Home builders, Get on the Road to Fair-Share Pricing

One of the consequences of the current housing market is the lack of transparency in new home pricing and sales absorptions. The problem is not with macro-market statistics such as those in the S&P/Case-Shiller Home Price Indices or the local housing monthly permits data, but rather with inaccurate sales information on your prime competitors — those projects you compete against for buyers and sales.

With low internal sales activity and poor or incorrect information on competitors, many home builders don't really know the current market price of their homes. When I ask about the market price, I often hear, “It's tough; nothing's moving,” or the even more generic, “Everyone's just giving homes away.” The result is pricing strategies that often result in long periods with little or no sales followed by heavily discounted “fire-sale” promotions that move homes at prices below the market.

There are a bunch of reasons for difficulty in gaining accurate competitor information in today's environment. Deep discounts not shown on the price sheet make advertised prices meaningless. High turnover among sales agents makes accurate exchanges of information between sales agents unreliable. And the embarrassment about the lack of sales makes builders unwilling to share information, or they might provide exaggerated results. Meanwhile, having accurate information on your competitors is more important today than ever before.

So where do you start? Track your lost sales. It will show important trends among your potential buyers. A weekly lost-sales report compiled by your sales team will accomplish the following:

• Detail actual sales activity in your sub-market.
• Provide specifics on why you are losing sales (i.e., is it price or something else?).
• Require your sales professionals to follow up with prospects until they buy with you or a competitor.
• Give you a chance to go back to your lost-sale customers with a counter offer.

Next, perform on-site competitor shops no less than once per month. The old days of relying on Web sites for updates on competitors are over. Personal visits give you the best intelligence on the condition of the community, the level of professionalism of the sales staff, the variety of available home sites, the number of completed homes for sale and more. Talk to the sales agent, but rely on changes since your last visit as a gauge for sales activity.

As tough as it may be to learn that the market price for your homes may be below where you want them, it far more important to have current, accurate information to gauge the success of your sales team and maximize the profitability of your homes.