Professional Builder's February 2010 Market Research Roundtable
Professional Builder’s February 2010 Market Research Roundtable
This is the complete transcript of the Market Research Roundtable in the February 2010 issue of Professional Builder magazine. Check out the condensed version of this interview and the complete audio transcript (33 MB MP3 file). We welcome your comments and feedback at firstname.lastname@example.org.
|Brad Clason, Owner, W. Bradford Clason & Associates, Coatesville, Pa.||Tracy Cross, President, Tracy Cross & Associates, Schaumburg, Ill.||Cheri Meyn, Principal, The Genesis Group, Englewood, Colo.||John Schleimer, Founder, President, Market Perspectives, Roseville, Calif.||Moderator:
Elise Platt, President, E.A. Platt & Co., New York
Dave Barista (Professional Builder): OK, let's quickly go around the room and just give a short introduction of yourself. Cheri, maybe we could start with you?
Cheri Meyn: I'm Cheri Meyn with the Genesis Group. We've been in business some – over 20 years, specializing in market research and productive development. And we primarily stay in the Rocky Mountain region especially here in Colorado.
Dave: OK, Brad...?
Brad Clason: I'm Brad Clason with W. Bradford Clason & Associates. I'm located in South Eastern Pennsylvania outside of Philadelphia, focused generally in Central Pennsylvania in the Mid-Atlantic region; and started my market research and consulting business in 1987.
Dave: OK, John.
John Schleimer: John Schleimer with Market Perspectives; we're located in Roseville, California, which is the suburb of Sacramento. We do research on market research, consumer research, product positioning, studies across the country and, we've worked in 41 of the 50 states.
Dave: OK, Tracy?
Tracy Cross: This is Tracy Cross, President of Tracy Cross & Associates. We opened our doors in 1980, so we've seen a few recessions and depressions, and peaks and cross, and a few other things in that span. Obviously we cover the Midwest, and Chicago in particular, but have focused our attention mostly east of the Rocky Mountains and towards the Texas market. Like John, we've done studies probably in almost 40 states across the country, and provide services in the areas as strategic planning, market feasibility, product planning, and the like.
Dave: Great, and finally our moderator; and she will also be commenting on the various topics. Elise, you want to give a quick introduction?
Elise Platt: Yes, I'm Elise Platt, President of E.A. Platt & Co., from New York. Like Tracy, I've been in business since 1980, actually 1979; but we've also done marketing research around the country, as well as marketing, consulting strategic planning, product planning. So I pretty much work along the same lines as John and Tracy. Done a lot of work in Florida, Texas, and the New York metropolitan area, even some work in Denver with Genesis.
Dave: Great. Elise, take it away.
Elise Platt: Thank you. OK, we're going to start this marketing research round table. I'm going to start with the first question that says, "How was – how has the housing market research change since the downturn of the industry?" And I'm going to start with John, who I know has lived through as many downturns as I have. How does it change every time we hit a downturn, John?
John Schleimer: Well, you know right now there's virtually no new project market research; it's almost non-existent. And most of the research assignments have involved with repositioning companies or their product and their pricing; and there's limited or no budget for market research for most of the home builders that are trying to survive this downturn.
Elise Platt: Brad, are you finding the same thing in the east?
Brad Clason: I've started to see a pick up in work-out situations where banks and their builders are looking to sell some of their land; it's not a foreclosure at this point and I haven't had many builders filed bankruptcy in my area. I am seeing a pick up in market research, but I'm just finding the nature of this downturn with the investment value of homeownership which has always been a key motivation in buying. It just has been virtually decimated and so I'm just finding that builders are wondering, where is the market? When is it going to come back?
So my focus has been on much smaller projects that are mostly in Philadelphia; and, like John, working on a couple of workout situations with large projects that were just started when things started a turn, and they're trying to figure out what to do now.
Elise Platt: Tracy, are you seeing the same thing in the Midwest?
Tracy Cross: Oh, for sure. I mean, our business has really shifted away from the builder community; and especially the private builder community who are either cocooned or out of business. We're still doing work for the public sector as well as the lender side, but I'd like to take a turn, Elise, on your question as, how is market research changed during this time around? And the research process has become much, much more difficult from two aspects. One is the impact of foreclosures; the impact of investors, trying to measure that, get a handle on where it is, and the impact it has on even projects that are now dormant but will come to life again at some point in time.
And the other key factor is how the market will reset itself in terms of price; this is the end-user product. What we're seeing in the Midwest and then parts of the South Atlantic market that prices are now resetting, you know anywhere from 25 percent to 30 percent below. I'm sure John is – of where they last were, and is that the new mantra going forward. I don't think anybody knows where that new position will be in the market. So market research is now probably more vital than ever in being able to ascertain where that reset will be and how we will then perform going forward.
Elise Platt: And, Cheri?
Cheri Meyn: You know, it's a little bit different here in Colorado, I think than may be some of the other markets on the phone, simply because we experience the downturn so much earlier than most of the U.S. You know we didn't have the big run-up, so we were nine years into you know a very sluggish market before the rest of the country really started to see significant change; and so for us, we're actually seeing a resurgence in some of the types of research I did earlier in the decade.
We are working on a lot of new product development right now, because some of the builders, mostly publics, but some of the more (solvent) privates are seeing at least the end of the tunnel. And so we're doing product development work again, we're doing a significant amount of acquisition work right now which you know the last 18 to 24 months, we hadn't done any of that. So for us, our business is returning a little bit to more normal, at least to what we're used to seeing. So that's been very encouraging especially for out-of-town, companies or investors are looking at the Rocky Mountain area, little but different than I think what they're seeing in the coastal areas or maybe other parts of the country.
Elise Platt: And one of the things that I'm seeing with some of the bigger builders is going to lead us into the next question is that they're looking at some future trend. We're doing a lot more – what's it going to be when this is all over. You know looking at the new generational shifts with arrival of Generation Y or the (Millenniums); and so we're seeing a lot more of that kind of, you know future research. Tell us what the trends are; tell us how we're going to come out of it.
