Home Builder Tips 2021

2020 has fundamentally changed the home building business—creating new challenges and opportunities for builders. So how can you take the lessons of last year and apply them to 2021? We asked top industry thought leaders for their insight and tips to take on the New Year!

New Year’s Resolution: Cash Reserves

Bob Whitten, SMA Consulting

It is important to start a risk-minimization strategy while the market is strong, to assist in years when the market is not as robust. The three cash reserves I recommend are:

1. Operating expense reserve - You want to cover three months of your budgeted fixed overhead (payroll, office, and marketing expenses). If your fixed overhead averages $50,000/month, at the end of the year, you want to have $150K in this account. This may require disciplined effort and even flow closings to accomplish it.
2. Capital asset purchase reserves- Review your depreciation schedule with your CPA/tax advisor and find the replacement number needed in the next year. Save that 12-month amount in the same or a new reserve bank/investment account. This will allow you to replace equipment, furniture, vehicles, etc., without dipping into operating cash flow. It may also eliminate the need to place loans on those asset purchases. Pay yourself the interest in the form of additional cash deposits to the reserve.
3. Tax reserves - Calculate the taxable portion of the average budgeted closing for the year. Upon each closing, transfer some of your closing proceeds (the amount calculated as tax liability) into a separate Income Tax Reserve Account.

Remember, these reserves are operating accounts. You cannot rob your operating accounts to fund investments like buying lots or down payments on tracts of land.

Customer Service

Carol Smith, Home Address

Multiple studies have shown that consumers’ top priority (surpassing even price) is personalized attention. People want to be treated as individuals, not just job numbers. At the same time, the process adjustments needed due to the pandemic increase the challenges for meeting this need.

Homes are seen as safe havens (Faith Popcorn’s trend “cocooning”). This powerful market driver results in buyers expecting more design choices, regular updates, and close involvement in the build process. Yet currently, to function safely for everyone involved, builders are implementing virtual meetings and video tours in addition to using masks and social distancing for more traditional meetings.

How can professionals straddle the need to keep all parties safe and still create a genuine sense of connection and personal attention? The answer is in the details.

• In virtual meetings, take time to chat about family, work, hobbies, and other non-house related subjects. By asking buyers to complete a profile questionnaire at the point of sale, builders can become aware of personal interests.
• Follow up these meetings with a handwritten thank you note, again working in some personal detail, perhaps something mentioned during the meeting.
• Ensure prompt attention to any open questions. Increase the number of updates by phone or email—using the customers’ preferred method.
• And discuss the need for masks and social distancing at in-person meetings early, framing the conversation with an emphasis on safety for everyone.
• Make it clear to homeowners that reported warranty items will be addressed even if done so more slowing due to precautions and without regard for the warranty expiration.

While the open-ended nature of the virus catastrophe is uncomfortable, you can reassure your home buyers that you are working creatively to fulfill their needs.

Slow Down to Speed Up

Carrie Roeger, White Stone Residential

Home building is achieving new levels of production across the nation. As we enter 2021, my advice is to slow down in order to speed up. If you have processes and systems established in your company, take the time to review them with your team. You may not know where they are broken, but your team does. These inefficiencies create headaches for your team and can have a multiplier effect on costs. Cycle time is the primary system that runs your operation. Your cycle time consists of the soft cycle (pre-construction phase), and the construction cycle.

Often times companies overlook the efficiency of the soft cycle, costing days and dollars in delays. Each player in your soft cycle has adjusted to the new way of doing business, and their processes have changed as well. Be sure to connect with architects, designers, municipalities, and others in your soft cycle in order to understand how their new process impacts yours. Gather your team and work through your construction schedule as well. The same applies here; many of your trade partners have new processes and new demands on their time that impact your schedule. Suppliers are struggling to keep the supply chain filled. By connecting with trade partners and suppliers, you will have time to respond to a change in plan as opposed to reacting when it is too late.

If you do not have formal processes and systems in place, gather the team and establish them before you go any further. You may find that many of your team members have already created bootleg processes that are working. Take the time to uncover the processes, the reason for them, the efficiencies created, and the need for additional processes and systems. Establishing the processes, clear lines of communication, and accountability will improve your company, culture, and bottom line. There will not be a better time than now to tune your organization to maximize efficiencies through processes and systems.

Fast Tracking Technology

Jennifer Castenson, Hanley Wood

This year, home building has been catapulted into a new era. Technologies and processes that were two to five years away were suddenly embraced after the pandemic hit, fast forwarding the industry into a new way to market and sell homes. The fast and persistent consumer response has also equated to record sales volume.

Builders also are trying to adopt other design and construction technologies to make the process more efficient and cost-effective and to match the growing demand. Builders are motivated by a nebulous timeline to build as many homes as possible, satisfying consumer needs and capturing revenue before an inevitable market crash.

These factors create the right formula for many builders to invest in offsite construction, which may have been on their business horizon, but was expedited because of the environment. Offsite will help home builders achieve faster construction and lower costs with less labor in the pandemic-stricken market. It’s also my hope that this formula brings about new ways to deliver housing at lower costs to ultimately solve the housing crisis sooner than we thought possible.