Surviving the Economic Shake Up

Being a business owner—any kind of business owner—is a scary proposition these days, especially for builders in the residential construction market.

Sales of new single-family homes dropped to 433,000 in October 2008, a 40 percent drop from a year ago, according to the U.S. Department of Commerce. Not surprisingly, the National Association of Homebuilders (NAHB) recently reported that builder confidence has dropped to an all-time low. But the show isn’t over yet, says Dan Levitan, president of Levitan & Associates in Fort Lauderdale, Fla., a member of NAHB’s executive board and Chair of the organization’s national sales and marketing council.

“Even in the down markets we’re facing right now, there are still homes being built and sales being made,” Levitan says.

While builders may not be able to achieve the profit margins they had in better times, there are ways to adapt and improve their chances of survival. Here’s what you need to know to ride out the storm.

Don’t Skimp
In uncertain times, a builder’s first instinct may be to seek out the most economical building materials for his spec homes. But the market is now extremely competitive, and those little extras can make or break a home sale, says Blake Shaw, president of Atlanta, Ga.-based Blake Shaw Homes Inc.

“A builder might think it makes sense not to do multiple showerheads or upgraded appliances,” says Shaw, who currently has four spec homes in progress. “But we’re continuing to do all those things, banking that if someone looks at our house among others, they will pick our house.”

Levitan says builders should attend trade shows and builders’ conferences to get an idea of what the latest and most-desired home features are. The NAHB is sponsoring the 2009 International Builders Show in Las Vegas this month; to attend, visit www.buildersshow.com.

“Ecologically sound sells,” Levitan says. “Energy efficient sells. Gas prices are down right now, but everybody remembers what they were like a few months ago, and that’s pretty scary.”

Expand your Services
Since mortgages and loans for spec homes can be hard to obtain these days, many builders are doing other work as a means of income. Bob Walter, president of RJ Walter Homes in Folsom, Calif., is retrofitting a couple of homes to make them greener, by improving their insulation and updating other fixtures. Most of that business came from customers who were impressed with a LEED platinum-certified home they built in Sacramento, Walter says.

“People liked it so much, but they said ‘Hey, we’re not ready to move, but we’d like a house that performs better. Can you take a look at my house and see what you can do?’” Walter says. “There’s a huge, huge opportunity in the retrofitting/remodeling business.”

Victoria Lidstrom, president of Victoria Development Ltd. in Libertyville, Ill., is now offering remodeling, design and interior decorating services in addition to building. The work ranges from complete remodels of rooms to just rearranging furniture, Lidstrom says.

“We’re kind of creating a brand-new business on the run,” Lidstrom says. “Every week, we get two or three phone calls for more business.”

Lidstrom also moved into one of her spec homes in 2007 and uses it as her office. The move served a dual purpose: it eliminated the expense of a separate office and gives potential clients a close-up look at her building, remodeling and decorating skills.

Marketing can Pay Off
Clients can’t call you if they don’t know you’re out there, so heightening public awareness of your services can be crucial.

Shaw has embarked on a few marketing initiatives for his company, developing a Web site with lots of photos and working with a marketing firm to get his projects featured in design magazines. But one of the best forms of marketing for Shaw has been word of mouth—something that he achieves by doing as many jobs as possible.

“I take anything I can in hopes it will lead to something bigger,” Shaw says. In one instance, he says, a client who did a $10,000 basement remodel referred him to someone who wanted a $150,000 master-suite addition.

Employing non-traditional techniques in tough times can keep builders going through the bad times, which eventually will come to a close.

“It’s just a question of being alive and staying in business, and being ready to do it when [the housing market] comes back,” Levitan says, “and the housing market will come back.”