBUILDERS AND SUSHI - PART I

2009-10-11T22:08:00.011-04:00

I had lunch last Friday at the local sushi buffet. The quality of the food is quite acceptable, the price is quite reasonable. In the past they drew a good crowd for lunch but lately the customers were sparse and I have concerns for the future viability of the establishment. I have watched the restaurant business for many years, first because I dine out almost every meal and second because I have found that one of the best indicators of both consumer sentiment and the economy can be found in the number of customers that are dining in restaurants and which restaurants they are choosing. Although the current economy has weighed heavily on the restaurant industry, there are obvious winners even today offsetting many of the losers and the underlying reasons for their success or failure are, I believe, equally applicable to the housing industry.

In the last year alone several "affordable" restaurants in my neighborhood have gone out of business after having enjoyed some initial success. I have picked just a few to illustrate this point and chose burger joints as I grew up in Chicago and enjoy a great burger, although few can compare to the original Hackney's in Wheeling. Fuddruckers, Cheeburger-Cheeburger and the Original Steakhouse have all closed their doors. Was it just the current economy or did something happen (or not happen) that caused them to lose their appeal to the market? All of these operations provided decent food, a comfortable atmosphere and competitive pricing. Each had a unique theme and, when they first opened, all enjoyed crowds of customers waiting in line.

Fuddruckers had a creative interior design theme with the entrance path highlighting the freshness of their ingredients with a window to the on-site butchering operation and a meandering walk through the produce provided in their complimentary condiment/salad bar station.

Cheeburger-Cheeburger, playing off the popular Saturday Night Live sketch which parodied the popular Chicago hangout Billy Goat Tavern, was true to its character serving "Pepsi-Pepsi, no Coke". Offering one of the better burgers of any chain, in addition to great handmade milkshakes available in 60+ flavors, the 50's coffee shop theme and oldies music provided a pleasant stop for lunch, a light dinner or a late night snack after the movies.

The Original Steakhouse utilized Howard Schnellenberger's fame as the head coach of the University of Miami and his team's win of a national championship to create initial visibility for another sports bar venue.

What all of these operations that closed lacked, however, were what I believe are three key ingredients.

First, they did very little advertising and promotion. While other restaurants aggressively promoted their operations on-line, on television and radio, in newspapers and mailings, usually offering discount coupons and specials, these operations apparently forgot the need to keep their name in the forefront of their customers' minds. As the decision on where to eat, other than for a special occasion, is usually a spur of the moment decision, it is essential to provide continuous reinforcement to the market of a restaurant's availability, convenience and value and, most important, provide a special reason to visit as soon as possible.

Second, all of these restaurants failed to accept reservations or provide for call ahead preferential seating. While that may seem unusual for an affordable dining establishment, consider a typical family going out to dinner and finding a forty-five minute wait for a table. When our children were young, the prospect of standing in line with hungry and fidgety kids was simply unacceptable.

And third, these restaurants suffered from inertia and failed to change with the times. They did not introduce new menu items; they did not have a "special of the week". They did not provide new and healthier items to appeal to the diet conscious; they did not offer organic foods or a "green" environment to appeal to the environmentally conscious customers.

As I mentioned, in the past few months several new restaurants have opened (yes, even in this economy) to take the place of the recently departed. They offer similar menus and similar costs to the closed operations but the “newbies” are enjoying success.

Five Guys Burgers and Fries, a chain out of Virginia, opened down the street from the previous location of Cheeburger-Cheeburger. They are inexpensive, the food is prepared fresh but served quickly, and they offer reasonably healthy dining (for a hamburger chain) with zero trans fat and zero gluten except for the buns. They actively advertise and promote themselves including a rating by Zagat and dozens of awards from around the country. And they do a very good job evidenced by the lines of customers at lunch and dinner time although they move quickly.

Primanti Brothers out of Pittsburgh opened a block away from the defunct Fuddruckers. Although I was not familiar with their operation, my wife had seen them featured on both the Travel Channel and the Food Network and my younger son had made a point of stopping by their home operation when he was last in Pittsburgh. We ate there last week shortly after they opened and found a menu offering burgers, pizza and numerous other fast food items. The food was good, several of the selections were unique and creative, the prices were reasonable and the service was surprisingly attentive and competent. They have an extensive children’s menu and nightly specials which are attractive to families, their primary market, and they advertise aggressively.

But my hands-down favorite of all of the new restaurants is Duffy’s Sports Grill as they are truly a professional operation. Their staff is almost all young and attractive which appeals to the younger sports bar crowd. They have luncheon, mid-day and nightly specials. Their frequent dining club is the best I have seen. They have call-ahead preferential seating. And the food is good, the portions are large, and they have thereby managed to capture both the “price” and “value” positions in the market.

As I travel around the country looking at new housing developments I find many similar flaws to those that doomed the defunct restaurants:

- Builders that have established neither the “price” nor “value” position in their market and instead must compete head-to-head with every other builder;
- Communities that are not marketed aggressively and cost-effectively, do not use the web and social media correctly and professionally;
- Product lines that are unchanged in five or more years even though the market has changed substantially;
- Sales offices that are closed part-time and, when open, sales staffs that are untrained and inattentive to the customers’ needs, failing to provide individualized care and regular and consistent follow-up;
- Homes that do not incorporate cost-effective design and even the semblance of environmentally sensitive design and construction;
- Communities that do not offer meaningful incentives to act now, instead lately relying solely on the housing tax credit which every other builder also offers;
- Sales people that are relying solely on their companies to create the prospects and thereby waiting for the traffic to come in the door instead of aggressively networking, creating a referral base and developing their own leads;

My advice to builders and developers is to take the time now to address these flaws and be ready to take advantage and prosper when the market returns. Otherwise you may well suffer the same fate as the defunct restaurants.

To be continued………

Please visit my company's website if you are interested in learning more about our services - http://levitanassociates.net/default.aspx.

WHAT DO MY THREE YEAR OLD GRANDSON AND MOST HOMEBUILDERS HAVE IN COMMON?

2009-10-05T10:04:00.011-04:00

Yesterday was my grandson’s third birthday party and we video chatted that night as he opened his presents. In the middle of our visit I noticed that he had his pants and shirt on backwards and, when I questioned his father as to why, was told that he had come home from his party and changed his clothes, dressing himself.

While this error was unimportant as he was in his own home, most homebuilders are making a similar error and their mistake has serious repercussions.

Over the past few years I have been given numerous assignments by builders to evaluate existing communities and develop programs to accelerate absorption and increase profit. While that type of assignment has always constituted a portion of my consulting practice, I have always preferred, when possible, to be brought into a development during the conceptualization and planning stages and, even better, to be consulted prior to the acquisition of the ground. It is always easier to create success when there are fewer restrictions in place as once the development has begun, those restrictions may have substantial impact and create limitations on future actions. The same is true once the land has been acquired.

But regardless of the state of the specific development my first step is always to analyze the market to determine underlying demand. And that demand should be quantifiable by amount, by product type and use, by location and by price. As I have said in several of my previous blogs, housing demand cannot be created; all we can do is manage and, hopefully, satisfy the existing demand. And, unless we wish to recreate the sub-prime debacle, we cannot sell homes that are priced higher than what the market can afford and then artificially stimulate those sales.

House pricing cannot be determined by cost but rather by the marketplace. Most builders fail to follow this concept, instead taking the cost of the finished product and then adding a profit allowance. The difficulty that will result from this procedure is that while projected profit goals will thereby be maintained (at least on paper), there is no valid rationale that the market is willing to pay or can afford these prices and, in good markets (which will return someday) no concrete evidence that the prices resulting from this process are, in fact, the maximum that the market is willing to pay. And this is the backwards error that most builders make.

The first step in a proper pricing strategy is to determine what the market can afford to pay as this will establish affordability and the price point of the marketplace and thus the target selling price of the homes. The second factor is to examine competitive buying patterns which will show what the market is willing to accept for that price and the market preference factors that should apply to your houses. Finally, a review of the specific site is required to determine what impact the location, community and neighborhood features will have on perceived value thereby impacting price.

Under the typical builder operation, a parcel of land is purchased and the builder determines what should be built thereon, often using a land cost multiplier, and then does a cost analysis to determine potential profitability. In this situation, land cost is "fixed", so that the only numbers that can be adjusted are construction costs, absorption, sales and marketing costs or profit.

Adjusting the "profit" numbers is always dangerous. Far too often we encounter builders who started a development with an insufficient profit potential, only to have market conditions force additional cost or discounts that erode the total remaining profit, if not more.

Adjusting the "construction" numbers is equally dangerous. The builder often ends up downsizing the home design below the minimum standards of the market or removing all of the essential features that the market demands in their homes. The rational used is that because the home is built by "Dan Levitan" it will sell regardless of its competitive strengths. But although I personally know that Dan Levitan is a great guy, his homes will not sell unless they create a meaningful value proposition for the market.

Adjusting the marketing numbers or the absorption rates is probably the most dangerous of all, creating a community that can only succeed under the "best case" scenario, with no allowance for necessary adjustments as the market changes and thereby creating substantial downside risk.

Offered here for your consideration is an alternative and what I believe is the correct way to budget a development. This process requires budgeting profit as the first fixed cost, then adding construction and soft costs, leaving the land as the residual variable. Quite simply, if you cannot purchase the land at the indicated value, the deal has potential problems and, quite probably, should be avoided.

In such a simplified budget exercise that I recently presented to a client, the builder could afford to pay $57,600 for a homesite to sell $300,000 average priced homes. At 19.2% of home sales price, that is a noticeable reduction from the 25% allocation that his local market had accepted for the last several years.

And that homesite price was based on a current interest rate of only 5% which this builder is fortunate to enjoy. One of the Linked In groups which I follow has a posting offering land banking and development financing at an effective 16% interest rate. If this builder had that cost his land residual would fall to $46,768 or 15.6% of the home sales price.

This lower than the historically accepted land price is the result of the current market conditions. In the past, the inherent assumption in residential development was that home pricing could be increased regularly to cover the cost of carry on improved homesites. As home prices escalated rapidly it allowed for the forgiveness of many problems and errors including overpaying for land. But the rate of new home price inflation is unlikely to approach the interest carry cost for the foreseeable future and therefore a decreased present value of the land results which often can be significant.

Perhaps that can best be illustrated with a recent assignment that I had for a builder looking to acquire a failed development which was now REO at one of the major money center banks. My analysis showed that the property had real profit potential albeit at a substantially lower price for the housing than had originally been offered and then only after a two year initial holding period when most of the excess inventory on the market would be absorbed. When I ran the numbers and accounted for the holding period plus the carrying costs on the existing homeowners association, the present value of the land was zero ($0)! Needless to say, the bank was less than receptive to an offer even though it was well above the imputed value. However, our value could not have been too far off the mark as the property remains REO in that bank.

I am certain that you have all followed the news over the past 18 months where many of the national builders took hundreds of millions of dollars in write-downs (they called it “impairments”) on their land but many of the local and regional builders have yet to follow suit. And that is why it is often far more difficult to “fix” existing developments than to start new ones; many of the existing developments today are carrying a land cost that is simply too high, all based on the builders’ backwards budgeting process.

Allowances can certainly be made for a three year old child; in fact, I was impressed that he has learned to dress himself even with some remaining challenges. But can we not expect more from homebuilders?

Please visit my company's website If you are interested in learning more about our services - http://levitanassociates.net/default.aspx.

MY PREDICTION FOR THE FUTURE OF THE HOMEBUILDING INDUSTRY

2009-09-22T06:53:00.006-04:00

The question that I am most often asked by clients is "what does the market hold for the next few years and how can I best assure my success in 2010 and beyond?" That is the bottom line question, isn't it?

I do not claim to have the powers of Carnac the Magnificent, nor do I have his robe and hat, but I will give prediction a try, again. I say “again” because while cleaning out my old files I came across a program I had presented to the Greater Atlanta HBA on September 8th, 2004 titled “How To Survive Sweet Success”. This was well before the “subprime” fiasco, and before the overall economic collapse.

What I said to the audience was that the record breaking performance of Atlanta’s housing industry (they had averaged permits for 64,800 housing units annually for 2000, 2001, 2002 and 2003 and were working toward 75,000 units for 2004) could not go on forever because the employment to permit and population to permit ratios were totally out of whack. These ratios, which provide a basic indication of underlying demand in primary housing markets, strongly suggested that an “adjustment” was coming. Atlanta has historically been a market where builders had grown their businesses too fast during strong economic times, eventually resulting in oversupply. This is known as a “supply side” bubble and, while not yet ready to burst at that time (in fact, they permitted 74,428 units in 2004, 72,733 units in 2005 and 68,123 units in 2006), I suggested that the Atlanta bubble was ready to lose a lot of its air.

I wish that more of the audience had listened as I had managed to hit the nail on the head. Atlanta became one of the most overbuilt markets in the country and when the economic challenges hit along with the “subprime” and foreclosure problems, production dropped to 44,680 units in 2007 and to 19,270 units in 2008, the lowest level in 30 years, with 2009 apparently now heading to only 6,000 total units being permitted, the lowest level on record.