I have to agree with everybody about price points, but I also see, certainly in the Northeast and in the markets that I work in, I see a lot of turnaround coming; and I do see people suddenly wanting to know what the future holds. So that takes us to our next question, which is, what are the three or four most crucial elements of research homebuilders should be looking at? And by that, I mean, should they be studying demographic trends and how do they do it in pricing, absorption, competition, consumer preferences? Brad, what do you think is the most crucial?
Brad Clason: Well, yes, I just want to pick up where you left off, and lead in to this – you know trying to paint a picture of the emerging post-recession housing market is, is pretty daunting right now for my perspective, because I'm seeing somewhat of – what I sort of call a triple whammy between loss in housing values, people's loss in their 401K and stock portfolios, and job in security. So I'm a little bit reluctant to start to try paint a picture of what the future is going to look like until we get a stronger sense of us to sustain recovery and ...
Elise Platt: I'm just older; I know it will come back.
Brad Clason: Now, I think right now, the first thing in the study that I'm doing now; I'm doing a heck of a lot of analysis of trying to figure out exactly what the impact has been of the recession, and when the market, in terms of particular sectors. And then secondly, to the degree that I'm involved in projects that are going forward, I'm working very closely with land planners, and trying to develop the best possible land plans. And then we're looking at the resale market very, very closely; analyzing historic sales, any resale development that can remotely be considered competition.
And then getting into, you know, the product design and the features very carefully, trying to convince builders that now – and most of my builders are medium, small sized private builders – and trying to convince them that now's the time to start investing in product design for the future. When the market was great, they didn't feel they had to; now they feel they can't afford to. So that's an ongoing struggle.
Elise Platt: Tracy?
Tracy Cross: Well, I mean the three things that are incredibly important in terms of our builder clients are – and their lender parts (are) too – is to be able to accurately forecast absorption. I mean we've been accused, and I’ve found that this has actually been a complement, that we're decimal point forecasters. And we've you know had the reputation of being pretty accurate on that. If you have a 150 unit development and you go from you know two a month, that's 75 months of a marketing life; if you go to one and a half a month, that’ll sudden change to a hundred months, and nobody thinks about the dramatic impact a change of that decimal point has.
Most of our (competitors), at least in the Midwest consultants you know, well, you'll do between two and three a month. And it is so far removed from reality of what actually can occur out there that we find that real absorption, and being able to be very strong on that side of the equation is probably the most important prerequisite going forward. The second part is really to be able to understand the competitive environment of you know who you are competing with out there. And it does get in to the resale market; as Brad said, it gets into a number of other aspects that maybe we haven't looked at before; so those two aspects are probably keys.
The third is – as opposed to what you may look at is – where is Generation Y going? We have to look at where they are going right at this moment. This moment in time is – they're not going anywhere. So you have to be very careful of adopting a trend like global warming, and saying the world is going to be able what it is three years from now; or may be in fact that won't happen at all.
Elise Platt: Well, I still think that, you know we're in an industry that demographics have always in the long run been in control. So you know you can't take a generation that's 70 million strong and not understand that they're going to affect the housing world.
Tracy Cross: Well, they will affect the housing world, but the point is, here, that a certain segments of the market have the option to move; don't have the necessity to move. And to be able to accurately identify whether an empty nester is going to move to a condominium; when in fact, you know, as Brad said, they lost their 401K, the Dow Jones is down and not at the level it was five years ago. And all of a sudden, that market while it exists demographically as being huge, may in fact be dormant. So yes, demographics are important, but to understanding – but understanding what's going in that demographic component is probably more important than just generalizing the components.
Elise Platt: What is it – you make an interesting point about absorption, because I think that builders don't really fully understand the impact that pricing can have on their absorption. You know that a few – that a $10,000 or a $20,000 break can really have a huge impact on their absorption.
Tracy Cross: Yes, I know John loved to hear this one. We had somebody who is consulting also on a project we were working on was saying, you know they lower prices $50,000 and nothing happened. And he says, "That proves that the market is very inelastic." And I said, so far from the truth, because you may have lowered prices by $50,000 off of a $2 million product; yes, it's not going to have any impact, because you would have gone from 0.5 a month to 0.52 to a month.
The point is that the housing market is one of the most elastic components of any consumer durable there is out there. And to understand that is a key element of what happens when you price yourself improperly or you price yourself properly; it all has an impact upon absorption.
Elise Platt: Cheri, I know that a lot of what you guys specialize in is the competitive. Is that right?
Cheri Meyn: We do. You know, a lot of the crucial research today is real time data; and I agree with so much of what Tracy was saying. If we're not in the field everyday monitoring, demand price and propensity to buy, we're out of the game. And that – you know it's a future question about you know, what are some of the misconceptions about research? And I agree that the demographic trend is important, but it's fallen way low on my list in terms of the amount of time and money I spend on my customer's behalf on that sort of thing, because it's not changing that quickly.
I'm – where I'm finding my best work is in real time data. The history doesn't matter; you know, previous absorption potential project really is a non-issue. Is what is the today demand; and more importantly, how do we forecast future demand realistically for our customers. And so I find myself and my team spending very little time on historical data; we spend very little time building these enormous charts that display you know all of these analyses about historical trends, because right now so much of it is about what's happening today.
And especially in our market, since we are so far in to this recession; and the market has been so tough for so long. You know the builder community, the lender community, the developer community – they're tired of seeing all that data. They really do want to know what happened – what happened yesterday, what's happening today, and more importantly, help me understand what's going to happen tomorrow.
Elise Platt: How do you measure propensity to buy?
Cheri Meyn: You know, we're spending so much time just on the consumer-side of the research. And digging deep as you know Tracy was alluding to. It's not the demographic, it's the psychographics; and trying to quantify if, demographically, there's this potential buyer pool. Realistically you know, what are the lifestyle changes? And what percentage of that market might have lifestyle changes that would push them into a purchase? Which right now is more of a necessity than an emotional connection to a new house, so very difficult and very conservative; you know we're being blamed constantly for being you know, "The cup is half empty." But unfortunately our absorption forecasts, too, have been pretty accurate just because of that. You know the propensity to buy is so low, the consumer confident is so low – the real demand. (Inaudible) demographic demand, psychographic demand.
Elise Platt: John, would you like to chime in on this?
