Building a Quality Home Does not Always Equal Running a Sound Business

During the 2013 International Builders’ Show in Las Vegas, Tom Stephani, MIRM, president of Custom Construction Concepts Inc. based in Crystal Lake, Ill., outlined the following 10 business mistakes builders typically make and how to avoid them:

1. Fail to see a collapse coming. All markets are local, and they all go through an up-and-down cycle, Stephani said. He said builders need to keep tabs of warning signs by monitoring the number of starts in their area, being prudent with their specs and examining fluctuations in the cost of land.

2. Don’t ask for help. Too often, builders stubbornly cling to the notion that they have all the answers and that the competition is their enemy, said Stephani. The best way for builders to find answers to improve their business is to become actively involved in their local and national builders associations. Some of the benefits of membership include advocacy, education, networking and joint marketing resources, he said. “Through NAHB, I have a network of hundreds of people I’ve met over the past years,” said Stephani. “That knowledge sharing is immense. The 20 Clubs provide that opportunity as well.”

3. Alienate Realtors. The purpose of Realtors is to sell home, and builders are being penny wise and pound foolish when they try to work around them and avoid the commission fee because Realtors will often bypass the builder’s properties when showing prospective clients homes to sell. Stephani said it is wise to use Realtors because they are professional at marketing and sales, provide better access to pre-qualified clients and can help to manage client expectations.

4. Fail to set realistic expectations. To remedy this, Stephani said that the builder must make it clear to their clients that they are in charge of the project. The customer must make selections on time, be able to afford what they want, and must not attempt to supervise subcontractors or suppliers. The builder must communicate to the client that changes to the job require time and money, that delays during construction are common and that workers will not necessarily be on the job eight hours every day. “Let the client know there could be bumps in the road but that they will be happy in their home when they move in,” he said.

5. Ignore customer service. Those who ignore this item because there is no money in it, or because they are too busy, do so at their own peril. Good customer service is essential, Stephani said, and the best way to provide it is to see issues from the customer’s perspective. Builders who have a willingness to exceed customer expectations and to do what is promised often reap great rewards through word-of-mouth referrals.

6. Fail to price for profit. Builders often fail to price their homes properly due to competition, market conditions, inaccurate appraisals and pressure from Realtors. As a result, their cash flow becomes critical and they try to compensate by increasing volume. To fix this problem, Stephani suggests that builders better manage their specs, tighten financial controls and reporting, and develop a pricing approach based not just on cost but also on location.

7. Don’t update the business plan. “If you don’t put a plan in writing it can guarantee you won’t reach your goals,” he said. Builders should update their business plans on an annual basis, he added.

8. Fail to manage conflict effectively. Too often, builders do not recognize the emotional state of owners during construction and are not committed to win-win agreements with them, Stephani said. Most builder/client conflicts arise from disagreements about what was promised and what was delivered. Clear and concise wording of the contract; a complete set of plans and specifications; and good documentation of all communication are essential.

9. Don’t manage design and budget. Too often, builders fail to properly manage their clients’ expectations, fail to control the architect and let clients take control over their subcontractors and suppliers. Builders need to be up front with their clients, let them know what to expect during the building process and work in tandem with the architect.

10. Take on the client from hell. A true client from hell often displays wild mood swings; obsesses over minor details; invites conflict; demands perfection but is not willing to pay for it; creates problems for subcontractors and employees; berates, belittles and badmouths the builder; refuses to pay until sued; and is never happy. To avoid this situation, Stephani recommends that builders go with their gut feeling when interviewing a client, evaluate their personalities and traits, take note of their occupation and observe whether a husband and wife are openly arguing – which can be a warning sign.

Source: National Sales and Marketing Council eNews