Each month, builders encourage their sales teams to study the competition. In the sales industry, we do this to keep tabs on what's happening in the marketplace and to see how our product and consumer experience compares. We obsess over base pricing, variance in features, the latest discounts being offered and how many units of traffic and sales the competitor achieves.
Imagine, for a moment, that you are given a resource that extrapolates 10% of data from the housing marketplace and another resource with 90% of data. Which would you select? The answer is obvious; you'll want the resource with more information, right?
Now imagine I tell you that the first set of data is resale information where more than 90% of nationwide transactions occur, and the second set is new home data where less than 10% of transactions occur. Which data set are you studying more? Be honest with yourself. It's new build competition, isn't it?
According to a study done by the Federal Reserve, new home sales account for approximately 8.6% of all homes across the country. That's it. Why do we focus our attention solely on competition that accounts for less than 10% of the sales in our industry? While it's vital to know our builder competitors, we can't ignore the remaining 91.4%: Resale.
A study done by Trulia showed that an estimated 41% of Americans would prefer a new home to a used home, assuming that costs are the same. Another 38% have no preference between new and used, while a mere 21% prefer investing in a resale home. Even if we discount the buyers without a preference, we still have close to half the market interested in our offering; however, less than 10% of the people actually end up buying with us. Anyone see a problem here?
What does all of this data mean? It means that builders are converting well below what they should be converting. Far more people would prefer a new home than actually buy a new home. Why? The simplest answer, at the very core of the matter, is price. Of those homebuyers surveyed, only 17% said they'd be willing to pay a 20% premium to purchase a new home.
That's a minor problem, considering that same survey showed that the typical new home costs 20% more on average. The opportunity for substantial growth doesn't lie in capturing a larger share of the new build market; it lies in converting a higher percentage of the buyers who are open to buying new, but don't. Whether you realize it or not, you're most likely losing far more deals to resale than to builders. And yet, we study builder competition far more than resale.
Does this mean we should ignore other new construction builders? Absolutely not. It means we shouldn't ignore resale. This is true for sales professionals, but even more critical for builders. The most important thing a builder should remember is that we are not price-setters in the market; we're price-takers. Want to capture a larger market share? Don't waste your time fighting over the smallest piece of the pie. Figure out how to tap into the larger opportunity of customers who prefer new homes, but feel stuck buying resale.
Oren Jacobson holds an MBA with an emphasis in strategic management and is currently working on receiving his master's degree in economics and policy analysis at DePaul University in Chicago. As the lead strategic marketing analyst for New Home Star, Jacobson specializes in helping builders maximize their asset positioning through market segmentation, consumer alignment, and data analysis. He also leads the NHS team in the creation of training tools and resources to develop and enhance their expertise in sales.
