Top Home Builder Tips for 2020

As we head into 2020 we asked the top industry thought leaders to weigh in on what we can expect in the coming year. Here are their thoughts and insights on an array of home building topics.

Avoid these Three Mistakes for Home Builder Management Success

Bob Whitten, SMA Consulting

After 40 years in the home building business, I have come to understand that this is not rocket science or brain sugery. A set of basic concepts, ideas and benchmarks can be used to apply the K.I.S.S approach to home building.

• The biggest mistake any home builder can ever make is to sell more homes than they can efficiently and profitably build.
• Most business people, including almost all home builders, make the cardinal mistake of HR. They “hire fast and fire slow” when in practice they should actually “hire slow and fire fast!”.
• Mistake three is putting too much into base house features. To increase profit margins and NOT slow sales velocity, a builder should understand that options (those upgrades and contract add-ons that can be bought with their base home) are your best friend. If you are in doubt, leave it out of your base and allow your buyers to option up.

Don’t overlook the little things!

Carol Smith, Home Address

Generally speaking, builders get the big things right. I’ve yet to hear of a home builder who forgot the kitchen or left out a bedroom when building a new home. The little details, however, offer endless opportunities for improvement. Visit your models with fresh eyes. Is the entry way spotless and inviting? Are towels straight on the towel bars? Is the refrigerator clean and neat. I once found one that contained a moldy bag of kale…

Read your documents. Are they formatted consistently, well organized, easy to understand, and friendly in tone? Edit to avoid no, must, required and other negative words. Are procedures user-friendly, efficient, and clearly explained in advance of each step? Are they supported with front line experts who communicate well, follow through, and provide individual attention? Do your home buyers have opportunities to provide feedback after each step in your process?

Evaluate home delivery conditions with brutal honesty. Homes should be move-in ready at orientation—that’s not a meeting to make a punchlist. And if your warranty practices still include “send in a list at 30 days,” replace this outdated process with a proactive approach. Set an appointment before closing saying, “We’d like to inspect your home for you to ensure it is living up to the standards we promised.” Finally, implement steps to stay in touch with newsletters, educational seminars, and social events, for instance. You want referrals from your home owners in the long term. Maintaining contact in positive ways helps make that happen.

Create a Business Plan to Guide Your Business

Chuck Miller, Chuck Miller Consulting

Did you know that small businesses in the construction industry have the second highest failure rate of all industries? A survey of builder and remodeler members of the National Association of Home Builders (NAHB) revealed that almost 70 percent had no formal planning procedures, less than 18 percent had written mission statements, fewer than 15 percent had written operating budgets, and fewer than 12 percent had a written business plan.

If you do a Google search of “why small businesses fail,” it will return approximately 10 million results. Common causes include ineffective marketing; failure to communicate value propositions in clear, concise and compelling fashion; being out of touch with clients; lack of differentiation in the market; underestimating the competition; failure to price their product or service correctly; failure to adequately anticipate cash flow; and poor financial management. I believe that most if not all of the common causes could be prevented by having a well thought out, written business plan. A written business plan forces you to identify and define your target market, to be customer focused instead of product focused, and to prepare an annual proforma budget.

Take a conservative approach to 2020

Charles C. Shinn, Jr., PhD, Builder Partnerships

So, what about 2020? Very little growth in housing is being forecast for next year. The news will be dominated by politics since it is an election year. Washington will probably be able to prop up the economy through election day, but I would expect some softening of the economy after the election no matter which party wins. I would be conservative on my business planning forecast for 2020 and bracket my most probable forecast with 10% above and below forecasts. The business forecast should be reviewed quarterly to determine which of the three is most accurate for the direction of your local market conditions. I would play the short game when it comes to buying land. You need to maintain about 18 months of finished lots to stay operational, but I would be very cautious about acquiring any long-term land commitments. Remember land and land debt is what puts builders out of business. The upper priced homes have been very soft in most markets but the demand for lower priced homes has been strong. Develop smaller, lower base priced homes for your product mix to cater to the millennium buyer who is now in the marketplace.

If it is going to be a slow growth year for your company in terms of homes sold, try working on growing your profits and your efficiencies during this time so you will be better equipped to take advantage of the strong growth which is going to occur for the housing industry as the millennial generation fully enters the housing market.

Innovation Leads the Way

Jennifer Castenson, Hanley Wood

Housing is facing unprecedented challenges that are being exacerbated by new layers of regulation. Those challenges are expansive and touch every aspect of design, development, construction, and sales. Evolving home buyer demographics are putting additional stress on analyzing demand and meeting expectations. Consumers now expect so much more from their housing from a safe, comfortable place to live, to a smart technology that aids conveniences in their day-to-day routines, to a healthy reprieve that benefits them on a physical and emotional level.

How can builders and developers make it all happen? These challenges are being met by smart builders and housing leaders with new, innovative solutions. Those leaders are the ones who are able to create new processes, to create transparency in the value chain, borrowing from the past, from other industries, and from innovative partners. You can see these leader’s success in projects across the country that are responsive to these needs for efficiency, sustainability, resiliency, and affordability. The demands are high!