And I had made similar predictions for most other housing markets around the country but, again, the audiences must not have heard.

Now to the future! Most economists agree that the housing market in 2010 and beyond will continue to improve but that improvement will be gradual and I share that opinion. There is no doubt that the heady days of the first half of the decade are only distant memories and for most markets in the foreseeable future we will most likely be faced with strong competitive conditions and cautious buyers.

My recommendation to my clients throughout the country is to return to the basics and create a complete research analysis and strategy for every community prior to commencing the development and to update that research and strategy at least every six months to adjust, as necessary, to changing market conditions. Existing developments must also go through the same process on a “zero based budget” basis, starting from scratch.

For every community an examination of the competition, the local economy, the property and the “players” is essential to provide the analysis that defines the “playing field”. And from that analysis you must create a realistic strategy for success.

And for every community, there is an optimal development and marketing strategy that will maximize sales and profitability under current and foreseeable market conditions. While it may take time and effort to properly create such a strategy, the value is immeasurable.

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, community design and features, product design features 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 produced a superior commodity that the consumers will purchase? Have we created an identifiable Unique Selling Proposition (“USP”) that is meaningful to the consumer so that we may present our opportunity to the market and achieve the desired response? If not, we are merely another seller of the same product, probably at the same price, and thereby slicing up the market into unsatisfying small bites.

I believe that for most areas, the housing market will get better every year for the next several years and that there will be very real opportunities to sell new homes and make money. But unless we do our homework we will be left on the sidelines watching the parade pass us by.

A LITTLE HELP FOR MY FRIENDS IN THE HOMEBUILDING INDUSTRY

2009-09-16T06:37:00.007-04:00

I have always been a fan of the Beatles, starting in 1963 when I first heard “I Want To Hold Your Hand”. Their innovative music and cultural impact helped define the 1960s, and their influence on pop culture is still evident today. One of my personal favorites of their songs is “With A Little Help From My Friends” which I always found to be upbeat and, although containing a rather counter-cultural bent, seems especially appropriate to our industry today. So in honor of the “Fab Four”, and as the market is still “away” from where it should be, here is a little help.

Several years ago I had the opportunity to serve as principal editor for a revision of the course content for the Institute of Residential Marketing’s Course “Marketing Strategies, Plans and Budgets (IRM II)”. The revised course had been written by Chuck Graham, my good friend and one of the brightest minds in our business, and had presented “Graham’s Law” which proposed the hypothesis that the optimal financial model for marketing a residential community required a balanced allocation of investment in “Price”, “Promotion”, “Product” and “Place”, forever known to all of the Members of the Institute of Residential Marketing as the “Four P’s”.

To simplify a somewhat complicated lesson, Chuck suggested that if a community was not equally competitive in all of the Four P’s, it would be necessary to compensate by contributing disproportionately to one or more of the factors and thereby incur a greater cost (and lower profit). That premise has certainly proven valid and is, perhaps, most visible in the current market where heavy discounting of prices has been necessary to sell what otherwise might be considered as competitively inferior product.

I decided that if Chuck was to be forever immortalized by virtue of his law, and with a touch of my somewhat dry humor, I included “Levitan’s Corollary to Graham’s Law” in the edited text so that I, too, would have my place in history. But the publishing staff apparently had not taken (or had forgotten) their geometry lessons and when the course book was published Levitan’s “Corollary” became Levitan’s Law©.

I wanted to share that concept here because as I travel around the country I see throughout the markets an improper pricing strategy which needlessly results in lost sales. To properly satisfy a target market segment, pricing of homes within a neighborhood should fully cover the pricing spectrum of that specific segment. If the price spread is too narrow, segments of the market are not being satisfied and sales are lost to the competition. If the price spread is too wide, the value of the higher priced homes is perceived to be lowered, advertising dollars are wasted because one segment cannot be effectively and properly targeted, and sales are lost to the competition.

Most of the housing analysts agree that typically one “quintile” is equal to a market segment. A quintile is one fifth of the total number of sales ranked by price (equal numbers of sales, arranged in ascending order by price). When I analyze a housing market, I typically examine data from both new home sales and resales to provide an even more detailed picture of the pricing of housing being sold as often the new home pricing is at a premium above what the resale market would suggest is affordable.

Levitan’s Law© states that the optimal pricing spread within a neighborhood should approximate +/- 12½% to 15%% from average creating a total price spread of 25% to 30% and thereby covering an entire quintile. The somewhat wider spread is appropriate at the upper and lower quintiles while a somewhat narrower spread should be utilized at the middle quintiles. In a community with an average price of $250,000, the optimal spread would be $218,750 to $281,250. This concept has proven to be equally valid in every market, from the more affordable to the more expensive housing markets, and in every geographic location:

In the Huntsville Alabama metro area, a relatively affordable housing market, the 3rd Quintile (middle) housing prices range from $137,900 to $189,999 with a median of $163,950. The pricing spread is 0.841 to 1.159 = +/- 16%;

In Fairfield/New Haven County, Connecticut, an average priced housing market, the 3rd Quintile housing prices range from $212,000 to $274,499 with a median of $243,250. The pricing spread is 0.872 to 1.128 = +/- 13%;

In Palm Beach County, Florida, a relatively expensive housing market, the 3rd Quintile housing prices range from $425,000 to $550,499 with a median of $487,750. The pricing spread is 0.871 to 1.129 = +/- 13%.

The second element of Levitan’s Law© suggests that within that pricing spread every price element should be equally and proportionately represented. Using the above example of an average price of $250,000, and assuming seven different models, the individual base model homes should be priced (with rounding to create proper “retail” prices) at $219,900, $229,900, $239,900, $249,900, $259,900 $269,900 and $279,900.

In one market which I recently analyzed, I came across a community by a major builder that offered 12 different model homes with base pricing from $251,900 to $279,900. The overall price spread (from a median of $265,900) was only +/- $14,000 or 5.3% and the spreads between the individual homes ranged from zero to $10,000 and averaged only $2,500. It was obvious that this overall pricing spread limited potential absorption and the tightly clustered price points failed to create an obvious differentiated choice by price for the buyer, thereby further limiting sales potential. By simply optimizing the pricing spread the builder could potentially satisfy an additional demand segment equal to 11% of the total potential housing market or more than twice what he was currently achieving.

Pricing of homes should combine both art and science to create the optimal strategic tactic to maximize both absorption and profit. The market challenges are simply too tough these days to do anything less. So hopefully you will find this beneficial to your sales and profits because, as they say in another song that came out 20 years later, “That’s What Friends Are For”.

ANOTHER MOVIE PROVIDES A LESSON FOR THE HOMEBUILDING INDUSTRY

2009-09-11T22:25:00.003-04:00

There was a movie out three years ago called “Idiocracy”. Fortunately I did not pay to see this film at the movie theater but did watch it one night on cable when I could not fall asleep. Luke Wilson stars as Joe Bauers, the definitive "average American" selected by the Pentagon to be the guinea pig for a top-secret hibernation program. Forgotten by the government, he awakes 500 years in the future and discovers a society so incredibly dumbed-down that he is now the most intelligent person alive. I would hope that we are not headed in that direction but I often have my doubts.

This past weekend my wife and I were running errands and on the way home we stopped by a fast food restaurant to bring back lunch. The total of the bill was $12.46 and I handed the clerk a $20 dollar bill and 46¢ in change. He looked at the money for several seconds and then gave me back $12.00. It took me five full minutes to convince him that all he owed me was $8.00.

I know that public school systems across the country have funding problems and have eliminated the majority if not all of the programs in art and music for elementary education but I had assumed that they still had money to teach arithmetic. Perhaps I was wrong and did not account for the fact that I live in Florida which, when my children were in school, discontinued one of the best mathematics magnet programs in the country because, according to the school board announcement, it was elitist (apparently it was of no importance that the only U.S. student ever to win the international math Olympiad had graduated from that program) but still found plenty of money to retain all of the sports programs.

Last night we went to have dinner at a local Italian restaurant. There were five or six tables open but a sign said “please wait to be seated”. After waiting several minutes to be acknowledged, my wife asked one of the people working there if we could sit at the front table and she was told “OK”. However, when we sat down a server came over and said that she thought someone was sitting there (perhaps an invisible family?) but she would be right with us. We got up and stood back by the door but five minutes later, after still standing and waiting, we walked out.

Perhaps things are better in your neighborhood but it seems that where we live there is at least one restaurant closing each week due to the economy and lack of business. Two years ago we would have had to call at least one week in advance to get a reservation at one of the better restaurants. Now when we call at the last minute they are happy to have us there. There are still plenty of neighborhood Italian restaurants and we will give our business to those that welcome us and pay us the attention and respect that we are due as customers but I will never return to that restaurant and I will certainly shed no tears when they go out of business.

Although both were annoying, there is a significant difference to me in these two situations. The first occurred due to ignorance, the second due to stupidity. Ignorance, as I have said in earlier blogs, can be corrected with education, although in Florida it appears that probability is slight. I believe that stupidity, however, is inherent in some people as it can be defined as “the inability to comprehend or to understand and profit from experience”.

One of the major builders in a market where I am active recently revised his advertising campaign (against the advice of his marketing team) to promote the primary premise that their homes are built to a higher standard of quality. I was asked my opinion of this campaign by my client and I responded that in the reality of today’s market, it appears to me that purchasers are concentrating on price and that value is of importance in the buying decision only when it can readily be seen and appreciated

As the builder who has embarked on the “quality” campaign provides included finishes and features that are below what the competition is providing as standards, and their higher quality is “behind the walls” and not visible to the consumer, the only way that premise could be translated into a benefit is through a lengthy education process to which buyers today are typically not receptive. And any such attempt at consumer education would be doomed to failure as that builder has no independent studies or surveys showing that he has higher standards, higher quality or a higher satisfaction rating than any other builder in the market. While the quality claim may well be valid, it cannot be perceived as such by the buyers and, instead, comes off merely as self-promotion and therefore will not, in my opinion, produce a meaningful number of sales.

Now I am familiar with the “quality” builder’s marketing team and know them to be professionals. I cannot believe that they did not try to dissuade their client from this approach or at least first suggest that they be allowed to investigate that issue further through a focus group. But I also have met this builder and know with certainty that his response would have been “after twenty years in the business I know what the market wants so I am not going to waste my time or money on a focus group”.

By the way, that builder who claims to know his market has seen his market share decline by over 30% in the past year so perhaps he really does not know the current market that well. And fortunately my client, who does not claim to know the market that well, has retained a consultant, utilizes focus groups and consumer research, and has seen his market share rise by 20% in the same year.

I have repeatedly heard the “quality” builder proclaim that he is the best builder in the marketplace but my belief is that the “best” builder in any market is the one with the largest market share as they have served, by virtue of their sales, the greatest number of buyers and satisfied the largest demand segment. So the self-proclaimed “quality” builder has lost market share in a market where the total new home sales have fallen by over 50% so his sales are now down by 65%, yet he still claims to know what the market wants. Does that not sound like “the inability to comprehend or to understand and profit from experience”?

A SIMPLE LESSON IN PHILOSOPHY FOR THE HOMEBUILDING INDUSTRY

2009-09-01T16:45:00.008-04:00

It has been many years since I sat in a college classroom, usually with eyelids drooping, trying to stay awake through my philosophy courses. And for several years thereafter, except for once in a while being useful for cocktail hour conversation, I did not believe that the investment of my time and my parents’ money to learn the thinking of the classicists such as Socrates, Plato and Aristotle, the modernists such as Descartes, Locke and Kant, or the existentialists such as Kierkegaard, Nietzsche and Sartre, was worthwhile. However, in recent years I have discovered that those guys knew what they were thinking and their ideas are as valid if not more so today than when they were first brought to light.

Although I believe that education is a lifelong ongoing process, I am not suggesting that the members of the homebuilding industry return to school to take philosophy courses (although there certainly are worse ways to spend one’s free time). Instead, I will offer here a “snippet” of what I remember from school in the hope that others may profit. Although I have always been an advocate of Plato, the lesson for the day comes from Gottfried Wilhelm von Leibniz and his 1710 work Essais de Théodicée sur la bonté de Dieu, la liberté de l'homme et l'origine du mal (Essays on Theodicy, concerning the goodness of God, the freedom of man, and the origin of evil).

As I recall, the primary conclusion of that work is that “This is the best of all possible worlds that God could have created” as His actual choice of this one over all of the others that could have been created required a “sufficient reason,” which, for Leibniz, was the fact that this world was the “best” despite the existence of evident evils, for any other “possible world” would have had evils of its own sort of even greater magnitude.

And that is the lesson that I hope the homebuilding industry will learn and accept. What we have today, considering the economy, the less than enthusiastic consumer sentiment, the foreclosures and short sales, the challenges with financing of developments and housing, and all the other difficulties we face in the second half of 2009, is still better than it could be. But more importantly, that is the reality of the world in which we operate and we must adjust our thinking and our operations to maximize the opportunities that do exist.