John Schleimer: Well, I'm going to take a little different take on it. For so many years, builders have really given lip-service to demographic trends and consumer behavior. You know, they've been focused on, "Well, what employment demand is driving our demand." Well, that's not going to happen. The old normal in terms of what's going to happen in this recovery is not going to happen.
I think builders have got to spend more time on both the demographic trends, the psychographic trends and also the consumer behavior. And that has to link up with getting away from family-oriented, single family product that has dominated the marketplace in the past 10 years in most suburban areas, some edge cities. I think if you do not know who your buyers are and what motivates them, I don't think you're going to be able to produce the right product for them.
And I think we're going to see a significant shift in the next five to 10 years in the type of product that these generations that are dominating the landscape, from the aging baby boomers to the younger baby boomers to Generation Y, and the immigrants – what they really want. And so we're starting to put more time into the motivational aspects of the consumer and what's going to force or what's going to motivate them to buy product in a given marketplace.
Elise Platt: But didn't you think as – I see John and I on, you know, one page, which is kind of more of a generalist, than I see Cheri on a consumer page, and Brad and Tracy on a more kind of financial absorption pricing page. So you're seeing that we seem to be covering all of the bases here.
Tracy Cross: Elise, I don't think any of us are in disagreement...
Elise Platt: Yes.
Tracy Cross: I think that if I were to align myself with the philosophy of what's been forwarded thus far; I think Cheri and I come as closest as to one another as anyone.
Cheri Meyn: Yes, I agree.
Tracy Cross: And I think – and that's because you know we audit every single development just like you know Cheri does in Denver; we do it in Chicago, and a couple of other markets in the Midwest. And it's on the ground observations that you see and you observe. I agree that there's a multi-family component that will emerge as being much stronger than it was in the past; and I agree with John to the degree that – try this one on for a second. Typically, a condominium program in a large metropolitan area would generally sell to the move-down buyer, assess their preference lifestyle unless it has certain other characteristics.
But then you fold in to it; what's actually happening on the ground by your survey work, and you find out that, wait a minute, it's not the move-down buyer, and it's like Cheri says you're out in the field every single day, it's Eastern-European block of the foreign-born that are buying these units today. So yes, so now I agree with John, OK. But from my point and Cheri's point, you pick that up only by getting into the field, because, you know, you're not relying on census data, you're not relying on other data providers in terms of (Claritas) or any of the other groups; you're relying on what you actually see out there.
Elise Platt: Right, and there's never a substitute for that.
Tracy Cross: That's right, nothing.
Brad Clason: This is Brad. And I just wanted to chime in on this propensity issue. Interesting little story about mailing pieces with a community – a multi-family suburban community averages about $500,000, we mailed out 15,000 pieces to good addresses of people who have registered at the community. This the list was developed over almost three years. Only 58 of those 15,000 came back as, you know, people had moved; so that gives you an idea of how few of them over almost three years actually moved. And so, I do think that methodologies and projection is based on demographics has been dramatically impacted by this downturn, and so I'm finding increasingly conservative estimates. And one other thing about trying to project the future is all the work in the – all the developments in the pipeline here, you're trying to figure out in our market area – are they in trouble? What's the land basis in it? Is the bank trying to sell it? (I think it'll work it out), so you get this picture of the future with developments that are either distressed or likely to be developed; and you get these categories of trying to look what the supplies are going to be like that's very, very difficult to project, because of the uncertainty with a lot of these developments.
Elise Platt: I'm going to turn the tone of this just a little bit, and going to talk from a builder point of view. What do you think – which (fascitive) research benefits a builder the most? Why would they do research – credibility with the lender, product and community design, pricing strategies? Tracy, start with you. What do you think is the best reason a builder should research?
Tracy Cross: Well, first and foremost is to identify levels of opportunity, however nebulous that's defined; you can actually quantify it. So that gets involved with strategic planning; so it's not working on a specific project, but is actually guiding them within their own core competency to take their best advantage of their limited resources in terms of where to buy land, what to develop, who to develop to.
Elise Platt: That's great. That's a great point.
Tracy Cross: That's very important. And you have to work within their own core competencies, because you could take a single family builder who's in the private sector, and say, "Well, you should be you know in (low Dow in Denver)," and he'll go, "I don't know how to do that." So, you know, working within the context of their own core competency and then guiding them. That's probably the most important thing that you can do, because you see more than they do. They might you know go see a development down the street from them, but you know we may see a development in you know Charlotte, North Carolina, that may have application in another market. So their exposure is much more limited than all of us that are on the line today of what we actually see out there.
The other aspect is then you get very project-specific and that is what real performance measure can you expect out there, and how can you guide them to either assure that that performance measure is attained; either through pricing and/or through various changes in the products offered.
Elise Platt: John?
John Schleimer: Well, I'll give you an example. We have a builder client in Wilmington, North Carolina. He was mired in the upper move-up market. And when we went into that marketplace and looked at the supply and demand, and also looked at the household income levels and the demographic growths in certain household types; we told him to get rid of that product segment as his primary focus and go to more entry level or affordable first move-up big box product. And he didn't want to embrace that, but he said, "I'm not moving anywhere; we're going to give it a try." And sure enough, his sales went from 50 a year two years ago, to this year he did 126 sales.
And so when we see gap in the marketplace or a niche in the marketplace where certain consumer segments are not being served, and there's an oversupply in every other product that's not selling, then we try to position the builder into a niche where he can't see response in the sales velocity. And that's all driven again by looking at the households that are in the marketplace, income levels, and the ones that aren't being served; and so if research shows this element, you've got to present the rationale why builders should make that course change. Now he didn't change from single family to multi-family; he stayed in the single family arena. But you've got to always, as a research consultant, be looking for opportunities and product types to help expand his market share.
Elise Platt: But I think you're saying, very similar to Tracy, is that one of the most crucial thing builders should be looking for from research is help in strategically positioning themselves as they go forward.
John Schleimer: Opportunity-based.
Tracy Cross: That's correct.
Elise Platt: Cheri?
Cheri Meyn: I absolutely agree with both what John and Tracy are saying. My job is to make them successful. And I do a lot more retainer work than I actually do market study work anymore, you know kind of how our business has shifted through this decade. And so we work on all aspects of opportunity for our particular client. We tend to get a lot more in-depth with them because you know – rather than doing project-base, where you know we're really much more a part of the company itself and its strategic planning and its forward thinking. And that's how I view my job – is to make sure that the opportunities that are out there in the market, that they're aware of.
