A New Era for Builders
By Ian Webb, NewBuild Home Finance Limited
I can still recall the days when the builder was the carpenter, the roofer and everything in between. They were also the sales consultant and the accountant trying to make a profit.
How times have changed!
Builders now have show homes to display their wares. They have dedicated sales consultants who are highly trained to not only build relationships of trust with prospective buyers, but who can also show them why building is a better option than buying someone elseís potentially leaky legacy. They are trained to identify the obstacles that may prevent clients from building with them and to ensure that all issues and reservations about building are overcome.
Well, perhaps we have a little way to go. But itís certainly true that builders are far more professional and want to find ways to grow their business by being in tune with their clientsí needs outside price and design.
Builders are also starting to identify why only 1-4% of prospects who wander through a show home go to contract. They are beginning to appreciate that the decision of their clients not to build may in large part relate to issues outside the build process, and out of their control.
Or is it?
Let me share an important statistic with you. 82% of people building in NZ require finance to build. Thatís 82 of every 100 show home walk- throughs. Most of these think that going to their bank is the right thing to do. Thatís because nobody has told them otherwise.
So whose job might that be?
Keep in mind that unlike purchasing a home, a construction loan is quite different. For starters, each lender has different criteria. Were you aware that one major bank will only advance up to 50% on the land, so the overall deposit must be very high? Another does not care if the land is unencumbered; they still require a mandatory cash deposit. Another bank wonít approve the loan if the clients deposit is insufficient to pay the minimum land deposit plus the builder contracted deposit. Is your sales team aware of these hurdles and trained to overcome them?
Now consider how many of your 82 get a loan approval to buy a used home instead!
If you donít know which banks I refer to, good, neither do your prospective clients. And once they get knocked back, do you think they will go to another bank? After all, they have just been declined by the bank that they have been with for generations. At this point theyíre far more likely to follow the banks advice to purchase an existing home.
And it does not get better from here. Unlike purchasing a home, nearly all who build must pay rent or another mortgage while they are building. So there is an overlap period. The bank uses that short overlap period to determine serviceability. In other words, the loan offer to build could be several hundred thousand dollars less than the loan offer to purchase Ė just because of the overlap.
Are your potential clients on a very tight budget and struggling with your contract price - within their reduced, bank assigned budget?
Add to this an inexperienced banker who may not understand a construction loan, or maybe they do and have experienced the wrath of a grumpy builder in the past.
No wonder some banks discourage their clients from building. "Besides, itís too dangerous to build" or, "itís a terrible time to build", or "you donít have sufficient deposit" or "you canít service the loan while you are building, even if you can afford the home at the end".
I have heard them all, regularly. In fact, I hear it 70% of the time, because that is about the percentage of clients NewBuild Finance approves after theyíve been turned away by their banks.
Now you may think the solution to all this is in this article. Itís not entirely but there is a solution. Itís time to take a fresh look at your sales team and their training levels. The success of your business is not your brand, not your pricing, not your show home, not even your great delivery or guarantees; itís the ability of your sales consultants to identify the needs of those prospects and walk them through the inevitable land mines.
Too many potential buyers baulk at the amount of work required and the number of obstacles in their path to a brand new home, and they opt out Ėoften before you even know it.
The sales consultant must be properly equipped to appreciate what those obstacles are. They need to have a team of experts around them who will overcome these obstacles before the clients even knew they had them.
For example, a sales consultant should never ask if a client has their finance as the answer is inevitably "yes thanks". Interpretation: None of your business.
But it is your business! It is entirely your business, and a successful, well-trained sales consultant will find a way to ensure that this largest obstacle to a successful sale is resolved before it even becomes an issue.
Lastly, do your sales consultants still believe that all their clients are either cash or have their finances sorted? Perhaps the greatest opportunity for growth is not getting more people through your show homes, but by identifying that most of the 82 will not find their own way through to build with you - without your sales consultants having sharp tools of their own.
Perhaps now is a great time to take a fresh look at re-tooling your sales team to grow your bottom line!
Ian Webb has been instrumental in designing residential construction finance solutions for almost 20 years. His loan product became Fannie Mae approved in the US in the 1990ís, and has now been offered to builders here since returning to NZ and starting NewBuild Home Finance in 1999.