Those builders and developers who have accepted this reality are surviving and will be poised for growth and profit as the market returns. They are liquidating unsold and undesirable inventory taking the “first loss”, when necessary, as that is better than what they would realize later realizing the actual cost of time and money. Developers are recognizing the “true” current value of their homesites and the difficulties that builders face in financing land and adjusting accordingly, keeping their communities visible, active and alive. Builders are renegotiating with their suppliers and subcontractors and redesigning their homes to offer something “special” and different from what they had before and what the competition offers, providing better value and reflecting the needs and tastes of the homebuying markets that are still viable today.

I believe that most housing markets have hit bottom and are on the road to recovery but that recovery will be gradual. It will take many years until we return to a strong homebuilding environment and the rules have changed substantially from what we enjoyed earlier in this decade. We must evolve to meet these changes.

As noted in the State of the Nation’s Housing - 2009 by the Joint Center for Housing Studies of Harvard University, the demographic drivers of housing demand have changed. “In today’s severe recession, all age groups will see at least a temporary drop in income, wealth, and homeownership rates—and perhaps in household headship rates as well. The echo-boom generation now reaching adulthood faces a scarcity of entry-level jobs (especially well-paying ones) and will therefore start off on a lower trajectory than the baby-bust generation before them. In addition, with the tight grip on credit, even sharply lower home prices may not be enough to help the echo boomers match the headship and homeownership rates of their predecessors by the time they reach their 30s and 40s.”

That report goes on to project, even in their low growth scenario, household growth averaging more than 1.25 million annually over the next decade which is comparable to the average annual household growth experienced in 1995–2005. As opposed to recent years, however, where housing benefited from strong demand from the baby-boom generation for move-up housing, the expectation now is that demand for rentals and starter homes will surge while the longer life spans and sheer numbers of households over age 65 will lift demand for retirement communities as well as services and home improvements that help seniors “age in place”.

Additionally, household growth among Hispanics and Asians is anticipated to continue to accelerate requiring adjustments in community and housing design (including product for multi-generational households which is more common within these ethnic groups as well as addressing cultural concepts such as Feng Shui). And changes in sales and marketing operations will be required such bi or tri-lingual sales staffs. Married couples without children (including empty-nesters) will be the fastest-growing household type, followed closely by single person households which will also require major adjustments to home and community design.

So let’s all get with the program and start down the path to new and even greater success.

THE “OSTRICH SYNDROME” – a new disease of epidemic proportions is hitting the homebuilding industry.

2009-08-20T13:45:00.005-04:00

There is one builder I know who is finding it hard to make sales in the current market – no surprise there. But his reaction to the current challenges has been limited to only two courses of action. First, he has changed his sales team several times. And two, he has reduced his prices through sales and special incentives, but each time only for a limited time period.

This builder, who we will call “Average Builder”, has the benefit of a sophisticated marketing team, arguably the best in the area. After a comprehensive analysis of the market, the competition and the builder’s position, they presented a twelve page memo of detailed recommendations. I participated in the research and preparation of that memo and believe that it was a correct, concise, logical and businesslike analysis and that the suggestions were all valid and the goals therein were achievable. In fact, there was nothing new in that memo; many of the same recommendations had been made in one form or another fairly continuously for the past two and one-half years. But the builder’s response, as it has been every time in the past, was to rage against the dying of the marketplace (forgive the misquote of Dylan Thomas), loudly proclaiming the superior “quality” of his company’s homes, and then demand a change in the sales force.

Personally, I am exhausted and beyond frustration trying to help “Average Builder” see the realities of the marketplace, the homebuilding business today and his relative positions. And I know that his sales team must be totally spent and emotionally drained.

Perhaps his sales people are not the best possible but what does he truly expect? His product is difficult to sell, at best, and any good (or even halfway alert) sales person would quickly recognize that and leave for greener pastures. He does not pay salaries or guaranteed draws; he does not pay higher commissions; so there is no financial benefit for any great salesperson to work for him and any loyalty from past years’ successes has long ago been dissipated.

I believe that this builder suffers from a new disease - “Ostrich Syndrome”. He ignores all facts and sticks his head in the sand hoping that whatever ails him and his company will just go away and that things will return to what they were. But the reality is that things will not and cannot return to what they were. And “Average Builder” is not unique in this market nor in many of the other markets I have seen this year. It appears that the disease is spreading, perhaps reaching epidemic proportions and may well have a more severe impact than Swine Flu, especially on the housing industry.

“Average Builder” had accomplished substantial success in years past, becoming one of the largest builders in the marketplace while achieving significant financial gains. His homes are well built and continue to be desired as resales. The communities in which he has built, many of which he also developed, are maintaining relatively high values.

“Average Builder” builds a very good home but plenty of other builders build a good house, even the same house, at a substantially lower cost and a lower price and “good” is all the market today really needs. The consumers simply do not have the extra money or the confidence to spend more than they must to meet their minimum requirements unless they are offered something truly special. This builder includes more features (however, it is questionable if those are the correct features today) but he charges for them and the market is first and foremost buying “price” and “value” unless they can get a truly different, unique product.

Unfortunately this builder does not offer a home that is unique in any way. In fact, the home designs that he is building are stale and tired (he has built some of the same plans for well over ten years) and they are somewhat unattractive, lacking great exterior elevations and any true “pizzazz”. His home designs have become “commoditized” - the same houses are available from every other builder in the marketplace, usually at a lower price. His homes are not special, they are not unique, they are not the best value so price alone governs the buying decision and as he does not offer the lower price he must continue to lose sales to the competition.

Now in this same market there is another builder, who we will refer to as “Smart Builder”. He has introduced new and distinct lines of housing product in several communities around the area and they are all selling very well. In fact, this builder is gaining not only market share but also growing his total number of sales even though the market is down by over 50%. When we suggested several times that “Average Builder” examine the operations of “Smart Builder” the response has always been the same – that other builder is not building a “quality” home and he must be giving away his homes, not making any money. Now I have some personal experience with “Smart Builder’s” operation and know for a fact the he is not only making money but has been able to increase his margins recently and managed to eliminate almost all discounting due to the uniqueness of his product and the fact that he has responded to the market by allowing customization. But we were not suggesting that “Average Builder” copy the new home designs of the “Smart Builder”, rather that he should examine the operation to see what he is offering that is selling and why.

We recommended several specific concepts for new home designs to “Average Builder”, all of which would be new and unique to the market, all of which would target the market segments that were still buying and likely to continue buying for the next several years. Our recommendations also included tactics for improving cost efficiency and strategy for refining the included and optional features to conform to the current indicated market preferences. But as on previous occasions, the response was the same – “change the salespeople and make them work harder to sell what we have built”. Fundamental changes in product design, cost effectiveness and target marketing were not even considered.

We also looked at his communities – their location, natural amenities, physical amenities and targeted markets. In two of his developments, pricing was well into the 5th Quintile of both the resale and new home markets in that area. It was obvious why he had targeted this price segment – higher priced homes potentially yield higher profits so greed governed the decision.

The 5th Quintile is open ended at the top, including semi-custom and true custom homes (“Average Builder” will not allow design changes so he cannot compete with semi-custom and custom builders) and estate homesites (“Average Builder” offers only smaller homesites, garden home and conventional sized, nothing even approaching one acre and therefore cannot compete in that regard either). Only one of these communities offered outstanding amenities such as golf which would appeal to the buyers at these price points, and that course is public and reported to be encountering financial difficulties. And in the current market, potential new home buyers at this price point almost always have a home to sell and most cannot achieve nearly the value which they think their existing homes are worth, creating a very challenging sale process, at best. For these reasons, the 5th Quintile is a segment of the market where a production builder such as “Average Builder” typically does not wish to be and one which almost every national builder has studiously avoided.

In one geographic area in which “Average Builder” had recently opened two new developments (contrary to the advice of his marketing team), the local share of the total new home market fell by 20% in the past three years while the number of builders more than tripled (and that is in addition to the impact of the overall market having declined by over 50%). This was an absolutely predictable occurrence by anyone truly examining the market and determining who the buyers were and from where they were coming as that historic market had very nearly been satisfied. But again, this builder knew better. After all, he had been very successful in the past and his “build it and they will come” philosophy had always worked before.

There were also numerous other conclusions and suggestions, specific to each development, that, if implemented, would have made the existing housing products more saleable, either by refining the designs and features to better suit the targeted markets or adjusting the features to target new and more viable market segments. But as these had all been suggested previously and ignored, it is doubtful that “Average Builder” will now have an epiphany and see the light. So my crystal ball suggests that unless he dramatically alters his operations, which appears extremely unlikely, he will soon end up as many ostriches do – as nothing but an expensive handbag.

“GOAT MEAT FOR SALE”…A lesson in creating a successful new home community

2009-08-13T11:12:00.007-04:00

A few years ago I inspected a vacant tract of ground in a remote location in the western suburbs of Birmingham, Alabama. Although situated within the city limits of Hoover, an upscale suburb which is considered to contain one of the better school districts in the metropolitan area, this property is and would naturally be perceived as for all intents and purposes physically within Bessemer, a lower income and socio-economic city in the process of decline.

The growth in Birmingham had historically followed four major traffic arteries to the south. This property, unfortunately, was not proximate to any of those routes and instead was accessed only from surface roads after what seemed to be a long and arduous journey, remote from other development and services. In fact, when I first went to visit the site I wondered how we would attract prospective purchasers, especially as the most visible landmark along the way and very near to the property was a hand painted sign nailed to a tree that read “Goat Meat for Sale”.

Now I have come across a number of signs in my life that were puzzling. Last week in a restaurant restroom I noticed a sign next to the soap dispenser that read “for washing hands only”. I am still uncertain what the management was hoping to avoid by posting that sign, perhaps someone deciding to shampoo their hair? But I had no doubt what the “goat meat” sign meant and what it suggested about the perception of the neighborhood in which the property was located.

The developers behind the community were two experienced and successful real estate development companies in the area who had commissioned a market study by a national research firm before entering into their joint venture. And prior to finalizing the community plan and just to be certain that they were on the right track, they commissioned a second study to be certain that market conditions had not changed and to consider necessary adjustments to the development strategy prior to starting. I had the pleasure of performing that second study and commented to my client that their action reminded me of the first rule I learned in this business, taught to me by a carpenter during my month-long field indoctrination into the homebuilding process – “measure twice, cut once.”

My report recommendations contained relatively minor changes from the original concept – adjusting density and pricing within the parcels, changing the sequence of the development, revising some of the housing product positioning to reduce internal competition, and reducing the size of the Village Center property which required a TND housing component. This last recommendation was due to the local market’s less than overly enthusiastic response to the TND concept in several existing developments. These recommendations were all implemented as were my specific suggestions for the community positioning and sales and marketing implementation. While there certainly are a number of successful new home communities across the country that opened in 2005, I believe that Ross Bridge is arguably unique in that its success has continued even through the current economic and housing downturn.

The original absorption estimates for the community had forecast home sales averaging 150 annually. The results achieved have met or exceeded that goal even though the local housing market has seen substantial deterioration. In 2006, the first full year of sales, 194 homes were sold; in 2007, 204 homes were sold; in 2008, 177 homes were sold (and in that year the lower priced home segments within the community were already sold out) and it appears that for 2009 they will sell 130 homes.

On an absolute basis those numbers may seem respectable but from a market share standpoint, they are exceptional. The 2006 absorption equaled a 2.5% share of the total new home production for the metro area, an outstanding accomplishment for a single community. And as the overall market declined by 30% in 2007, an additional 37% in 2008 and a projected additional 60% for 2009, Ross Bridge’s share of market increased to 3.6% in 2007, 5.7% in 2008 and to an amazing 14.2% in 2009.

What has made Ross Bridge so successful and what lessons can be learned for future residential development?
1. They selected a location where their markets wished to live. That may sound simple, almost an absolute, but it was a concept that was often forgotten in the recent boom years.
2. They created a true community, not just a subdivision, wherein the individual villages are sized for a reasonable sellout and are separated from each other to preserve values and allow for changes if market conditions require.
3. They provided amenities that were appropriate to and desired by the target markets yet did not burden the development or the purchasers with undue cost.
4. They selected professional builders and carefully segmented the product and pricing of the homes so that three full pricing quintiles were covered, maximizing the market appeal, while minimizing direct competition within the community.
5. They regularly update their market evaluation including analysis of each builder’s performance and positioning to determine opportunities for their builders to increase sales.
6. They required centralized sales and marketing by the developer to insure a cohesive and professional presentation to the market and they provided what I believe is the best sales operation in the market under the direction of my personal choice for one of the best new home sales directors in the business.
7. They promote and market the community professionally, recognizing early the paradigm shift to web-based advertising and they spent their advertising dollars intelligently and effectively.