And whether that be consumer opportunity, product opportunity, price opportunity, you know, geographical opportunities – I kind of feel as if our role is to help them, you know sit side by side with them and help them make those strategic decisions to move forward in a more successful way. And it's been just so difficult because there's just so many outside challenges that have nothing to do with building homes anymore, that our clients' are facing. You know they want to do – they want to build the right product, they want to build it in the right place, they want to you know have it absorbed at a realistic pace. But if there's – you know there's so many outside -if their lender isn't you know on board with them – there's so many outside influences that have nothing to do with building an opportunity that, you know, are just changing our whole dynamic.
Elise Platt: You just brought up lender, where – I mean maybe it's because I'm in the middle of the financial world here, but we don't – every lender that we are looking at for every project that we're working on wants to see marketing research; and they want to see third party, liable absorption potential.
Cheri Meyn: And what we're seeing in Colorado and in the Rocky Mountain region is the market studies are coming from the checklist of you know the appraisal. So they get an MAI, which is the checklist item the lender needs; and the MAI appraiser provides a sketchy four-page market analysis, and that you know we're finding – that's what our frustration is, we'd love to work with more lenders and help them understand what a real market study is, instead of a boilerplate analysis of, you know, the overall statistical performance of a market you know. We're finding that – and they don't have the money to do both; and since the appraisal is a requirement, so called market studies included in that requirement you know they feel like they've satisfied that particular piece of research. And trying to get the lender to community to understand, that it doesn't even scratch the surface; it's been really difficult, at least for us here in our region.
Elise Platt: Brad?
Brad Clason: The lenders are not – the major lenders in my market area here, particularly around the seven-county Philadelphia area, basically not lending right now. I mean, there's very, very little new land acquisition or site improvement and lending going on, except for very small projects. It's still in a deep freeze.
Elise Platt: Up in New York, we're starting to see some movement by the lenders. But they really want to dot every I and cross every T; and you know they want every promise in the world you know. They want the belt and the suspenders on every deal.
Brad Clason: And they want a lot more equity.
Elise Platt: Right. Oh, they definitely want more equity.
Tracy Cross: Well, Cheri, maybe you have something you know, your business will improve if I tell you this little statistic. There are, in the Chicago metropolitan area alone, now 36,000 units in abandoned projects, OK – 36,000. Most of those units are bank-held. Now you're going to get an appraisal on those, and they're going to take business away from the market – the true market researchers. They actually can't, because the lender community doesn't have a clue what to do with them. And there is repositioning opportunities to show the lender exactly where those new opportunities might exist, either today, tomorrow, or within a four-year window when they have actually have to get a (monthly) balance sheet. That's where your business – Cheri and John and everybody else that’s on the line – can really you know improve itself, because that's an opportunity that the appraisers can't answer, and the lenders have no clue what to do with (dirt).
John Schleimer: This is John. The problem with that right now, we're finding, is the asset managers for the lenders are the same group of people who approved the loan in the first place. A lot of banks and some senior executives at the banks don't want to admit that they made a mistake, and they don't want to listen to repositioning strategies. I think that's going to change in the next six to 12 months because like Tracy said, you know, you're going to have to do something different or reposition something to get rid of 36,000 units, other than taking you know dimes on the dollar. They can't do it at all; they don't understand consumer behavior, what motivates certain demographic groups to buy.
Elise Platt: OK, guys. You know what I'm – we're not going to get through this unless I pull this off a little bit on this issue, because we're trying to talk about how builders can use research. I'm going to skip question four, which is the data points – which ones are (over-valuating) and go right to – how much should builders budget for market research even in these kinds of times? Or is there a way for them to budget?
Brad Clason: All right I want to hear everybody give their pricing strategies now.
Cheri Meyn: This is the only question I didn't have an answer for.
Elise Platt: I don't either – I don't either, because I think, you know, from my perspective, I always think builders should spend what they have to to get the information they need to be successful.
John Schleimer: Well, in the current downturn, this has made market research more affordable, because we're not getting the fees that we got back in 2003, 2004, and 2005. And so now if builders are aware of the importance of market research, I think that there's some value out there from a lot of qualified firms. I do not think there's a percentage guideline on how much market research should cost for any given project. I mean, the problem builders get trapped in is they tend to select the lowest bidder, and don't look at the experience and track record of the research firm when they're considering what to pay for research.
Tracy Cross: Very true; and then now you have a lot of former home building executives that are now working out of their basement as a consultant. So there you know – all of a sudden you know, as John says, what may have been generated you know in '03, 04, 05 from a fee base, is now being you know undercut by the new consulting group at the rate of – as high as 80 percent.
Elise Platt: I think we also have to look at the different facets that where research comes in to budgeting. I mean, if you're doing consumer research and you really want to test out a plan and have a focus group, that's a whole different kind of research. And it goes in to a whole different number, if you're doing advertising research; if you're spending money on something as simple as Google Analytics. You know, those are all part of the research that builders should be looking at.
John Schleimer: It's true, but it's not being done.
Elise Platt: No.
John Schleimer: You know, what used to be a $3,000 focus group is now $15,000 focus group.
Elise Platt: Right.
John Schleimer: And even at $15,000, they don't see the value and sometime don't want to spend the money.
Elise Platt: Cheri, are you seeing any of that kind of research being done? Cheri did we lose you?
Cheri Meyn: Am I doing consumer research? We are doing a ton of it. We are doing the three biggest pieces of work – the consumer research we're doing as it relates to product development, because we are in the process of developing quite a bit of new product here in our region. And we're also doing a lot of competitive analyses, which is just so much more difficult and so much more complex.
Elise Platt: In the consumer area, how are you doing? A focus group?
Cheri Meyn: You know, I don’t focus groups anymore. We are having a great deal of success with our online chat surveys, especially with the realtor community. We're doing a lot of online work where a broker can come in and out of a discussions, spend a little bit more thoughtful time you know answering questions and provide insights; allow their peers to see the response, and it almost becomes a chat forum. So we're doing quite a bit of that right now.
