A few weeks ago, we asked CUSTOM HOME readers if they were diversifying and experiencing increased competition as a result of the current down market.
Nearly 7 percent of survey respondents say they are facing increased competition from spec builders, 13 percent say production builders are now their biggest competition, and about 26 percent indicate that they are now competing more directly with both spec and production builders. However, the majority (57.4 percent) say they are not facing any increase in market competition from spec or production builders.
Readers are using a variety of strategies to protect their markets and market share. There were several interesting approaches, such as the builder who is making an effort to keep ahead of the knowledge curve on green and energy-efficient products to better answer client inquiries about building green. Then there is the spec builder who made a special trip to China to scout out lower-priced, but still high-quality finish products for a high-end home in a ritzy ski resort town. He ended up saving $800,000 on finish materials, and the home sold after one day on the market.
One respondent reported becoming a consultant for developers in order to critique the work of competing residential architects. Another builder tries to form solid teams with subs to bid and win jobs by sharing the profits.
Other tactics reported include:
Passing vendor sales and specials on to the client.
Reducing profit margins by 5 percent or 10 percent.
Expanding remodeling services.
Beefing up advertising.
Returning to past clients and referrals.
Negotiating better terms from subs.
Improving and emphasizing personalized customer service. We also asked readers what opportunities outside the custom home market they are exploring. Diversifying into remodeling was the most common response, but within that set, several respondents report that they are focusing on commercial remodeling, while others say they are entering the large-scale high-end remodeling market. Light commercial and new government construction also are popular ways to diversify, as the commercial market, though starting to feel the pinch, has been healthier than residential. Switching to customized modular home construction has paid off for one builder, who reports he can’t keep up with the demand.
The builder who trekked to China for finish products is having success with an off-shoot business building lower-cost high-end homes under a different company name, and is pre-selling them outside of his primary business area.
Some other diversification models reported were:
Shifting to an energy-efficient home retrofitting business.
Buying and fixing up foreclosures, for sale or rent.
Selling and installing wind generators.
Condo development and building.
Adding design services.
Erecting metal buildings.