I would recommend taking a look at the community, with a physical visit if possible but, if not, at least a visit on-line – http://www.rossbridge.com/

SAME CIRCUS, DIFFERENT CLOWNS

2009-07-26T14:34:00.004-04:00

I first encountered that phrase several weeks ago on a tee shirt and found it so relevant to life today that I bought the shirts for both of my sons. It seemed to meet their approval as they wore them immediately. Apparently, and unbeknownst to me, it is quite a popular expression as I found it again last week on a “onesie” (a one piece stretchy garment for a newborn) at Saks and immediately purchased it for my soon-to-be-born grandson. While he will not be able to read nor understand the concept for several years, I know that he would appreciate the humor and I believe that it is important for him to begin expressing himself as soon as possible. More importantly, he will enjoy the smiles from his family and friends when they see him wearing it.

Many of my readers will believe as I do that the expression has universal impact today and, perhaps, is especially relevant for our political system. But having recently completed inspections of housing markets in several diverse geographic locations, there is little doubt in my mind that it is most appropriate to the housing industry.

One market that I examined is in the Southeast. It is a major metropolitan area with many of the large national and regional builders present. This area had enjoyed housing production averaging over 12,000 units annually for the past 25 years and, in the prime of the market, hit twice that level but this year’s production will show a decline of well over 50% from average and over 75% from the maximum. The commonly held belief is that the market was overbuilt and that with the current economic challenges there is little that can be done except to wait for the market to recover.

I agree that the market was overbuilt. In fact, the extent of the overbuilding based on the ratios of “permits to population growth” and “permits to employment growth” is almost beyond comprehension. In 2004 at one of the programs on which I spoke at the NAHB convention, I specifically referred to this market as an example of the overbuilding that was already evident in many markets around the country and the need to make adjustments in our operating strategies. But it was also readily apparent to me on this latest visit that overbuilding was just part of the problem and that there was and is much that could be done.

In looking at the competitive offerings I found an almost universal lack of creative exterior product designs. Not only were the majority of the house’s exteriors stale (perhaps 10 years old in design), but they were unattractive, lacking any curb appeal whatsoever and virtually identical to those provided by every other builder in the marketplace. There was an absence of uniqueness and individuality creating a commoditization of the product which reduced the market’s purchase decision to one based solely on price.

Similarly, the homes themselves almost universally lacked creative, innovative and intelligent design of the plans themselves, thereby failing to reflect the fundamental changes that have occurred in the market. I did not see one example of a new home design which would stimulate excitement and a desire to purchase. Not a single builder visited offered an "expandable" home which I believe would naturally appeal to and satisfy the needs of the first time buyer segment which will constitute a major component of the purchasing market for the next several years.

Almost consistently the competition consisted of "subdivisions", not communities. These developments failed to provide small villages of similar products, buffered from adjoining villages and thereby creating privacy, intimacy and urgency (as each village is completed). These competitive developments featured long streets without breaks, enhancing the perception of density, further aggravated by the builders scattering houses throughout instead of concentrating on one section at a time and thereby never creating a visual impression of completeness stimulating urgency.

And here is the killer - the majority of the sales offices were not open for business during their posted hours or what is accepted within the industry as "normal" operating hours. The sale of new homes is a retail business - unless the "store" is open for business sales cannot be made and the perception of a slow market becomes a self-fulfilling prophecy. Yet those few builders who were open for business were making sales and they reported that in recent weeks their traffic and sales had increased substantially.

In the current market conditions and with the economic burdens, low consumer confidence, stricter lending standards and the difficulties of potential buyers’ selling their current homes, as evident throughout the country, the majority of the homebuilders have made substantial cutbacks on personnel and expenses for sales management, training and supervision. They lost a substantial number of their good salespeople as they were unwilling to provide draws or salaries to carry these valuable team members through these challenging times, forcing many of their qualified and trained people to find employment elsewhere. The salespeople, whoever, who I found on-site in this market reported that they were all receiving some type of guaranteed compensation and were thereby able to weather the current market and these were the ones making the sales.

Now it is well known that the Southeast has been one of the areas of the country that has been hardest hit in this housing downturn and, while I was disappointed at what I saw, I was not surprised. Teaching a MIRM class in this area several years ago I had made the same observations about lack of originality in housing product and community design but the response, from the sales and marketing directors in attendance, most of who were employed by the larger national and regional builders, was that market was strong and there was no need to make a change. No one heeded the call for action. And in those good times, the sales staffs were generally professional, they were open for business and the personnel were well trained.

Another market I recently visited is in New England, an area that is relatively “mature” in terms of development, having experienced rapid growth in the 1980s but averaging production of only 4,000 new homes annually over the past 20 years. There was really no serious overbuilding in 2004, 2005 and 2006 and therefore the market has slowed far less drastically.

And for the most part this market exhibits a much higher level of product and community design then did the Southeastern major metro area. Most of what I saw here was attractive and appropriate and many of the communities were visibly different from the competition, providing the market with a clear choice. The vast majority of the sales offices were open for business and although sales were at a slower pace than they would prefer, they were selling homes. What I found most interesting was that only two national and one regional builder were active here and they were typically the ones with communities facing the biggest challenges - the three developments that were not open for business during advertised hours were by these larger builders.

Over the past several decades I have had the opportunity to consult with most of the major builders in the country. In almost every instance, I found the experience to be frustrating, at best.

One such assignment over 20 years ago was to analyze a market for the builder’s possible entry, creating a long-term operating and positioning strategy if the analysis indicated potential. My report found a very respectable opportunity but cautioned that the market was entering a down cycle and that sales would be slow for the first two to three years, then pick-up substantially. I recommended the builder’s cautious entry there and a strategy that could well have positioned the builder to become the market leader within five years. Instead of a cautious entry, the builder entered this market and immediately opened six communities the first year. Then, experiencing the correctly forecast declining market, they closed all of the developments and pulled out two years later, less than six months before the also forecast major recovery which continued almost steadily for the next 20 years.

And almost every other assignment I have had for these industry leaders has had similar results. If they agreed with the report’s conclusions they typically responded that they “knew that already”. If they disagreed with the recommendations they were ignored and they followed their original program without change. These larger builders typified the principles of inertia – continuation of the same operating philosophy and program without change while ignoring any movements of the market. “Build it and they will come”.

While I cannot put 100% of the blame for the housing market’s current challenges on the national and regional builders, as many of the small local builders eagerly followed the “big boys” down the road to trouble, it seems to me that our industry leaders certainly are playing by the same rules they always have had, they just have different people now sitting in the division presidents’ seats and thus, at least to my way of thinking, we have the same circus, different clowns.

A WAKE-UP CALL FOR HOMEBUILDERS – The American consumer does not see us as wearing white hats.

2009-06-24T22:38:00.007-04:00

I have always been proud to be a homebuilder and to work in this industry. I believed that we do “good” by providing safe, secure, comfortable and well-built housing for Americans; places to raise our families, places filled with happy memories, places that our buyers are proud to call home, places that, at least in years past, provided substantial economic benefit and created wealth for their owners.

But I have come to realize in the past couple of years that my view of our industry may well be prejudiced and is certainly not shared by the majority of my fellow countrymen, and perhaps rightly so. In fact, It would appear that the average American these days does not think highly of any of the governmental and financial institutions and businesses that have figured prominently in this current economic downturn, and I admit that I have come to share some of that negativity.

Although President Obama still achieves high approval ratings from the electorate, recent surveys show that substantially less than half of the people approve of the performance of Congress, with that dissatisfaction spread uniformly across both houses and both political parties.

Except for the inhabitants of “middle America”, domestic automakers are widely considered to produce inferior vehicles compared to those available from Japan or Germany. I would agree having just spent over $3,000 to repair my aunt’s four year old Cadillac when I have not spent a single penny to repair any of my wife’s or my Japanese-made autos in the last ten years. So it was no surprise to me that both Chrysler and General Motors filed for bankruptcy and I can appreciate the typical consumer questioning “why are we spending billions of taxpayer dollars to bail out companies that make inferior products?”

Investment banks and commercial banks are now often regarded as opportunistic piranhas, gorging at the expense of the public and scrambling for TARP dollars to line their own pockets. Again, it is difficult to disagree not only from the multitude of stories that inundate the daily press but also from personal experience. The stockholders of Bank of America finally revolted, voting to appoint an independent chairman and stripping CEO Kenneth Lewis of that title. And his strongest supporter, O. Temple Sloan, who had served as lead director and been on the Board for 13 years, also resigned, having been one of the strong supporters of the Merrill Lynch acquisition which had also been the cause of much of the dissatisfaction with Mr. Lewis.

I bank at one of the major money center institutions, not necessarily by choice but more due to inertia. This bank “ate” a bank that “ate” another bank that “ate” my bank so here I am. While I would not consider myself to be one of their top tier customers, I do have several accounts which combine to represent a “decent piece of change”. Planning a vacation this past month I stopped in to order some foreign currency, a small amount to cover airport transfers, initial tips, etc. The conversion rate that I was charged included a premium of 11.27% over the market rate plus a delivery fee and, when I asked why this premium, it was explained that my transaction was priced at the “retail rate” and no consideration was given to my other relationships or status with the bank – so much for “service”.

By the way, they did not bother to disclose that they charged a premium; I had to research rates on the web to learn this for myself. So they not only ripped me off but they were sneaky about it. This is the same bank that has refused to honor a valid power of attorney to allow me to invest a relative’s funds at something over the passbook rate, claiming that their internal policies supersede state law.

And I do not believe that my bank is necessarily any worse than the others; was it not PNC that used TARP funds to acquire the larger and healthier National City?

And now we come to the housing industry. We are not the doctors; we do not heal the sick or save lives. We are not teachers; we do not educate our youth and prepare them to become responsible and productive citizens. We are not the military; we do not risk our lives to protect our citizens from foreign enemies. We are not police or firemen; we again do not risk our lives to protect our citizens. We are not the clergy; we do not comfort those in need. We are simply businessmen and women, seeking to earn a living by providing a product that, until recently, helped our customers achieve the American dream.

Although I do not place the entire blame for the current economic meltdown on the homebuilding industry, we certainly did our part, admittedly with the aid of the commercial and investment banks and the greedy investment community, by creating and promoting sub-prime mortgages and encouraging purchases that simply were not viable Is it any wonder that Congress did not rush to our aid to embrace the “Fix Housing First” agenda?

Perhaps America’s current dissatisfaction with just about everyone can be summed up by a bus bench I saw today featuring an advertisement for a legal referral service – “www.whocanIsue.com”.

That brings us to the current housing market, now just starting to recover in most metro areas. We will still have to compete with short sales and foreclosures for several more months but basically those are, in my opinion, the same houses that comprised the “extra” sales we made a few years ago through creative financing and overly aggressive selling. And the market will absorb them in due course.

Looking toward the future, let’s accept that customers see us only as business people and will buy from us only when we create a value proposition that meets their needs.

Here are a few simple suggestions based on my 40 years in this business to turn us into the good guys and create our future success:

1. Stop trying to sell the same houses that you had three years ago, the plans that are all over the marketplace, both new and used, and are virtually identical to the competition, Design new, exciting and unique homes specifically for those markets that are most likely to buy for the next several years and that includes first time buyers.

2. Concentrate on cost effectiveness but include some special features that set you apart from the competition and do not pack the homes with the expensive “extras” that the market does not need and cannot afford. “Less” will be “more” for the next several years but that does not mean going back to the plain vanilla “basic box” of the 1960s.

3. Budget with “reasonable” margins so that true value is delivered. Production builders made a lot of money from the 1960s to the early years of this decade working on an 8% to 9% margin. We got greedy in the good times and pushed prices way beyond affordability.

4. Make your suppliers and subcontractors active team members working toward long-term relationships that will create the quality and value that the market needs.

5. Do not buy land unless it is in a “great” location and seek partnerships with land sellers and developers.

6. Do not overpay for the ground as the market will not and cannot bail you out.

7. Create unique community environments that excite the markets and give them reasons to move. Subdivisions will not sell. Include the lifestyle community features that the target markets really want and, equally importantly, can afford.

8. Re-create truly professional sales teams. Many of you had them in the early years of this decade but you allowed them to wilt on the vine, failing to financially support the good salespeople in the lean years and cutting back or eliminating professional sales management. The market will be extremely competitive for the next several years and you need to hire, train, supervise, motivate and continuously coach your sales team to excellence.

EVERY DAY SHOULD BE THANKSGIVING WHEN SELLING NEW HOMES.

2009-06-02T13:24:00.009-04:00

There cannot be any doubt that the economy is distressed, creating a level of pain for many of us that has been unseen in the past 80 years. Unemployment has reached 8.6% and many economists believe it may reach 10% before the recovery. And the housing industry has certainly been among the hardest hit. Soup kitchens, a common occurrence in the Great Depression, have reemerged in almost every major American city. It is tough out there today and will likely remain so for at least the next year.

I have been truly fortunate overall throughout my career in housing. My wife and I were able to put our two children through college, pay off our home, and generally enjoy a comfortable lifestyle. But times were not all good. I have been broke twice, both times in conjunction with contractions in the housing market, and I know from personal experience that it is no fun at all. My most recent economic challenges occurred simultaneously with my older son starting college and it was very rough for us for a couple of years.