We're doing a lot of workshop environments where they're much more interactive than maybe a focus group has been in the past. And we're doing a lot of homeowner – you know just out on the field, walking products together, visiting people in their own homes; so we're doing less focus group work than we've ever done, but more overall consumer research as a company than we've ever done. But I'm finding that, you know sit around the table, being video taped with people behind the glass … I've just really been pushing my clients away from that, and just you know more interactive approaches.
Elise Platt: Brad? We can go back to the budget question here if you want.
Brad Clason: Well you know in my budgeting, it depends on whether it's something in my backyard. I don't have full-time employees, so I have a couple of people who come and help me when I have a really big job. But it all depends on where the project is and how many days I'm going to be out there, and what it's going to take to get a handle on it. You know if the builder doesn't want to pay for what it's going to take to really understand the market, why there's no use in getting started.
But my fees are ranged in something simple in my backyard, and it's largely time-based. When I go out of the area and I'm not familiar with the area in particular, I know it's going to take me a heck of a lot longer to get up to speed on the learning curve in that market area, and that is an the expense the builder will have to absorb the fee if he wants me to do the work. I don't have a lot of competition in my market area. There's just you know people from out of town that come in every once in a while; but in terms of researchers based in this area, it's just – you know maybe because our local municipal structure is that a county structure; but it's just not – there's not a great deal of competition.
Elise Platt: But you know in the old days, we used to be able to advice a builder and say, you know put in $50,000 for your marketing research. We can't do that today. First of all, it would blow their heads off.
Tracy Cross: Yes, right. That's true. Well, the aspect of I think what Cheri said, I mean we're doing more retainer works as opposed to you know; and, in ways the strategic planning is folded into that retainer work; you become comfortable with them, they become comfortable with you. So you would say, yes, your individual site feasibility work has gone down in price. But it also might be bundled too, where you may work on the asset management of three properties or four properties that a particular investor or client is looking for to buy (distressed), and you can bundle your fees; where before, you could almost charge separately for those without a bundling aspect.
But there's ways to get around it without really taking the hard knocks of a 50 percent discount on what you may have charged previously. There may be some discounting, I would say that, you know, billing rates or fee structures from our firm are probably down you know 20 percent to 25 percent from what they used to be.
Elise Platt: Me too, right.
Tracy Cross: But that's – you know that goes with the turf.
Elise Platt: Right, that's right. We're down the same percentage they're down.
Tracy Cross: Yes, but not as bad in some.
Elise Platt: We all know the answer to this, but let's reiterate this. At what point should builders initiate research? And let's start with Cheri.
Cheri Meyn: They need to start research (very early), in my opinion. I'm working with a young man who's starting a home building company …
Elise Platt: There's a brave soul.
Cheri Meyn: I know, isn't he? God bless him. And actually we have worked with his father in the past, and here he is starting his own business. I have been working with him now for six months before he's even looked at a piece of ground. He's still studying geography; he's still studying, you know, what his personality as a builder's going to be; what the future consumer – what he might have to offer them that's different, that's currently in the market. That's the ideal customer; I can tell you I've had one of those in the last three years.
And so right now to me, prior to geographic decision making or acquisition, is when you know I think ideally and realistically is a good time for someone who – you know, to get started in the market research side, especially project-specific or area-specific research.
Elise Platt: John?
John Schleimer: Well, I'm going to take it from a more traditional standpoint. Somebody goes out, wants to buy a site or a project, that research should be commissioned at the start of the due diligence period. And if the due diligence is 60 days, hopefully you'll have your research report time within three or four weeks, so he can analyze your recommendations and your findings.
If the site's already been acquired, then the product positioning needs to be done before they start developing floor plans and their specification package. Too often we get involved where – hey, we need this in a week or 15 days, and we've already bought the site, and we're set with our product. And your research shows that the supply that they're going to encounter, both existing and pipeline, is going to make their absorption potential or likelihood, probably not (perform) out.
Elise Platt: Are you finding, as a product gets more complex – and this kind of goes back to what you said before, you know that has not building what we've always built; and that we find it as the product gets more complex and the land plan is so married to the product, and the product so married to the land plan; that it's really important for that research to be done before they go through the approvals process.
Brad Clason: That research should be done before they start their site planning if it's going to be a complicated development, because the researcher should be involved in the team saying, "All right, the product mix should be this"; and that's going to help the site planner and the architect develop the correct site plan and also allow for the correct development phasing.
Elise Platt: Tracy?
Tracy Cross: Well, I mean it begins with strategic planning of where to buy the dirt and then before they ever acquire it to make sure that they get the checks and balances from the market research side of the equation. And you assist them, obviously, before they ever go before municipality. If they're buying it, you know, semi-entitled or entitled, a lot of times, you know as John said, you can – you can play with product; but sometimes you're working with entitled properties, sometimes you're working with developed lots that a builder is going in and buying, so your module or your envelope is fixed ...
Elise Platt: And we're seeing more of that today.
Tray Cross: Oh yes, you're going to see more of it. And that's probably one of the major problems that we see in the future from our firm, is the fact that the developer may get the proper mix, but then he may not – he may then diverge and go over to a land planner who, you know, designs modules, and he develops pods that are redundant to what that developer thinks is selling in the market area. So all of a sudden you got to get to the developer-side even before the builder-side to make sure that you're guiding them rather than the homebuilder himself. And that's equally as important or even more important than some.
Elise Platt: You know you're making a very interesting distinction that I think we like to clarify, because it's a real market driven – it's a colloquialism in a sense. And a lot of market in this country, the builder and the developer are not the same entity.
Tracy Cross: Correct. That's correct.
Elise Platt: And in other markets like the Northeast, we're still in a builder/developer world, where the builder is the – where the developer is the builder; and the builder is the developer. But in many parts of this country, that research is being done by one entity, and the results of it are the absorption rates of another entity.
Tracy Cross: That's correct.
