Tips and advice from industry gurus for weathering the next recession
I’ve read an abundance of news reports suggesting the robust housing market may be changing. My column last December, “The Times They Are a-Changin’,” provided a checklist of things to assess before any potential change in market conditions becomes evident. This follow-up addresses how to prepare for this change.
As we’ve enjoyed a boom market for nearly a decade, it’s clear a significant portion of those involved in today’s housing industry have come into it during the “good times,” hence their frame of reference is based solely on the success they’ve enjoyed playing the game in a hot seller’s market.
But slowing market conditions will turn the tables to a buyer’s market, and that’s when the rules change. For those who have only experienced the good times, and as a reminder for everyone else, Bill Gates said, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
Experience through previous housing down cycles since 1970 has proven to me that however the changes occur in your particular locations—the degrees of which will vary greatly—the result will cause a slowdown in sales and a drop in revenue and profit, not to mention presenting a variety of other challenges not experienced during good times.
Hot Tip #1. Start at the Top: Generation of Revenue. To stay alive and competitive in a slowing market, take a serious, hard look at your sales operation, starting with one simple tactic you can accomplish immediately: Inspect what you expect.
Remember that old public service announcement on TV? “It’s 10 o’clock on a Saturday night. Do you know where your children are?” I’ve revised it for builders: “It’s 10 o’clock on a Saturday morning in your sales offices. Do you know where your salespeople are and what they’re saying and doing?”
To “inspect” whether your sales team is meeting your expectations, conduct a quick assessment by scheduling See Me With the Customer evaluations (formally known as mystery video shops) with each salesperson.
These recorded video sessions of salespeople in their “natural habitat” in the sales office or model home not only serve to evaluate current practices and competence but also to reveal opportunities for training and updating and resetting expectations—an especially valuable tool as the market trends downward and sales become more precious.
Seeing this process through the customer’s eyes also unveils who is truly coachable, seeks excellence, and welcomes accountability—a topic covered in greater detail in my column last September titled, “A Solution for Missing Sales.”
Hot Tip #2. Master Negotiation. Most new-home salespeople are lousy negotiators because they’ve never really had to do it and aren’t trained to successfully “defend the builder.”
As a sales manager or builder, you know it’s trouble when a well-meaning salesperson approaches with a file folder under his arm saying, with a smile, “These are lovely people. We have to help them out. They’re making an offer, and if we don’t accept it, they’ll walk.”
Bless his heart. That sales rep wants the sale and is essentially using all of his sales skills to try to get you to take the offer. Of course he’s not considering the cost of these offers, which could eat 10 to 25 percent (or more) of your profit.
So here’s an introduction to the 10 Principles of Successful New-Home Sales Negotiation.
1] To negotiate does not necessarily mean giving up anything. Take the word “offer” out of your vocabulary.
2] Before you begin to negotiate, firmly establish that the buyers really want to own the home.
3] Never appear more anxious to sell than the buyer appears willing to buy.
4] Never give the first counteroffer.
5] To get the highest price, start high and stay there for as long as possible.
6] Move the customer beyond the decision phase toward the commitment phase.
7] In residential transactions, the customer wants to negotiate based upon ego or emotion, not logic.
8] Never agree to split the difference.
9] “If it’s feasible, we’re flexible.”
10] If you must make concessions, negotiate terms and conditions—not price—and always get something in return, even if it’s just a token.
As President John F. Kennedy said, “There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.”
Since hope is not a strategy, and wishing is not an action plan, what if you started—now—doing all of the things you would eagerly try to do if the market was challenged?
The answer is obvious. I won’t pretend it’s easy to put this advice into action because if it was, everyone would be doing it. But I promise it will have real impact.
Register for the Best Home Building Practices Summit, May 15–17, in Orlando, Fla., featuring Bob’s presentation on negotiating strategies. Go to besthomebuildingpractices.com and receive a $100 registration credit with the referral code PBQ.