Fortunately, in neither of those two times were things so bad for us that we needed free food and had to rely on soup kitchens or food stamps but my family certainly did without luxuries and, on the last, occasion I regularly fielded harassing calls from creditors. Perhaps the best thing about this current economic downturn is that the government has placed limits on contact from the abusive creditors.

I learned some lessons from that last bad economy that I remembered later, even in the boom years of the first half of this decade. The most important lesson – housing is and always has been a cyclical business; we must all recognize that and be prepared. Second, keep an adequate cash (or at least liquid) reserve. And third, and perhaps most important, keep a positive attitude, keep trying, keep working toward the goal – things will certainly get better, I personally guarantee it!

Negativity is nothing but a waste of time and energy; it is similar to cancer in that it spreads uncontrollably. A positive attitude, however, allows you to continue to function productively at home and at work. If you need a little assistance, tap into that cash reserve every so often and go out to a local comedy club. Laughter really is the best medicine.

Having been in this business for several decades, through both the good and the bad times, I am sympathetic to those who are currently suffering. I feel their pain. Sales and sales management positions have been eliminated in record numbers. For those who still have positions, the income potential is substantially reduced.

But I am not sympathetic to the sales people and managers who sit around complaining about the lack of traffic or sales instead of doing something productive – networking, aggressively following up with visitors and prospects, mining the existing sales for referrals, practicing sales presentations and skills, creating new closes, working the brokerage community, educating oneself, doing everything that can possibly be done to produce a positive result.

The fact is that many of us became lazy in the good times of the first half of this decade. Sales were relatively easy; we forgot what it is to really work. And now that we need those skills and the proper work ethic we are out of practice or they have been forgotten.

When the market softened I decided to do something about it instead of sitting back and complaining. I increased my networking, both physically and through the social and business opportunities on the web. I worked diligently to increase my visibility in the marketplace. I made cold calls to builders and developers – and I hate cold calling as much as anyone. And I aggressively worked my existing contacts and clients for new business.

I have had two new consulting assignments recently. The first is from a referral prospect with whom I first made contact fifteen months ago. The initial property being considered did not materialize but I stayed in constant contact, provided advice on other opportunities and one of those came to be. The second assignment is with a prospect with whom I have stayed in contact for over twenty years. Perhaps that is too long for some to pursue a sale but it worked for me.

Even in a challenged economy such as this, there are still people looking for a new home and their reasons are not necessarily the immediate financial return that motivated buyers two or three years ago. They may be looking to:

INCREASE – confidence, convenience, comfort, pleasure, satisfaction or space;

PROTECT – assets, family or friends or MAKE – friends, an image, a statement;

IMPROVE – earnings, education, relationships, image, lifestyle, security, or self esteem;

SAVE - energy, money, time or space or REDUCE – expenses, troubles or worry.

There are countless reasons that people wish to buy new homes and each of them is an opportunity for us to make the sale and be successful.

I believe that the housing industry offers more opportunities for personal and financial growth than any other business, even today. When the market returns, and it is already showing signs of recovery in most local areas, those who excel will be those of us who are truly professionals – the individuals who have learned (or re-learned) and mastered the skills necessary for success.

I am truly grateful to be in this business and believe that every day for us should be one of Thanksgiving. We should be thankful to live in America. We should be thankful for our health. We should be thankful for the love of our families and friends. And we should be thankful for the opportunity to earn a living while helping people make one of the most important and beneficial decisions of their lives.

And on the topic of Thanksgiving which always makes me think of food, although I too am suffering some discomfort in the current economy, I still dine out every meal (and I mean every meal). When I am out of town, which is most of the time, that is a necessity but even on those rare occasions when I am home I choose to dine out. And hopefully, as a result of that frequency (as opposed to my living under a black cloud as did Joe Btfsplk from the comic strip Li'l Abner by Al Capp), I encounter "problems" with service, food quality and food preparation more frequently than most. Inevitably the restaurant's solution is to provide free food, either by removing the charge for the item(s) in question, offering free drinks and/or dessert or, more commonly, issuing gift cards for future discounted or free meals. I probably have three or four restaurant gift cards currently sitting on my kitchen table awaiting use.

Now given my choice, I would prefer to receive good food and good service every time and not be placed in a position where it is deemed necessary to compensate underperformance by giving me free food. But I do appreciate the immediate attention to a problem and I admire a solution that often insures my repeat business. And when I do receive the free food from a restaurant I am grateful that I have planned ahead, continued to work intelligently and aggressively, and do not need to receive that food from a soup kitchen.

1-888-ADMIT-IT or why we need to take the gamble out of building and selling new homes

2009-05-30T09:55:00.005-04:00

The Florida legislature legalized gambling on a county by county basis a couple of years back through local referendum and Broward County, home to Fort Lauderdale, was the first to approve the concept. In my immediate area we now have four casinos, one on the Seminole reservation and three adjoining the racetracks and Jai Lai frontons. They all offer Vegas-style slots and poker and, at the Seminole casinos, blackjack, baccarat, three card poker, pai gow poker and “let it ride”. The Hard Rock casino on the Seminole reservation also has a nice hotel and a complete dining, entertainment and shopping complex creating a “destination” experience and they are in the process of building a similar environment at Gulfstream racetrack.

It’s not yet Vegas and probably never will be but my wife and I often head to one of these casinos for a concert or comedy show or just for dinner and to try our luck. Now I admit that I have a problem with gambling but I have not found it necessary to call the gamblers anonymous “hot line” (1-888-ADMIT-IT) as I freely admit my problem - I haven’t been winning much lately. Now I do not gamble much but the situation is worse in the homebuilding industry – big gambles have been taken and no one has been winning anything lately.

It would be foolish to blame the “market” or the “government” for the current challenges facing our industry as it is obvious to me that we did it to ourselves. I first became aware of the industry’s worst gamble several years ago. The market for new homes on the west coast of Florida had been very strong during the first half of this decade; so strong, in fact, that many of the production builders had decided to limit their sales to 4 or 5 per month. Their rationale for this action was that by selling at a faster rate than they could build they were leaving money on the table as the sale locked in the price while costs were continuing to rise. Additionally, as the market appeared to be unlimited, they were missing out on the potential for opportunistic price increases.

So when the market rapidly slowed in the middle of this decade (which occurrence should have been predictable to anyone who had been watching the supply and demand components), these same builders now found that they had no reserve of sales. I first came upon their creative solution by accident one day while driving through a new community featuring upscale single family homes priced in the mid $300,000s. They had erected a huge sign at the entrance to the community stating “$100 moves you in”.

While I appreciated the aggressive marketing approach, their apparent reasoning behind this campaign (“as the ‘natural’ market has apparently been satisfied for the time being, let’s expand the market”), seemed flawed to me; it appeared to me to violate one of the basic tenets of economics as applied to housing as I had been taught that “you cannot create demand, only satisfy the existing demand.” As a matter of fact, that lesson is taught in the first of the four core courses of the IRM curriculum but apparently this builder knew better.

My immediate reaction to the sign was that a homeless person who had found a good corner on a good day ought to be able to pick up the necessary $100, buy this house and live there for several months before anyone realized the payments were not being made. Lo and behold, it turns out that my psychic powers were correct as that is darn close to what happened - the start of the “sub-prime” fiasco which still haunts our industry. I do not blame solely this specific builder as all of the larger builders soon had similar programs and even the smaller regional and local builders were screaming for “no money down” financing programs so that they too could “expand” their markets.

I buy lottery tickets from time to time, especially when the jackpots reach $50,000,000 or more. I know that the odds against my winning are phenomenal, especially as the state takes a 50% cut off the top. It is a bad bet from a mathematical standpoint but I buy the tickets anyway as it is the only possibility I will ever have, no matter how remote, of accumulating this amount of cash. But I do not mortgage my house to buy the tickets, I do not gamble with the money I need for food and I do not quit my job in anticipation of my winning. The builders, however, whether out of desperation, the thrill of the gamble or blindness to the stacked deck they were facing, bet everything they had on this “market expansion” effort and the result was and continues to be disaster.

Primary housing demand is based on household growth which is determined by population growth which is generated by employment growth. For those of us who tracked housing production as a ratio of population and employment growth, it was obvious that most markets had been and continued to be overbuilt. In the face of this overbuilding, creating an artificially induced temporary demand through innovative financing did not solve the underlying fact that we were overbuilding, it merely masked the problem for a short period of time and, in turn, created additional problems of its own that had far-reaching impact and exacerbated the original problem.

The homebuilding business is, by its very nature, a gamble and it is the responsibility of the sales and marketing professionals to counsel the builders and developers so that whenever possible the odds are in their favor. We cannot eliminate the gamble but if we are diligent we can substantially reduce the risk of losing. I believe that the sales and marketing professionals in these large homebuilding companies and almost everywhere else failed to provide proper advice to their employers and clients and thereby became willing co-conspirators in this losing gamble.

So perhaps it is time for all of us to admit that we have a problem with gambling – we have been losing lately and we do not like it. Let’s solve that problem in the future by starting today to provide the honest and professional counsel that our employers and clients need to hear, whether they like it or not. Sometimes someone just has to say “no”!

THE AMERICAN IDOL FINALE – A TRAVESTY OF JUSTICE OR A LESSON FOR MARKETING AND SELLING NEW HOMES?

2009-05-24T22:06:00.007-04:00

There has certainly been ample press and discussion about the American Idol finale and much of it dwelled on Adam Lambert’s loss. Certainly Lambert was the best singer and performer of the season, one of the best, if not the best, in the history of the program. He was a professional in every sense of the word competing against amateurs. One especially emotional and vitriolic reaction was that it was “The biggest robbery since Bush stole the election". But every editorial I have seen has personalized the event based on the writer’s own bias and no one that I have found has yet taken the time to truly analyze the cause.

I admit I was hooked on American idol this year. Part of the reason for my viewership is that over the past two years the networks have managed to cancel every scripted television show that I liked. I understand there are some great shows on cable but as I spend half my time in hotel rooms with limited channel choices, I have come to depend on the major networks for weekday evening entertainment unless there is something on HBO which I have not seen.

In previous Idol years I would occasionally tune in for the tryouts for I admit I enjoyed watching the vast number of self-deluded people who lacked any talent yet traveled across the country and waited in line for hours to embarrass themselves in a national forum. But other than that I watched only when I was home and wished to spend time with my wife as she is an admitted Idol addict.

This year, however, I found the program to be entertaining and deserving of my attention, primarily due to the talents of two of the competitors. My wife spotted Adam Lambert immediately at his audition, referring to him in the ongoing competition as the “Goth” boy, and certain that he should win. I quickly joined my wife as a fan of both Adam and the other amazing individual, 16 year old Allison Iraheta. Both of them displayed talent that put them head and shoulders above all the other competitors. And while I would pay to see Allison starring in a remake of The Rose, or a new bio pic on Janis Joplin, and I would buy tickets to see Adam if he should tour with Kiss, front for Queen, or start his own band, I knew with certainty that neither of them could win on American idol!

Several people have suggested that Adam lost due to homophobia but I disagree. Certainly homophobia exists and perhaps it may have had an impact on some voters but that cannot be the primary reason as Adam made it to the finals. If he were to have been voted out because he might be gay (and that has yet to be confirmed), would that not have occurred in prior weeks, well before he eliminated the obviously “straight” other contestants such as Danny Gokie? And if we in the good old USA have shown any tolerance for the gay community, has it not been in show business?

Another theory floating on the web claims conspiracy implemented through automatic phone dialing machines. I know that one cannot be true because, if it were, Anoop Desai would surely have come out on top by millions of votes every week as the phone lines at the customer service departments of every company in the world would have been utilized on his behalf by his relatives.

Others have opined that the voting is controlled by the 9 to 12 year old girls who had claimed vendetta after their candidate Archeletta lost last year. As Ken Levine suggests in his blog, “Hell hath no fury like a middle schooler with a Twitter account!” (http://www.huffingtonpost.com/ken-levine). There may be some validity here but I believe that misses the basic point. While I have no doubt that the audience included a large component or pre-pubescent females, I seriously doubt that a pleasant but mediocre married singer was necessarily more attractive to this group than an effeminate rock star.

The most probable reason that I have heard comes from Michael Glitz who suggests in his blog (http://www.huffingtonpost.com/michael-giltz) that the Christian vote prevailed (similar to W’s appeal with the Moral Majority). If you follow the historical trend of the show, there is some factual precedent as Kris Allen did missionary work around the world, Fantasia (Season 3) had years of experience singing in church, Sparks (Season 6) is an evangelical Christian and wore a purity ring, and Cook (Season 7) got his start in a second grade Christmas pageant and won over the other David, a Mormon. But again, that is at best only part of the reason.

All of the opinions that I have heard and read lack consideration of one very simple fact - the show is broadcast on the Fox network at 8:00 PM (7:00 PM Central time) on Tuesday. And the audience for network television shows at that time has a serious deficiency in the target markets that would strongly favor Adam. Singles and couples age 18 to 30 should still be out for dinner or at clubs and bars. The east and west coast markets similarly tend to have better things to do. So that leaves the youngsters, the middle-agers and the oldsters, primarily living in the central areas of the country, having just finished eating dinner at home, in the majority of those watching the program and voting.