Brad Clason: The problem is the land developers aren't doing the research. The land of the developer goes to the site planner or the engineer and says, "How many lots can I get on this site?" Well, they have no concept of the product mix that is appropriate for the market condition or the forecasted market condition. And then the builder comes in and buys the lots and says, "To me, will this work?" And I'll say, "No, it's not going to work." The last three studies I've done have been with the developer, the builder and the site planner – all involved, all around the table working towards the common goal. I have a land planner who I think is phenomenal, and I tried desperately, if I'm in a situation where we have the flexibility to still design this site; I tried desperately to get my land planner involved and have an ongoing back and forth with that land planner. So I'm finding that the downturn has made the developers I work with, who are not builders, get their builders at the table, get the site planner at the table, and the end-product is dramatically improved as a result of that process.
Now the research ends up taking a lot longer, because you're going back and forth; but both the site planner and the ultimate research are a much more refined product. And so I'm like adamant about trying to get those- everybody at the table, because otherwise, the process just isn't as productive as it used to be in this competitive environment.
Elise Platt: You make the assumption that your developer knows his builders are.
Brad Clason: Well, in these three cases they did.
Elise Platt: I'm working with guys right now who don't necessarily know who they're going to be building – selling (your) lots to.
Tracy Cross: Right.
Brad Clason: Well, they ought to be talking to those builders.
Elise Platt: Oh, they are. They're talking to a lot of builders.
Brad Clason: Right, right.
Elise Platt: But you know there's not as many builders in the markets to buy lots.
Brad Clason: Right.
Tracy Cross: But if the land developer knows the market and the product that's going to be market acceptable, then the site plan is going to come out much better, and the builders will respond much better.
Elise Platt: That's right.
Cheri Meyn: You know, the bottom line is it's collaboration right now. There is so much at risk that I agree with Brad's point that collaboration is simply essential. No one (specs) on land right now.
Elise Platt: You're seeing a lot of people sit down at the table together that you never would have dreamt would have been sitting there.
Cheri Meyn: Exactly, exactly. And because of that speculation going on this collaboration ahead of time really is becoming the real way of – you know, a real new future way of doing business.
Elise Platt: I'm going to go to question seven, which is: How can the builders prepare for the unexpected? And Tracy you brought up something early on in this conversation about somebody preparing for the empty nest or ending up with Eastern European market; so I guess this question goes to that.
Tracy Cross: Well, really you have the research to tell you what the unexpected is. There are elements of unexpected; I'll give you a real example. There happens – a change in geographic submarket in Chicago that was occurring, but it was ever so slight. And until you – this is real consumer research here, you’ll love this – until you went in to the development, and it was a multi-family town home community that's fairly down, and all you could smell was curry. Well of a sudden you go, "Wait a minute. Something’s happening here that I had no idea of." The builder community would never have recognized, that all of a sudden, you know you have a demographic geographic pot in Chicago in a suburban market that was turning East Indian and doing it incredibly fast. So all of a sudden now, how can you deal with the unexpected? Well, I'll say to you, you know, start hiring Indian sales people, you start doing different things; you start doing, you know, rather dramatic changes of how fast a market may change on you.
Elise Platt: Years and years ago, in Clear Lake City (Texas), we had a company-wide project where we made everybody in the company go out and study who lives in their communities, because, you know, the big companies tend to get so far detached. And they were shocked to come to find out that one of the Clear Lake neighborhoods had sold in huge part to Indian – from India, mostly scientists at NASA; and that on the weekends, they close off their cul-de-sacs and had block parties almost every weekend. So you know we responded to that by doing more promotions like that.
Tracy Cross: That's correct – that's correct; and so how can you deal with the unexpected? Some times the unexpected is the big favor; sometimes the unexpected can lead to disaster too. You're asking to forecast the unexpected – I don't know how to do that.
Elise Platt: OK. John? Do you know how to forecast the unexpected?
John Schleimer: Good research hopefully eliminates a lot of these dramatic, unexpected turns. I think one of the problems that developers and builders are going to be faced with today when there is something unexpected, is that they don't have the staff to plan in turn. You know, General Patton turned a 100,000 troops north in three days. We don't have builders right now that have enough staff to execute an alternate plan, should it be required; and they're trapped with inability to act to any unexpected change. And so this is where this collaborative process is so very important today. But that's the problem I see; they plan something, it didn't work quite as well. They're reluctant either it's because of an ego, or because they just don't have the staff to make the changes to help the project survive.
Elise Platt: Cheri?
Cheri Meyn: You know, I guess I take up maybe a little bit more cynical view. We are absolutely, day to day, living in the unexpected. Every project that I'm working on had a (pro forma) that said they'd absorb two or three times what they're doing – are actually doing. So everyone of my client is living in a recession that is much deeper than they expected, much longer than they expected, and much more far-reaching than they expected. So to me I feel like I've been living in the unexpected for years now. So that's how I'd look at the question, and it's just simply not giving up. I mean, sometimes the best advice I give is: Don’t give up. Let's try something different this week; and I'm talking about really more traffic generation, that sort of thing. You don't change product willy-nilly, but you know it's just never giving up on the opportunity to sell a house. And whether it be a marketing campaign, a new floor plan, you know a different sales person – I mean to me, you've got to look at absolutely everything.
Elise Platt: You know, it's being nimble.
Cheri Meyn: Exactly.
Elise Platt: We were doing a job for a developer up here about – just in the middle of the downturn. And it was a condo project in a mixed (Jewish) community, and obviously we had expected the empty nest just to gobble it up, it's on the river in upper Westchester County. And one day my sales person called and said, "You know, we are getting all young people," – and actually it was the lifestyle director who called, and said, "That building is wild." On Friday nights, they do what they call the condo crawl. They go from unit to unit; they party in the halls; and every young person in the area wants to live there. So we did an ad that said, "Come do the Condo Congo," and we got more and more young people; and more and more empty nesters who already live there were ready to kill us. But, you know, you got to be nimble enough to change and go to the marketplace.
Cheri Meyn: Good for you for seeing that.
Elise Platt: Yes, well the developer was embarrassed by the ad.
Cheri Meyn: Did he sell houses that month?
Elise Platt: Yes, but he made us pull the ad.
Cheri Meyn: Really?
Elise Platt: He really did.
Tracy Cross: Well, we did an ad in San Francisco that said, "San Francisco luxury at Cleveland prices." It turned the whole project around.
Cheri Meyn: That's great.
