Solution: Adding perceived value to a home is always a good competitive move. However, many builders forget that adding value requires a careful balancing act. The benefits added or the costs reduced should be readily apparent to the buyer. Reviewing plans to improve livability and efficiency is a great exercise but you have to be extremely careful to avoid unintended consequences in cutting costs. Substituting a cheaper grade of window may reduce costs, but it may also reduce the overall value perception of the house. On the other hand, the client may not even notice if you substitute a more readily available variety of marble for a more exotic one. Learn to recognize value components that add beauty and functionality at a reasonable cost, and standardize those selections.
Adding special spaces and built-in focal points can often add perceived value at little additional cost. Adding an extra foot to the width of a hallway and lining it with bookcases creates the functionality of a library without dedicating an entire room to that purpose. Designing a computer niche in a second-floor landing turns circulation space into a vital part of the family experience.
Increasing perceived value can entail more than physical or financial elements. For example, a simplified selection process may not reduce overhead or immediately improve the quality of the product, but it does make building a new home a more enjoyable experience, thereby improving perceived value. Employees who are taught to look for ways to streamline the hassles of custom building provide a competitive asset that is difficult to replicate. Small custom builders can always use their flexibility and their personal relationships with their clients to counteract the clout of their bigger competitors.
Reducing costs through beating up on subcontractors is generally counterproductive. Loyalty is always a two-way street, and if you run roughshod over your subs now, when times get good they may not be as willing to bend over backwards to help you out. It’s perfectly OK to expect them to sharpen their estimates given today’s economic realities, but you don’t have to be arbitrary or ruthless in doing so. You can even enlist their help in keeping costs under control. Tell them the parameters of the job, and then begin by stating, “I need to reduce the cost of this item by $2,000. Is there anything you can recommend as a cost saving?” Subcontractors can become very creative when the savings aren’t completely coming out of their own pockets.
While Pete has made a good start, increasing perceived value entails more than simply adding hot buttons and reducing costs (although that’s not a bad place to start). It first of all requires a change in mindset, where every decision made is subjected to the underlying criteria: “Does this add to the value perceived by the customer?” If the answer is no, don’t do it.
The economic downturn has affected builders throughout the country. Home Builders Network has written a 10-page paper on “Smarter Responses to Tougher Times.” To receive an electronic copy of this paper, send an e-mail to Mail@HBN-net.com, with “Tough Times” in the subject line.
Al Trellis, a co-founder of Home Builders Network, has more than 25 years of experience as a custom builder, speaker, and consultant. He can be reached at altrellis@hbnnet.com.
