KB Homes Introduces New Designs to Sell Against Resales

By early 2008, KB Home recognized that its main competition was mounting resales and foreclosures. The Los Angeles–based builder had already adjusted its house plans and construction practices to make its homes economical and in line with the builder’s build-to-order business model. But the sheer numbers of unsold inventory in markets such as Southern California and Arizona made selling new product nearly impossible.

So KB took another look at its besieged submarkets and customer surveys. “There were a few real ‘ahas,’” recalls Steve Ruffner, president of the builder’s Southern California coastal division. KB found that buyers want houses that are more efficient to live in. Ruffner also says there was “high demand” for single-story houses in markets where there weren’t many.

His division got together with trade partners and suppliers to devise a new kind of home that could be built for efficiency and priced to ­compete directly with resales and foreclosures. What emerged is KB’s Open Series of house plans, “the fullest expression of our Built to Order brand differentiation,” says Jeff Mezger, KB’s president and CEO.

Ruffner has seen his share of so-called innovations come and go in his 21 years with KB. But Open Series is different, he insists. KB Home plans to roll out Open Series homes to 25 percent of its communities this year and conduct grand openings for the concept in half of those targeted communities by the summer. The builder expects Open Series homes to account for 50 percent of deliveries in the second half of 2009.

The houses, with three to five bedrooms, target first-time buyers with prices in the high $200,000s to the mid $300,000s. “We wanted to design homes that a medium-income buyer could afford,” says Ruffner. “That is unusual for California.” While the house plans range from 1,239 to 2,300 square feet on 3,500- to 6,000-square-foot lots, Ruffner says KB isn’t focusing on their size. “If you walk through them, you wouldn’t get caught up in their square footage because of the way they are laid out.” Buyers can choose to increase the size of the house’s master bedroom by altering the room count and can also add options from KB’s My Home My Earth selection.

The houses are value-engineered to reduce construction costs, and KB has compressed the cycle time for Open Series to deliver a house within 10 weeks of a buyer’s signing a contract, or about half the cycle time of KB’s other houses. The series’ 50 or so floor plans include such time- and cost-saving solutions as positioning bathrooms back-to-back so they require only one plumbing tree. Mezger told investors in January that KB’s direct costs to build a 1,700-square-foot Open Series house in Tucson, Ariz., were $63,000, versus $89,000 for a comparable existing KB-made house in that market. “That’s a significant game changer for us,” says spokeswoman Heather Reeves.

The series’ designs also make it easier for the completed house to comply with Energy Star ratings (a standard feature in all KB houses) in terms of its insulation, windows, HVAC, and thermal bypass inspection. That rating is a key selling point against resales that, Ruffner says, are 45 percent less efficient than newly built houses.

Learn more about markets featured in this article: Los Angeles, CA.