Re-Thinking How We Deliver Homes

Joe Stoddard, Mountain Consulting Group, LLC

By now, we builders should have learned a lot from how car dealerships deliver their product, but we haven’t. When you pick up your new car, it’s ready for you. No scratches or chips, no missing parts. The gas tank full – it’s perfect.

Instead, we torture - our buyers. We force them to take time off work…a lot. Then we make them wait – a lot more. And we give them conflicting, often incorrect information every step of the way. Instead of confidence in us, we plant seeds of doubt: We’re pushing to close because we need the cash flow and they’re wondering “Why aren’t the cabinet upgrades I ordered (and paid for) here? Why is the caulk (or grout) failing after a week or two… and what else is going to go wrong with this house over the next 15-20-30 years that we’re paying this mortgage we can barely afford?

Start Right to End Right. Unfortunately, there is no magic wand (and no single “App”) that will fix completion problems overnight. You need to setup a quality assurance protocol that will allow you to *really finish* your houses on-time, on-budget and defect-free, but you need the courage to take it seriously and fully adopt it. From spending enough time planning to daily QA walks to doing warranty the right way. A total QA program is not a menu where you can pick and choose. Everything is an important piece of the puzzle.

Manage Processes and Mitigate Risk

Roger Langford, Professional Warranty Service Corporation

Don’t forget that profit margins are affected by a builder’s ability to manage processes and mitigate risk.

In many places around the country, the insurance markets are hardening. As a result, builders need solid risk management principles that focus on doing the right things, avoiding the pitfalls of a volatile customer service market, and having a reliable plan in place for those tough homeowner situations. It is critical, now more than ever, for builders to examine post close risks, streamline customer care, and implement litigation avoidance tools that help you do what you say you’re going to do, deliver an extraordinary customer experience and enhance your reputation in the court of public opinion.

Review Plans with Your Key Supplier and Trade Partners

Scott Sedam, TrueNorth Development

I learned more than 30 years from Mike Rhoads, VP of Construction for Pulte Chicago, that before you even think about building a new model, have your key suppliers and trades come in for individual, sit-down reviews of your new plans and elevations. I have participated in hundreds of these, each one a success, yet no more than 2% of home builders do this on a consistent basis. That’s incredible – and inexcusable. As Mike Rhoads taught me, “If you don’t care about improving product and process, if you don’t care about becoming the builder of choice for suppliers, trades, and customers, if you don’t care about becoming more profitable, then sure, skip this step.”

Customer experience is more than a title

Tim Bailey, Avid Ratings

CX is the new competitive battleground. It is where businesses are won or lost. Reflecting back to the 2017 Gartner Customer Experience in Marketing Survey, more than two-thirds of marketers said their companies competed mostly on the basis of customer experience. At the time of Gartner’s research, 81% said they expect to be competing mostly or completely on the basis of CX in two years’ time. That “two years time” lands us here today and it is clear to see that CX has become a top priority across companies globally. Leading companies have come to recognize that CX is more than a program, process, department, or an executive title. CX is an ecosystem, and like any ecosystem, it has producers, consumers, elements and cycles. The health of an ecosystem requires constant monitoring, understanding and nurturing from both the consumer and producer perspective. A holistic view and deep expertise of CX is essential today to build a brand that consumers know, like, and trust.

Evaluate Your Systems and Processes

Scott Duman, ECI Software Solutions

Single-family home construction has seen slow, steady gains throughout 2019. This is in spite of land and labor shortages, concerns about the economy, trade issues, etc. Continued low mortgage rates have helped push the Housing Market Index (HMI) to the highest level since February 2018.

Yet, we know there are headwinds to deal with. Has the stock market gone up too far, too fast? Will we ever get a trade deal with China? Will job growth continue? We're several years into this housing cycle, how long will it continue? What about the election in 2020? There are all kinds of expert opinions on these questions and many others.

So, what should a builder do? I would suggest that there is no time like the present to evaluate your systems and processes and position your business to be able to withstand future downturns, which we all know are coming. Are your systems integrated from your sales office to the back office and the field? Are you making the most of the systems you have in place? Are you in the cloud? Cyberattacks on small and medium-sized businesses are on the increase. Cloud service providers are in a much better position to secure your data from attacks that you are on your own. With a little pre-planning and investment, you can put your business in a much better position for the future.

Don’t Just Spend Your Day Fighting Fires

Brad Haubert, ECI Software Solutions

Too often, your days as a home builder are just fighting fires. The plumber needs the answer NOW, that municipal inspector just failed the footing inspection, or the concrete truck is on the way (or sitting at the job)!

Before you know it, the day is done and you already have a list forming for tomorrow. You know you need to make changes in your operations so that every day is NOT spent battling the same types of fires.

It’s easy enough to think you’ll take the time to do this tomorrow. But, tomorrow comes and the firefighting continues. And the next day. And the next. Get where I’m going here?

It’s time to face the issue head-on. Instead of planning to TAKE the time [insert some future date here], you need to MAKE the time to start creating the change you desire in your home building business.

Approach it like you do any house you build. Create a blueprint for where you want to go. Then, start digging in. You got this!