This is “Middle America” - they drive American cars, they shop at Wal-Mart. They are conservative (the “red” states), less sophisticated, less adventurous, less “hip”, less willing to “crown a young man who looks like Liza Minnelli their next American Idol” (to quote Ken Levine). They may overwhelmingly be Christians, there may be a lot of middle school girls in the mix, but the primary reason that they picked Kris is is that he appealed to their basic nature and they were “comfortable” with him. Whether they will buy his albums and attend his concerts remains to be seen.

And that is why I knew from Day 1 that Adam could not win. Actually, I am somewhat surprised that he made it to the finals. It is all about “target marketing”. Kris, by his very nature, reached the target market needed to win the competition while Adam did not. I am certain that Adam, by staying true to his nature, reached the target market he was seeking, the one that will support his career and make him a star; it is just a different target market than the majority that voted in the finals.

The new home business also depends on target marketing and I believe that many of us forgot that fact in the strong markets of the first half of this decade. But to be successful today and in the future we must identify the specific groups that need and want our new homes; we must design exciting and appropriate homes and communities for those markets; we must create valid and meaningful reasons to come out to see what we have to offer; and we must sell with personally relevant, meaningful and emotional reasons to purchase.

1984 REVISITED or why selling condominiums is difficult today.

2009-05-22T22:40:00.005-04:00

My wife and I are responsible for our three "senior" relatives: my mother, age 94; my wife’s aunt Sarah, age 90; and my mother-in-law, the youngster, at age 88. I pay the bills and take care of their other "business" needs while my wife accompanies them to doctor visits and makes certain that their medication is up to date. Together on weekends we visit them and take them out to breakfast, lunch or dinner - all in all a fair distribution of responsibility and one which we are happy to undertake as we are glad that they are still with us and we could not possibly repay all that they have done for us.

This past weekend I concentrated my efforts on my mother-in-law’s affairs as her condominium association is diligently pursuing the eviction of her cat which she has now had for the past eight years and which was originally obtained upon the advice of her doctor.

The cat has never left the condominium, does not in any way inconvenience or bother any of the other owners and certainly does disrupt the operation of the condominium. In fact, unless you are one of her friends who has visited her at her home or a golfer who has seen Ralphie sitting in the living room window as you passed by, I do not believe that you could possibly have known that the cat existed. There has never been a complaint filed by a resident and were it not for the truly Orwellian actions of the condominium Board (they caught another resident, a neighbor of my mother-in-law, with a dog earlier this year and as part of their action against him they required the culprit to "denounce" anyone else in the complex who had a pet), they would have no possible knowledge on which to base their action.

The rules of the condo association clearly prohibit pets, that is not disputed. I have, however, submitted certifications from three of her doctors that her cat, Ralphie, is a medically necessary therapeutic companion animal and is therefore protected under both the American with Disabilities Act and the Fair Housing Act. I have also provided them with extensive citations of medical articles and books which support this position. But apparently, the association is not interested in facts and has nothing better to do then waste time and money as they have involved their attorney and demanded that my mother-in-law submit herself for an examination under oath (a deposition, not even a medical examination).

I politely declined that request as I believed that it could not possibly have any meaningful benefit as my mother-in-law suffers from several serious medical conditions including substantial hearing degradation and, as often the case with elderly and infirm seniors, is often confused, somewhat disoriented and suffers from faulty memory. Further, I believe their request for such examination to be arbitrary, capricious, unconscionable and abusive and that such an examination would be coercive and constitute harassment and I so informed the association’s attorney.

And they responded by again demanding the deposition to which I again declined, offering instead to have a set of interrogatories answered under oath. But if this was not acceptable I informed them that any future action should be directed to my attorney. I have discussed this matter with my attorney and have been advised that in his opinion it is a virtual impossibility that the association could win if the matter were to be litigated and, in fact, the association would be liable not only for their own costs but also for my attorney’s costs plus statutory damages under either ADA or Fair Housing (including potential treble damages for intentionally inflicting emotional harm). He also said there was a good possibility that the officers and directors who authorized such action could be personally liable for pursuing the action having violated the law and their fiduciary responsibilities to the association.

A bit of history is probably relevant here. As the Sun Sentinel reported on October 31, 2007, this same condo association received some unwanted publicity when the association's president /treasurer (same individual holding both offices) was arrested on charges of stealing more than $200,000 from the association. I am not certain if any of the current board members were serving back then but there certainly seems to be a history of inept (if not outright incompetent) fiscal responsibility and management supervision which appears to be continuing today. Perhaps the ownership of a cat is far more important than protecting the assets of the association and its members.

And by the way, there are a couple of interesting additional tidbits of interest here. One of the directors happened to drive his car into my mother-in-law’s car a couple of months ago and, although admitting total responsibility for the accident at the time of the incident, now refuses to be responsible for the costs of the repairs and will not even look my mother-in-law in the eye when he passes her in the parking lot. And one other thing, it is this director’s son who is the attorney for the association.

So here I am, Winston Smith reborn, in my own dystopian reality, only 25 years later. All that matters is the "Big Association" which appears intent on doing what it wants for its own purposes. I wonder if the association board is next planning to create a "Committee of Truth" so that law and facts will no longer be important or of any validity.

If I could distance myself from the specifics of this situation and my personal involvement, which is admittedly difficult due to my mother-in-law’s concern, my own aggravation and my intolerance of stupidity, I suppose this whole incident could be considered somewhat humorous. But perhaps there are underlying concepts here worthy of examination that provide a snapshot our society today.

When a condo association hires an attorney who is the son of one of the board members, is that not, at least on its face, an apparent conflict of interest and violation of fiduciary responsibility? If a serving board member has a personal (and potential legal) issue with a resident with which the association is pursuing litigation is this not an absolute conflict of interest? Have we become so immune to the antics of Jack Abramoff and others that we no longer see ethics as valid or beneficial? The Ethics Resource Center (http://www.ethics.org) has published several articles which suggest that, unfortunately, this may well be the case.

And how about the very nature of a condominium association and its directors? David Kirkpatrick wrote in his blog on April 4, 2008, "Condo and homeowners associations are common nests of idiocy and petty rules. Sure there’s some value in the concept, but in practice these things tend to fall into the hands of the most persnickety busybodies in the neighborhood/building." He was referring in this instance to a Boca Raton condominium that was proceeding to evict a wounded combat veteran because his conscientious neighbors had performed a charitable act by buying the condominium he could no longer afford and permitting him to live there for free - but they had not "dotted the I’s and crossed the T’s".

And that brings up an interesting question of its own - who are these people who run for and become elected to a condo or homeowners association board? Are these trained professionals, businessmen and women who are serving out of virtuous duty? Or Is reality similar to the February 26, 1998 episode of Seinfeld where Kramer runs for condo board president of Del Boca Vista Phase III so that Morty can run things from behind the scenes?

"Condo Bob", the author/owner/manager of http://condotruths.com/ suggests that Condo Boards seem to be over-populated by four types of people: the Personal Agenda (i.e. "tree-hugger" or "landlord") type; the Well-meaning but Overwhelmed type; the 15 Minutes of Fame type; and the Qualified but Frustrated by "Board Buddies" type. Having personally served on several dozen condo and homeowner boards as I was the developer’s representative, I would suggest that there are four more types of individuals that are attracted to these positions: the Let Me Recapture My Former Greatness As A _________(you fill in the blank") type; the Power is Mine Now type; the "I Finally Found Something To Do That Gets Me Out Of The House and Away From my Husband/Wife type"; and the Let Me Get Settled Here, Build Up My Power Base, and Move On To The Real World of Politics". And the fact is that none of Bob’s four groups or my four groups is "in it" solely to promote the efficient operation of the association and the well being of the residents. Catherine A Hosmer’s 2005 book A Wonderful Place to Live refers to several instances of condo boards’ arbitrary actions costing the association and the homeowners tens of thousands of dollars.

And back to the underlying theme of my blog - thoughts about marketing and selling new homes, is it any wonder that many buyers are very cautious of buying a home in a development that just happens to be within a condominium regime? Do not those of us selling condominiums have to work much harder and much smarter to make the sale? Do we not have to understand our buyers much better, taking the time to truly understand their needs, wants and desires and work toward the personal relationship with our prospective purchasers where trust is created?

“FOR SALE" versus "ON SALE"

2009-05-17T20:04:00.007-04:00

Everywhere I turn today I am inundated with impressions of "on sale", "special sale", "limited time offer" and similar promotions. The messages arrive via email, on my television and radio, in the mail, in newspapers, everywhere I look. It does not matter what consumer item is being sold - automobiles, televisions, furniture, travel, clothing, food (in grocery stores and in restaurants), jewelry, office supplies, etc., they are all available, if I were believe the messages, at some price or special value that is extremely advantageous to me if I act immediately.

For the most part, I admit that I have accepted that as the new reality and seldom buy anything at retail or “sticker” price. Fortunately I live less than 10 minutes from one of the world’s largest outlet malls so I have the continuous opportunity to buy “on sale” but the fact is that I have become so accustomed to that proposition that I have difficulty, even at the outlet mall, in buying anything, even though the merchandise is already heavily discounted from the original “retail”, unless there is a further “on sale” discount.

The result is that I have become an opportunistic shopper, purchasing not by need (which at this point in my life seldom exists), but primarily “on spec” - exclusively when the deal is too good to pass up. Christmas shopping is usually completed by June, birthday presents have been stockpiled as much as one year ahead of time. And while I may be the extreme example, I firmly believe that every American consumer is similarly and continuously blasted with these impressions and offers and the result is that each of us now expects to receive the "sale" price for whatever we buy.

Now we come to housing. From the 1950's when production housing entered our world until very recently, the prevailing wisdom in our industry was that new homes are a "retail" full-price commodity. In those days, the “On Sale” or “Open House” philosophy (here we are, come and get us) often was all that was required and it worked.

Even in the face of the existing housing "difficulties", many builders and industry gurus have strongly resisted discounting the sales price suggesting that it depreciates value and makes future price increases difficult if not impossible. They have instead tried to create additional value through special financing or including more features as standard and often they have trained their sales staff with a script on why there is no need to discount as their homes are "better values", "built by a better builder", etc. In a few cases, where a truly unique community or home was created with a valid and visible “USP" (unique selling proposition) some success was achieved. But for the most part, the market has simply not bought into that premise and those homes did not sell until they were “On Sale”.

I admit that housing is different from furniture and clothing which have substantial integral markups (50% or more) allowing deep discounting. Even electronics, if the product is new, also carries hefty profits at list price. And travel is really a unique commodity for there is often little incremental cost for the next passenger or hotel guest as the capital expenditure has already been made. Housing, on the other hand, has historically had only a 9% (production) to 20% (custom and resort products) budgeted profit margin so there was very little room to absorb a discount, especially in the current market where it seems that buyers are demanding a minimum 10% reduction as a starting point to their negotiations.

So possibly now is the time to take a fresh look at our business, the underlying philosophy and the business models which we utilize. Although the housing market has or almost has reached bottom in many areas of the country, it will be several years until we are back to anywhere close to what could be considered a "normal" market by historical standards. There will be, for the short term at least, continued pressure from foreclosures and we still have a great deal of overpriced land inventory to work our way through so I see very limited opportunities for price increases.

I do have faith that we will survive and that in the future there will be a return to a "normal" housing market. But in that future "normal" market, the rules will have changed. The days of the typical "for sale" message creating any interest has long passed and will not return. So we must face that reality now and plan for the future. Let's accept the fact that the American consumer will continue to be seeking "on sale" and price our product accordingly so that we have the ability to make that sale without negative impact on our bottom line. Acceptance of that paradigm will impact land acquisition, purchasing of materials and labor, decisions on included and optional features, virtually every aspect of the homebuilding business.

I have been recommending for several years, starting well before this current downturn, that builders' budgeting include a "pack", a built-in allowance for necessary discounts or negotiated extra inclusions to create urgency at the point of sale. That allowance provides the sales staff with the opportunity to utilize one of the most effective closing questions ever devised, “If I could…would you…?” And the current economic and market conditions certainly have created the need for special incentives to be utilized in our promotion and advertising to even get the market’s attention, with an additional incentive usually still required at the point of sale to satisfy the market’s expectations and create immediacy of action.

While the market’s eventual recovery will hopefully allow us to rely less on the “on sale” incentive to generate traffic, I believe that we will still require the “on sale” tool to maximize conversion of traffic into buyers. Certainly the current 10% reduction as a starting point to the purchase negotiation will no longer be the norm but we will still need to provide a meaningful closing stimulus so we must adjust our business model accordingly if we are to prosper in the future.

THE “CUBAN” SANDWICH GENERATION?

2009-05-12T09:14:00.006-04:00

Over the years, the philosophy of professional new home sales has evolved from the “Critical Path” to “Interview Selling” and then to “Relationship Selling”. Simply put, this natural maturation of the process addressed first the need to present information in a logical and orderly sequence, then to understand the needs and desires of the buyers, and finally to create a very personal relationship with the prospective purchaser that fostered trust.

