Historically, home builders have fallen into one of two camps: custom craftsmen specializing in one-of-a-kind homes or volume builders who build houses en masse, and have fine-tuned their systems and pro formas to a T. But all that’s changing now. Thanks to digital technology, we’ve entered an era of hyper automation and extreme personalization. Even in these lean times, buyers still crave tailored spaces that look and feel like unique expressions of themselves. But they don’t want to get bogged down by minutiae when it comes to selections, and they don’t want to pay the premiums associated with custom design.
When it comes to personalizing homes for individual buyers, Builder Partnerships member Sivage Homes has figured out what far too many other volume builders have not, observes building consultant Chuck Shinn—that mass customization is profitable and sustainable only when it’s offered in the context of a tightly controlled framework.
“Lots of builders began offering more flexibility when the bottom of the market fell out,” Shinn says. “But in doing so, they did away with all their discipline and started allowing the customer to customize anything and everything all the way up to the closing date. They were obviously doing what they could to sell houses, but it got totally out of control. Construction schedules got extended, last minute change orders screwed up cycle times, and things didn’t get done right. Then all of a sudden these builders found themselves in the remodeling business because they had to fix what they didn’t do right the first time.” Such snafus, Shinn says, can be avoided with carefully pre-planned, pre-programmed, pre-estimated options that make buyers feel empowered with choices, but that ultimately leave the builder in control of the process until the keys are handed over.
Sivage Homes, which builds in six Texas communities, follows a similar mantra in the realm of fixtures and finishes. But the San Antonio–based builder has also taken flexibility a step further with a menu of pre-planned structural options that include bump-outs and floor plan extensions. “Some of these variables do affect the footprint,” says CFO Jamie Pirrello. “If someone takes the original plan and extends it, we actually switch gears and work off of a different pre-drawn plan. To the buyer, it looks like a single plan that’s being modified for them, but physically, our process is that it’s two different plans.”
Granting a little latitude can yield greater returns when it’s played right, he adds. The extra square footage in a small bump-out is cheap from a trade standpoint, Pirrello explains, which allows Sivage to offer it at a good value. “If you have a 1,300-square-foot house that you are selling for $130,000 and you add an extra 100 square feet to it, you don’t have to charge buyers the same rate per square foot for that extra space. Rather than charging $10,000 for it, we’ll offer it for more like $4,500. We buy it cheaper, so we can offer it for less and still make a margin off of it.”
Little perks like these have gone a long way in distinguishing Sivage from competitors catering to first-time buyers—a market segment for whom design options feel particularly luxurious. Sivage closed 222 homes in 2008, 280 in 2009, and is on track to close more than 300 in 2010.
“For a lot of builders, the easy answer is, no, we can’t do that because our system can’t handle trying to do different things,” Pirrello says. “But we’ve found that’s not entirely true. You can build a system that allows some level of customization, and that effort, in turn, drives positive feedback and referrals. Rather than being difficult to work with, we are trying to build a reputation as being easy to work with. For that, people are willing to pay premium pricing.”
This is an excerpt from an article that originally appeared in the February 2010 issue of BUILDER Magazine. To view the entire article, go to http://ow.ly/1LEQO
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