John Schleimer: We just had a luxury mid-rise suburban project in Newtown Square outside of Philly. You know, our job was selling almost for a month; and then September of '08, that dropped down dramatically; and our move-down market is largely gone into the deep freeze. And we can hit them as much data as we want, because our downturn in the resale market here is not been nearly as bad as other market areas; and we were just burying them with data showing them that thy can sell their homes. And no matter how much information we put out there with our prospects coming in, it didn't seem to ring through.
And so a couple of weeks ago, we finally launched a program that – it's called, ("Terraces risk-free, zero percent commission home sale program,") and we sent that out to our prospects who had been in. It's just saying, "Will sell your home for nothing". Now mind you that was going to cost less than the concession the builder was willing to do negotiating a deal. And we've got five deals of it in three weeks by just taking the problem off the table for these people, "We'll get rid of you home for you, and it's not going to cost you 6 percent."
Elise Platt: You know but, it's an interesting thing, because we're off the topic of research, but we're on the topic of research – which is because throughout the life of the project, there are different types of research that you have to keep doing to make the project succeed. I mean builders think of researches, "Should I hire someone to do my absorption rate", and that's not what it really is. If they stop researching, the people who are walking in the door and let their problems are, they're going to lose buyers.
Tracy Cross: It comes back to consumer behavior. You got to understand the consumer's behavior and motivation.
Cheri Meyn: I'll tell you what, you guys, I'm working harder than I've ever worked. You know I mean in terms of the questions that are being asked of us, I find myself doing 10 times more the research than I had ever thought I might need to do in that particular project, just to have confidence in the answers I'm giving them.
Brad Clason: I couldn't agree more. My fees may not have dropped, but I think I'm working three times as hard trying to make sure that I'm getting every last bit of data that's available out there. Double-tripping, triple-checking to make sure it's as comprehensive and is accurate as it can possibly be. I mean, so I feel that the amount of time I'm putting into a project now compared to the identical project three years ago is twice as much.
Cheri Meyn: Yes, and I don't crunch numbers like I used to. You know the old market studies where you sat in front of your computer, you know 75 percent of your time; you're out on the field 25 percent of you time – totally changed. Or if it hasn't changed, then you're not doing the research right, I think. You know, I sit in front of my computer 25 percent of the time; my recommendations are bullet points anymore that are pages long, but you know get to the meat, get to the heart of that. Because information is so readily available to all of our customers, you know...
Elise Platt: Yes, we're going to get to that in a minute. That's our last question that I'd like to – just hold that for a second, Cheri.
I'm going to skip question eight, which was – what are the two or three most common missed opportunities? And kind of go to nine, which is – what are the most common misconceptions homebuilders have about market research?
Brad Clason: They just need to start thinking of market research as part of the, you know due diligence process. It's not a development expense; it's a pre-acquisition expense. And that's the misconception, and you know I have probably have half a dozen clients that (hasn't work) for 15 or 20 years, who now finally just pick up the phone and say, "What do you think? And can you tell me something in a week or two?" And they all spend the money before any deposit goes hard, but I still think that's the biggest misconception is. Get it early, and that's where it pays for itself over and over again. Do it early.
Tracy Cross: They don't look at market research as an insurance policy. They look at it some times as a necessary evil, and it shouldn't be in that context.
Elise Platt: What context should it be in?
Tracy Cross: What product is going to work, and what price point, and who your buyers are really going to be, and what do they really want.
Elise Platt: Cheri? Any comments on this?
Cheri Meyn: You know to me the biggest misconception that I think the homebuilders that are left, you know, looking at the future have is what the market said it was; or you know – and to me it's just educating them on what are market study is today, or what research really is today, because it isn't the pay by the pound, 3-inch thick analysis. To me that's just not – it has changed so much. And I think there's still companies that are doing that, you know they get the boilerplate; they get the computer generated; you know statistical analysis and you know call it a market study. But to me the misconceptions are just clients who have that image in their mind of that's what we do. And to me it's just educating them on you know what it really is today as it relates to real answers, to real questions. And you know trying to find the simplest, easiest, most comprehensive way to try to give you that information so you can move forward – make it a decision, design a new product.
And that's where I – especially new customers that I haven't done work with; it's just, "Well are you going to give me this big fat report?" Well I haven't done one of those since so long I can't even think. So I was thinking you know as it related to your question, that that's where my mind was going as it related to misconceptions. And old methodologies and approaches; again this kind of rear-view mirror approach that all of us have used in our careers, is not the research of today.
Elise Platt: But why don't we go to the last question, which is, what is the (researcher) today? We're going to kind of combine the last two questions – the informal surveys and the focus groups because I think we answered that before. But what are the breakthrough tools? And what is the (researcher) today? Cheri you want to lead it off since you're already on it?
Cheri Meyn: You know I think for use, the breakthrough tools, I mean again, since information is so out there, and you can Google just about anything and get whatever public information is available to us; it's disseminating it in a way that you can easily digest and understand it. So for us it's mapping; you know we are GIS mapping all of our data and information to make it, you know bring it to bite-size pieces to our customers. So from a statistical or data-crunching point of view, we have mapped distressed new and resale products so that we can run radiuses, you know do discreet CMAs around, you know projects or areas; and we can you know give them mapping tools that help them understand the market.
So instead of (rings) of information, we can give them mapping tools that kind of instantaneously help them understand an area or a market. We're trying to get more and more sophisticated with strategically positioning the competitive market in a way that you can see opportunity. It becomes more palatable to you when you're looking at the data.
I just think this whole idea of integrating some of the demographics along with this competitive information that we've been mapping has also been really kind of an interesting tool that our customers really like. And along with the online kind of workshops and qualitative research we're doing – I think those are kind of the things at least we're trying to do to help clarify the market to the best of our ability.
Elise Platt: Great. Tracy?
Tracy Cross: Nothing off-the-shelf. I think that Cheri is saying something that nothing is coming off-the-shelf, because it is changing; and the boilerplate analysis, again, we haven't written you know a 60-page study in four years.
Elise Platt: Thank God, right?
