Five Tips to Reduce Homebuyer Cancellations

Cancellations not only wreak havoc on a home builder's cash flow, they also distort the overall health of the housing market's inventory and new home sales figures.

Paul Cardis, CEO, Avid Ratings Co.

Commissioned reps are pushing harder to close sales quickly, leading more customers to have second thoughts and back out of sales. In fact, The McKinsey Group and Avid Ratings research has shown the quickest to contract results in lower customer satisfaction ratings and less loyalty.

Prospects are losing confidence in the housing market and rethinking whether now is the best time to buy from an investment standpoint. Hope is not lost, however. Builders can take steps to combat the media's bleak spin.

• Educate customers. Point out that much of the talk in the media about the housing industry focuses on resale homes and not new construction. Drive them through your communities and let them see that houses aren't boarded up and falling into ruins. Build up their confidence by pointing out how rare it is for a new home to foreclose in one of your communities.
• Coach prospects on selling. Some home buyers are backing out of sales when they discover they can't sell their current house for as much as they thought they could. Some builders are offering to buy prospects' existing homes, although it is not a smart solution for most home builders. Instead, coach prospects on savvy ways to sell their homes.
• Sell it right. Home builders have been able to reduce cancellations by reviewing each home buyer's ability to obtain mortgage financing early in the sales process and by closely monitoring the mortgage approval process prior to signing the agreement.
• Provide credit counseling assistance. With lenders tightening up, even good credit customers might face challenges. Bowen Family Homes—which builds homes in Texas, Georgia and Florida — has implemented a process to help its customers reach their highest possible credit score. You should also advise buyers to avoid exotic loans. If you don't, your foreclosure rate could rise.
• Promote your customer delight. Nothing sells like a happy customer, and the more you allow happy buyers to communicate with your prospects, the greater the customer confidence. Just ask Orlando, Fla.-based Engle Homes, a Technical Olympic USA builder and which closed more than 200 homes in February by using its satisfaction levels to convert buyers.

If you have been a good builder, you most likely have good customer ratings — and now you are in a great position to combat these market forces. If not, use this downtime to rebuild your service delivery so you never get caught like this again. Meanwhile, make sure your sales staff emphasizes quality construction and personal service when they talk with prospects.

Now is not the time to skip key elements in a race to the keep the deals flowing. As always, build relationships with customers and individualize the selling process to garner deals that stay closed.