And until the last building boom, it looked as if we were getting it right, providing professionalism at the point of sale and thereby maximizing the sales that we made. But then the “good times” came and it appears that we forgot all that we learned in the midst of the frenetic order taking.

One of my good friends, “Bill Becker”, the “dean” of new home sales and marketing consultants, recently posed a question on the NSMC Board on Linked In: “Are you prepared when this market turns around or are you still selling and marketing like you did four years ago?”

I responded that I was amazed as I travel around the country to see how many salespeople are still using the "wait for them to come and buy" philosophy that they were utilizing three years ago when it was a seller's market. I went on to say that the marketing people are often no better, failing to maximize their “reach” to the market with meaningful reasons to buy and to create an immediate call to action. Many of the smaller builders who have affordable housing products have failed to actively promote the tax credit and have not even trained their sales people on how to qualify a customer and use the tax credit to sell.

I would suggest that we did little, if any, marketing and sales four years ago, we appeared not to need to, and now that the market has regained its sanity, we no longer know how to do it correctly. So, if you are still selling and marketing like you did four years ago, you are getting it totally wrong. But let’s concentrate here, for the moment, on sales.

Case in point, I was providing a sales seminar at one of my client’s offices last month and the sales staff and I we were discussing how to create urgency for the move-up market. One of the salespeople suggested that it was impossible to create that urgency as all of the prospects had existing homes which they could not sell and many were now members of the “sandwich generation” and therefore could not move due to their unplanned-for new obligations.

Now “absolutes” are a wonderful thing. Having made an absolute statement there is no discussion possible as the facts speak for themselves. I am not a fan of labeling people as I believe it to be a useless and counter-productive effort to “homogenize” what is, in fact, a very diverse and individualistic population. For salespeople, it creates a prejudice in their ability to deal with their customers as individuals. So in response to the salesperson’s statement, I took a deep breath, waited for the hairs on the back of my neck to lie down, and asked two questions:

First, “How do you know that they can’t sell their home? And second, “what exactly do you mean by ‘sandwich generation’ and how does that impact their ability to move?”

The salesperson’s responses to my questions were as expected - “no homes are selling now. The resale market is flooded with foreclosures and no one is willing to accept what their homes are now worth.” And for the “sandwich generation”, “well, if they now have the financial obligation for their parents in addition to their kids, they obviously do not have the money to buy a new home”. The salesperson did not bother to take the time to find out who the visitors really were. They were categorized, deemed unworthy, and discarded.

No attempt was made to find out if the existing home was currently on the market. No effort was made to speak with the listing agent to determine if it is listed at the market price? The MLS statistics were not examined to see what the competition was nor was any attempt made to see if that specific listing was being properly promoted. And, of course, the salesperson never inspected the existing residence and offered to introduce them to a company that does “staging” to see if they could create a better showing.

As I live in South Florida, home to a large Hispanic population of which the most visible component is Cuban, and my wife and I and care for three senior female relatives, I asked the salesperson if I should be categorized as a member of the “Cuban Sandwich Generation?

Now a sandwich is merely two or more slices of bread with a filling such as meat or cheese placed between them. On the other hand, a “Cuban” sandwich is very specific. It starts with Cuban bread, the loaf is sliced into lengths of 8-12 inches, the crust is lightly buttered, the bread is cut in half horizontally, a coat of yellow mustard is spread on the bread, roast pork, glazed ham, Swiss cheese, and thinly-sliced dill pickles are added in layers and the sandwich is toasted in a sandwich press called a “plancha”. The toasting in the plancha is the important part for it both heats and squeezes (compresses) the sandwich until the bread is crispy and the cheese is melted. By the way, my personal preference is for a slight variation on the Cuban sandwich known as a “media noche”.

It is the heating and compressing that gives the sandwich its unique character. And it could be argued that it is the stress (“heat”) and tension (“compression”) of the simultaneous responsibility for multiple children, grandchildren, mothers, mothers-in-law and aunts that would create the unique Cuban Sandwich Generation. But from my observations of friends in the Cuban community that maintain multi-generational homes, they appear to have neither unusual stress nor tension. They often grew up in multi-generational households with their abuela and abuelo with them. They respect their older relatives and now that they are the householders, would not dream of placing their relatives in a “facility” but rather welcome them into their homes not out of obligation but because of love and the opportunities for their own children to spend more time with and learn from their own grandparents.

And, in fact, there has been a historically strong move-up market in the Hispanic community for families needing larger homes when their parents moved back in. One of my clients several years ago specialized in houses designed for this market and did very well as the homes offered an optional second separate entrance leading to a “mother-in-law” suite which included a full second kitchen. So from my personal history, I see an opportunity in the “sandwich generation”, not a deterrent to sales. But the salesperson again did not bother to make friends of these prospects and find out anything about them once a label was applied.

There was no “relationship” created. The “interview” was obviously limited if it occurred at all. And the “critical path” was shortened to minimize the “greeting” and eliminate the “qualification”.

Now in all fairness, the overall economic downturn combined with the challenging housing market has had severe economic repercussions on the industry and especially on the sales and marketing professionals. Many of the professionals have left the business and there are a lot of new faces in the industry. And I certainly cannot blame these “newbies” for their ignorance. But I have to ask, “Why were these new bodies not properly trained before they were put on the sales floor?”

Where was the sales training? Without proper sales training (and ongoing coaching, mentoring and guidance) from a professional sales management team we are doomed to failure. I wrote an article four years ago for Sales and Marketing Ideas in response to a question on the best way to train salespeople - http://www.nbnnews.com/NBN/issues/2005-11-21/Sales/index.html. Although that article would benefit now from expansion and updating to cover such specific areas as social media, blogging, email and web use, it is still a valid checklist for what we need to do to make our sales people prepared and productive for when the market returns. And as that is already occurring in many markets, those who are unprepared are losing sales.

STAR TREK REBORN - A LESSON FOR THE NEW HOME INDUSTRY

2009-05-09T17:33:00.004-04:00

The new Star Trek movie opened Thursday night. My kids were at the opening screening that night at the IMAX Theater in Boston but my wife and I did not see the film until Saturday. If you will excuse a few plot weaknesses and some other minor issues, it is quite possibly the best Star Trek movie ever, certainly the best in the last 20 years and one of the best movies so far this year in any genre. The highest praise for the film I have yet heard came from my wife who, as we were leaving the theater, said simply “I would see it again”.

I admit that I am a “trekkie”. Star Trek (the original series) debuted in the United States on NBC on September 8, 1966 and I was hooked for life. Although the special effects were cheesy, the plots thin and the characters incomplete (I do not think that William Shatner really came into his own until assuming the role of Denny Crane on Boston Legal, for which he deservedly won two Emmy Awards and a Golden Globe Award), I began a fandom which continues today.

My favorite of all of the TV series in the Star Trek franchise probably is “The Next Generation” (1987–1994) followed by “Voyager” (1995–2001). I guess that Captains Jean-Luc Picard (Patrick Stewart) and Kathryn Janeway (Kate Mulgrew) and their crews just clicked with me. “Enterprise” (2001-2205) was OK, amusing at times, but I really never connected with “Deep Space Nine” although I managed to watch every episode. And, of course, I saw every Star Trek film. But it all started with the original television show 43 years ago.

And that brings us to the point of this blog. The newest Star Trek film has reinvigorated, revitalized and re-branded an old and, some would say, stale concept. They have made it appropriate, relevant and viable for and attractive to whole new generations of audiences thereby insuring ongoing financial success. Matthew De Abaitua writes in his film review that it is “A masterclass in how to rebrand and relaunch a franchise" (http://www.channel4.com/film/reviews/).

So I am recommending this film to everyone working in every aspect of the new home business - builders, developers, architects, land planners, lenders, subcontractors, sales and marketing people and consultants. Watch the film as an example of re-branding and revitalizing an image and then let’s all put those concepts to work in our own businesses.

Recent statistics suggest that the largest segment of new home purchasers today is first-time buyers and that trend will probably continue for some time. How many of our web sites are directed to that younger, “hipper” market? How many of us are concentrating our advertising and promotion in web-based activities which is where we will reach those younger buyers - not just pay per click ads on Google but by adding web concierges and utilizing social media outlets, blogs, “tweets”, etc.?

How many builders have produced the brand-new home designs that are “sized- right”, priced right and truly attractive to and exciting for the younger markets? How many have included the technology and other features that these buyers have become familiar with and not only want but require?

How many builders have created brochures that are graphically and verbally “tuned” to these markets? Do the model homes reach the younger markets and reflect their tastes and lifestyles? How about something as simple as the corporate brand name and logo - are they fresh and properly targeted? Have we correctly named and graphically identified our communities, product lines and models with the words and images with which these buyers will identify in a positive manner? And how about something as simple as street names - does this new group of purchasers really wish to live on a street that sounds as if it came from Mayberry R.F.D.?

I would suggest that all of us would profit greatly from a complete “tune-up” and revitalization of all aspects of our brand so that, we too, have insured our ongoing financial success.

OK, I ADMIT THAT I MAY BE PREJUDICED

2009-05-07T11:34:00.010-04:00

Now before you jump down my throat, schedule an intervention or sign me up for diversity training, please let me explain. I am not prejudiced against any of the “protected classes”. In fact, I consider myself a social liberal so I have no bias based on race, ethnicity, religion, color, national origin, age, sex (I have always thought that category should be titled “gender”), family status, sexual orientation or disability.

I may have some slight bias, although it is situational, against very large people (say 300+ pounds) and people with poor hygiene, but that is only when they are sitting next to me in confined spaces such as an airplane.

My prejudice, and it is becoming more severe as I get older, is against stupidity (not ignorance which can be corrected with education) and rudeness.

Although I have tried, I have no solution for rudeness. And with the current challenging economy and stress levels universally on the rise, I find that rudeness and a lack of basic civility are continuously increasing. Perhaps I am being too hard on myself. I still hold the door open for almost everyone and no longer find it as annoying when the anticipated “thank you” does not materialize. And it seems that I less frequently find it necessary to “salute” the drivers who cut me off or lean on their horns when my speed is not to their satisfaction. Maybe I am learning to live with rudeness.

I have tried to become more tolerant with my second prejudice, and I have noticed some improvement recently, but that is only in the case of “minor” stupidity, not “major” stupidity.

One definition of stupidity is: “lacking or marked by lack of intellectual acuity”, another is: “a poor ability to understand or to profit from experience”.

My definition of “minor” stupidity is that while it is annoying, no one gets hurt. Major stupidity is something entirely different.

Case in fact, I no longer want to scream when I regularly encounter the following situation at a fast food restaurant. Having placed my order the total charge is always some odd amount, say $7.45. I then pull out a twenty dollar bill (that’s what you get from the ATM machines) while I search my pocket for the correct change. I have an issue with change brought about by my frequent flyer status - I always try to get rid of it. The cashier has already entered the purchase and the register has calculated my change based on the twenty dollar bill that I placed on the counter so that when I hand over the extra 45 cents the immediate reaction is for the cashier to become paralyzed. After fifteen to twenty seconds animation returns and the result is usually one of the following two scenarios - either I receive a ten dollar bill, two singles and one dollar in change or I receive a ten dollar bill, three singles and 55 cents in change.

And to be fair, this inability to count and make change is not limited to fast food restaurants, it just occurs far more frequently there. I regularly receive the wrong amount of change in all types of places of business. Usually I will try and correct the mistake (always when it is in my favor), and am amazed that often I will encounter resistance (as the register is now closed) or will be thanked for my honesty (which is a sad commentary on today’s society).

And now we come to “major” stupidity, especially as it manifests itself in the homebuilding business.

One of my clients called me several years ago and asked my advice on purchasing a parcel of land in a somewhat remote suburban area but one in which he had enjoyed reasonable success with a prior development. After examining the property and analyzing the market, and without burdening you with the details, I explained that the times had changed, that the market had changed (both from the supply and demand sides), that the properties, while somewhat proximate, were not similar and I strongly recommended against the purchase. For those of you who know me, you are aware that my voice is sometimes quite loud and cannot possibly be confused with the whisper of the “Whos” (see previous blog). In fact, I believe that the executive summary section of that report contained only the following text in 36 point type: “Do Not Buy This Land!”

This past Fall I received another call from this same client asking me to take on a new assignment to look at one of his developments that was not selling and create a marketing and sales strategy to improve his results. After a little probing I learned that this development was that same remote property that I had analyzed for him several years ago but now it was a fully developed single family community, not a vacant parcel of ground.

When my shock wore off I first declined the assignment as, having kept abreast of his market, I knew that it would be a waste of his money and my time as the only solution that existed was to dramatically lower the price and lose money and I knew that he would find that unacceptable. And then I asked him what did he not understand about “Do Not Buy this Land”.

In my mind the stupidity was in ignoring the facts (not the report, as such, for I certainly am not infallible, but the underlying facts contained therein) and proceeding merely on “gut instinct”. The original report’s conclusions were not what my client wanted to hear so the entire report had no value to him. My client did not authorize a second study by someone else, nor did he bother to analyze the market himself. He did what he wanted to do, without “intellectual acuity”. While I applaud the entrepreneurial spirit which is essential for a developer’s success, I have to believe that his was not the smartest business decision.