Tracy Cross: Yes. But at the same time, from our standpoint, the data crunching becomes even more detailed; defining and disaggregating data is more important than aggregating it. Through Cheri's mapping tools, that's one way she's disaggregating data and then reassembling. We do a tremendous amount of work in (regression) analysis, and different techniques that have evolved over the last 40 years. But every time we do something different from that statistical standpoint, the numbers begin to talk to us, and they tell a story. And it's almost like you know a doctor looking at an x-ray; we see things that other people can't possibly see through some of the researchers statistical techniques that we're using right now. And they're not off-the-shelf by any means.
Elise Platt: Got you. Brad?
Brad Clason: You know I would go back to what I was saying previously is that an interdisciplinary approach is the first and foremost priority I'm placing on research I'm doing now; trying to get as cooperative in effort going forward in any situation I'm involve with, where we're trying to figure out with a given piece of land that isn't already entitled. Then trying to get all the players at the table, and including the architect when that's possible. And there is no boilerplate; every situation I encounter is trying to understand the dynamics of that particular market. And I'm doing an awful lot of – an awful lot of onsite work trying to figure out exactly who's bought at developments who; what they've bought; what's motivated them to the level of sending out letters to 60 buyers with 5 bucks ( and one important job asset), and to fill out a survey and return it. Trying to get into people's minds and know exactly what's making him tick right now.
But in terms of the rear view mirror, I am doing an awful lot of – looking at tax assessment records and creating data bases of absolutely everything that's going on in the last nine, 12, 15 months at every development, in terms of what's actually sold and what's it sold for, how (does that) compare to what the builders advertising base prices are. I am doing a lot of data crunching to paint a picture of exactly what's been happening, because I'm finding that's the only way to properly inform a builder of how this recession has impact their market. So I am doing a lot of that type of analyses, (agnosium) in some cases to paint an accurate picture.
Elise Platt: John?
John Schleimer: Well, we are developing a program right now with the builder that we haven't implemented but we're in the development stages. For prospects that come in that are deemed qualified and haven't bought, we're giving them a $50 gift certificate to a local restaurant that's pretty well-known, and ask them to participate in an ongoing internet survey, and questionnaire about what they're looking for, what type of floor plan they want, what type of room arrangements they want. And then for the buyers that have bought in a project and have closed, we also give them a gift certificate and send out a series of internet survey. And all those responses come back and we can, through a tabulation program we have, compile all of the data points we need to know – who they are, what's motivating them to buy, what they're looking for, what they like and what they don't like. And we incorporate this information in a report to our builders to give them real time, immediate feedback as to the direction he needs to go; and this is also the case when we get involved with land developers.
Elise Platt: Now I think that one of the key things that we're all talking about is that – one of the roles of the researcher is to take all this information – the mapping; this consumer information that you're gathering, John; the data that you're doing, Tracy; and the historical look that you're doing and translating into, what I call, builder's speak. Because I think so many of them look and say, "You know I can do the research online," "I can go into the Web sites of the census data and collect it." But they sit there with piles of data, and it doesn't mean anything to them.
They do focus groups on their own and it doesn't mean anything to them. They don't necessarily understand what the information sitting in front of them means unless they have someone with experience to help them translate that information into useful benefits for them.
Brad Clason: Right.
Elise Platt: You know, one of the interesting tools – and this is kind of an after-it-all again with this – I'm thinking that research is a continuum, I brought it up before. You know when we first started doing Web sites, they were pretty pictures thrown up there; we didn't know they had tremendous information for us about our buyers. We can map where they're coming from; what time they're online. You know we can tell how many – how long they spend on a page, on a sentence; we know what – which floor plans they're sitting on and which ones they're just looking at and getting rid of, long before we get on the site; even on the preview site.
You know, we also have all of those kinds of tools, but with all the information they gather, they never lose a need for someone who has real expertise in the field like a Cheri or a John or a Brad or a Tracy; that's just my opinion.
Brad Clason: Don't you all feel that we've become more of the strategist than we have a researcher in many cases?
Elise Platt: Oh yes.
Cheri Meyn: Absolutely.
Elise Platt: That happened to me a generation – that happened to me two downturns ago.
Tracy Cross: Yes, and from our firm too, the other thing I think is extremely important, it's what market research can do to dispel notions that builders are carrying around with them. In other words, I have to go – to the new mantra is (Infill), OK. So I'm going to try to pick up every site on (Infill) and that therefore baptizes me as going to be successful. No, it's not. You might pick up an (Infill) location, but all of a sudden – then you say, "Well, then I'm going to sell to young single females," and then you're going to price the product at $350,000, and you're not going to sell to anybody. So they carry these notions – the builder community of certain trends and it becomes the new mantra; and they have no idea of whether those trends work in a particular area whether they work in a particular submarket. I am so sick and tired of hearing pedestrian-friendly – I'm going to throw up.
Elise Platt: Right.
Tracy Cross: And then nothing to do with the success of the particular development if they wind up putting the wrong product on it. So all of these sayings here are research that can teach you or tell you what will or will not work.
Elise Platt: That is such a strong fact. I mean, there's no amount of neo-traditional, if it's at the wrong price point and the wrong product.
Tracy Cross: But the builder community will go to take pictures of it; and then try to carry that product ton Muncie, Indiana and they're going to have a real fun time. You know they have no clue what they're looking at nor do they have a clue of what makes a particular product or program or development successful or unsuccessful. In our view, this is the builder community; they've view of what historically has been done and say, "This is great," watching and understanding that it took that damn development 15 years to get where it is.
Elise Platt: Years ago when we were going a design seminar for having you know, way back. And we had somebody from North Dakota, the only builder that came through any of my seminars from North Dakota. And we were showing zero lot line, having sat down with (Barry Berke) and he said to him, "How come I use this in Fargo?" And Barry said, "You know, put a half an anchor between each one of them." Because why would you do it in Fargo.
Tracy Cross: I think that role of market research, that really help the builders to tell them exactly what will and will not work.
Comments on: "Professional Builder's February 2010 Market Research Roundtable"
More like this
- Best remodeling market since 2004?
- If we just take away people's houses, that'll get the lazy bums back to work
- Your Questions Answered: Value-Engineered Housing for Today's Buyer Market webcast
- Study Highlights Satisfaction Levels Among Green Homeowners
- Foreclosures nearly a third of all home sales