And in a similar vein, I recently completed an analysis of an existing resort community in which I recommended to a client that it is now necessary to reduce prices by 46% in order to make sales. The resort market has certainly suffered far worse in the last few years than the overall housing industry, due to the overall economy, the discretionary nature of the purchase, the effective demise of the investor and speculator markets, the dramatic revisions in FNMA mortgage regulations for condominiums, and perhaps more importantly, the historic pricing escalation that exceeded any possible relationship to reality. So I was not surprised when the analysis determined that a dramatic price reduction was required. Needless to say, my report was not greeted with rampant enthusiasm as the new pricing will force them to sell below cost (but I believe the recommendations will be implemented).

Back to the theme of this blog, I had prepared a study for the same client on this proposed development three years ago, in much better market conditions. At that time I concluded that the market would only accept pricing that was, in fact, very close to what I had just suggested as the level to which they now had to reduce. But when they then performed their cost analysis of construction, they discovered that they could not build at a price low enough to sell at the recommended pricing and, rather than either redesign or stop the development, they decided to proceed anyway, once again ignoring the facts. And two and one-half years ago, still prior to starting construction, they again asked my opinion and my response was a very loud “NO! DO NOT START THE BUILDING”. So once again a business decision was made that ignored the facts.

And here’s what I believe to be one of the worst examples of recent stupidity. On April 2, 2009 the FASB (Financial Accounting Standards Board), responding to pressure from the Federal Government (the “we’re here to help you” folks) and the financial institutions (the banks and Wall Street, the geniuses who have guided the economy to its present wonderful condition), eased the “Mark-to-Market” rules. This change still requires financial institutions to mark transactions to market prices but more so in a “steady” market and less when the market is “inactive”.

Mark-to-market accounting rules, when enforced by the SEC and FASB, require a company to value (or "mark") assets on its books based on the price they would bring if they were sold today. Obviously with the meltdown in real estate values, especially the underlying present values of residential developments, this would have required the banks to take substantial write-downs and, for those institutions that had made poor lending decisions, could have resulted in their demise. While proponents of easing the rule argued that this would remove the unnecessary "perpetual feedback loop" that can result in a deeply weakened economy, the reality is that we have decided to become ostriches and put our heads in the sand in the face of difficulties.

The best article I have seen recently on the “Mark to Market” rule was a March 17th commentary by Jonathan Weil (jweil6@bloomberg.net) in Bloomberg (http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_weil&sid=aJFrPa3rqhHw). Written before the FASB relaxation of the rule, Mr. Weil says “Don't Blame Mark-to-Market for (the) Banks' Problems”. He goes on to suggest that the financial executives plea, “If only we didn't know how badly off the banks are, then maybe we could save the financial system as we used to know it” couldn’t be more wrong and proceeds to provide an excellent argument debunking the myths.

In my opinion, the matter is even simpler. With the banks no longer pressured to dispose of those assets they can now hold them for the long-term, waiting for the “recovery”, and then plan a proper course of action. But the reality is that these banks are ill equipped to effectively take on the role of the developer, a role they would need to assume to maximize the value of these holdings. They do not have the personnel or the experience, they certainly are not creative and, more importantly, they lack the entrepreneurial drive needed to be successful. They are, by their very nature, risk averse and risk is what that business is all about.

Does anyone besides myself remember the 1980's and the “S&L Crisis”? Back in those days the government had relaxed the rules for the savings and loan industry and they were allowed to expand their role from “lender” to effectively become “developers”. The end result was first FADA (Federal Asset Disposition Association), then the RTC (Resolution Trust Corporation) and, finally, billions of dollars in losses to the taxpayers. Is there even a remote possibility that the banks will do better than the Savings and Loans? I don’t think so! Is this not a perfect example of the second definition of stupidity - “a poor ability to understand or to profit from experience”?

If the government is intent on leading the way to universal stupidity, perhaps it is time to hang out a sign reading “Will Consult For Food”.

HORTON HEARD THE WHO BUT WHY DIDN’T THE BUILDERS AND DEVELOPERS (and why don’t they hear them now)?

2009-05-05T10:36:00.001-04:00

I am certain that most of us are familiar with Horton Hears a Who!, a 1954 children’s book by Dr. Seuss (one of my favorites which was made into an award nominated 2008 animated film). The book tells the story of Horton the Elephant who, "on the fifteenth of May in the Jungle of Nool", hears a small speck of dust talking to him. It turns out the speck of dust is actually a tiny planet, home to the city of ‘‘Who-ville’’, populated by microscopic-sized inhabitants known as the "Whos".

Although Horton cannot see the Whos, he can hear them and the Whos ask Horton to protect them from harm. Horton agrees to the request proclaiming throughout the book that ‘‘even though you can’t see or hear them at all, a person’s a person, no matter how small’’. In doing so he is ridiculed by the other animals in the jungle and finally imprisoned for believing in something that they are unable to see or hear.

The Whos finally make themselves heard in the jungle by ensuring that all do their part and it is the final effort by a ‘‘very small shirker named JoJo’’ whose addition to the effort creates enough volume for the other animals in the jungle to hear the sound.

Now I do not believe that my hearing is especially acute. In fact, if you were to ask my wife, she would probably suggest that I am at least partially deaf, especially when she is speaking and asking me to do something for her. Yet I heard the "Whos" loud and clear.

As early as 2004, well before the sub-prime fiasco and the economic meltdown, it was apparent that new home construction was outbuilding demand in most markets. Several of us"heard" the market’s shouts loud and clear and tried to pass that information on to the builders and developers. The ratios of "permits to employment growth" and "permits to population growth" were simply out of whack based upon historical numbers and provided clear indications that the demand in most primary housing markets was insufficient to support continued production levels.

I had the opportunity to speak on a seminar at the 2004 International Builders Show with two of good friends and acknowledged experts in the housing field, Bonnie Alfriend and Chuck Graham, and we all strongly made the same points about the obvious (to us) near term market contraction. But the builders and developers, abetted by the banks and wall street firms with limitless funding, continued to chase the short term profits and refused to listen to us and to other naysayers; they believed only in what they could hear and see - they were selling homes and making record profits. So they paid higher and higher prices for parcels of land in further-out locations and then, using their "5 time land price multiplier", brought even more overpriced housing to the market in marginal locations.

The result in all these cases was and continues to be lack of success and that lack of success was and is needless. If we do not listen to the market, which are our "Whos", no matter how small that voice may be initially, we are doomed to failure.

Now the voice of the "Whos" became much louder in 2007 and 2008 and it seemed that the volume reached a level that was impossible to ignore. Yet as I continue to visit housing markets and look at the new home offerings, it would appear that the builders and developers still cannot hear or choose to ignore that voice.

The first time buyers, that section of the market that today is not only the largest segment but also is unencumbered with an existing home that needs to be sold, is calling for smaller, smarter homes. Much of the market is calling for "green" building and that portion of the market continues to grow. And all of the market is screaming for something different, something new, something better, something that they do not have now and that excites them and stimulates a desire to purchase.

In all fairness, several builders, including several of my clients, have taken the time and spent the money to create a "Unique Selling Proposition", be it through superior home design or community design, included features or efficiencies that produce better value, anything that differentiates them from the competition and they have thereby removed themselves from the low price battle and earned more than their fair share of sales, even in these challenging times.

But the majority of the others have not and they continue to compete solely on the basis of price which is very difficult in the face of foreclosures, short sales and all of the other distressed sales out there. Now the "price position" is certainly a viable strategy in any market but it only works (turns a profit) if the builder has secured advantageously price land, has designed a cost efficient product, and has worked aggressively with the entire team to minimize hard cost. For the others, their only solution is to discount their homes and that erodes, if not eliminates, profit.

So my question for the day is: "When do you think that most builders and developers will hear the "Whos"?

SWINE FLU

2009-05-03T20:00:00.005-04:00

I admit that I am afraid of the swine flu.

This is a rather unusual situation in which I now find myself as I do not often get sick nor do I believe that I am pathophobic or bacteriophobic or in any other way fearful of disease or sickness. I grew up when polio was still prevalent and I remember my mother keeping me away from crowds during the summer but I do not believe that has influenced my fear.

Heart attacks are not uncommon among friends my age although I have been fortunate in thus far avoiding one. And cancer is widespread, afflicting all ages, all races, all genders. I have myself been treated for skin cancer . Yet I am not afraid of cancer or a heart attack.

"Cancer" is probably unavoidable if one lives long enough, and to some it is accepted as a natural occurrence or even fate. You may recall that Forrest Gump’s mother died of "the cancer" and, as she, said, "it was just her time".

And a heart attack, while certainly undesired, seems almost honorable when one pictures the typical stressed-out executive working himself to death to support his family. And although heart disease is growing among women, one usually stills pictures the afflicted as a man with elevated levels of testosterone. An almost "manly" way to go.

Rather, I think that my fear of swine flu stems entirely from the name of the disease.

The fact is, swine flu has no "class". I would be embarrassed if my friends found out that I had caught the disease, let alone died of it. There are just too many adages and saws in our culture that remind us of the low regard in which we hold that species of animal:

"It’s like putting lipstick on a pig" (that one got a lot of play in the last presidential election);
"Don't cast your pearls before swine";
""If you lie down with pigs you get up smelling like pigs";
"You can’t make a silk purse from a sow’s ear";
"Don’t buy a pig in a poke";
"Never try to teach a pig to sing";
"In a pig's eye";
"When pigs fly";
""If you wrestle with a pig, you'll only end up getting muddy";

The list is endless without even considering the connotations of "male chauvinist pig" or the derogatory term which has been used to describe police officers.

And perhaps equally important, pigs are not kosher. So if I contracted swine flu how could I possibly explain that to my Jewish friends and relatives and to the Muslim world?

The fact is this disease simply has a bad name.

And that brings us to the "meat" of this blog (excuse the pun) - words and their meanings. The power of words is truly amazing. Yet most of us seldom take the time to be certain in advance that the words we choose to use will have the desired effect.

Over the past years I have had the opportunity to shop thousands of new home sales people and brokers around the country. And the majority of time the sales person will inadvertently say something that could create a negative impression. Using "negative" words cannot possibly enhance the sales process yet without proper thought and training those words, which naturally permeate our every-day vocabulary, will leak out at the most inopportune times during the sales process. And the only way to prevent the use of these negative words is through conscious effort and training and retraining.

If you are interested in further thoughts on that subject, take a look at an article I wrote several years ago that was published in Sales + Marketing Ideas in 2004 and reprinted in Nations Building News and several other publications - http://www.nahb.org/generic.aspx?genericContentID=38312

THOUGHTS FROM A FREQUENT TRAVELER

2009-05-01T10:29:00.002-04:00

I had a few spare minutes yesterday before I had to run to catch a plane (on my way home, thankfully) and wanted to jot down something that has been on my mind lately:
Why does it appear that some companies have lately forgotten that customers are their most important assets?

As I travel constatntly I have developed relationships with frequently used (if not "favorite") airlines, hotel chains and car rental companies and over the past several years I have probably given each of them tens of thousands of dollars in business. Yet within the past year, and even more visibly within the past few months, when the economy continues to falter and their business has visibly continued to decline, I have found that instead of their demonstrating that I am a valued customer they have acted in ways that appear to me to demonstrate a complete lack interest in my business. They have all reduced their benefits yet not reflected those reductions in their pricing, be it something as minor as discontinuing delivery of the morning paper to my hotel room or as major as substantially increasing the number of miles that I need to redeem for a free flight. And in not one instance have I ever received a simple and sincere "thank you for my business" unless it was less than sincere and came as an introduction in an email or mailing as part of a scheme to sell me their affinity credit card (which I seem to receive daily).

Now in all fairness, my "frequent" airline, hotel chain and car rental company are probably no better or worse than their competitors. They were chosen by me primarily due to convenience on my part in regards to scheduling, location, and access. And the fact is that I have far less choice then I would prefer in travel service providers so this lack of "affection" from the airline, hotel and car rental operators in question probably will not result in any meaningful decrease in income to them. But the reality is that in all three cases I am a loyal customer and it appears to me that this loyalty is totally unappreciated.

Perhaps I am being unfair. Perhaps these airlines, hotel chains and car rental companies actually realize that the customer is the source of their income and that the customer should be therefore be nurtured and cherished. But that is not the impression that I , as a customer, have received.

I have read hundreds of sales columns over the years from various authors and sources and one that I remember clearly was titled "8 Times When You Should Thank Your Customers" (my apologies to the author whose name I do not recall). The column suggested that not only should you thank your customers at the obvious times when they do business with you, when they compliment you or when they recommend you, but also when they offer suggestions, when they help you to serve them better, and, the one that stood out most in my mind, when they complain to you as they have then given you the opportunity to improve and continue to do business with them.

Do you think it would help if I saved columns such as these and sent them to the airline, hotel chain and car rental company?