Selling with model homes

The best marketing tool we home builders have is getting any number of potential buyers to be standing in one of our finished homes. In this situation, the house is new, it looks great, and the potential buyer can see and touch the top quality of your product, firsthand.

All this adds up to an enormous amount of money, requiring a commitment of the builder’s financial resources and cash flow. In our market lots run from $400,000 to $1 million and a home might cost from $1 to $1.5 million. For the past 27 years, we have been partnering with homeowners and suppliers to presell our model homes without any of the costs and risks associated with a spec.

As background, in Minneapolis/St. Paul we have model home events put on by the local builders’ association. These events have 35 years of tradition, and are spread over the 12-county metro area. Hundreds of homes in all price ranges are involved. Recently, a luxury home tour had been planned, and was limited to 25 builders with model homes ranging from $1 to $3 million. For many reasons, we have gravitated toward participating in this particular event.

These events can extend from three to five weekends in a row. Attendance runs from 1,000 to 2,500 people. Of this year’s 25 luxury model homes, builders presold two-thirds of them to homeowners. When we haven’t been able to match a home completion date to the dates of these events, we’ve partnered with a charity such as the Children’s Cancer Fund to create our own model event.

The process

We begin with our typical design/build process. The homeowner buys the lot, or already owns it, and we enter into a design contract. During the design process the possibility of being a luxury model home is discussed. We get several requests a year to be “the model home,” and interestingly, our client usually raises the subject. If the timing, design and client look good we pursue the possibility.

Most national and regional suppliers have co-op marketing programs in place. They work with their dealer to offer a model home discount on their products. Builders know of these programs and use them to offset part of the cost of the specs. Instead, we pass these savings on to our client. We estimate the total discounts from our suppliers, reduce our contractor’s fee and guarantee the owner a specific reduction in the price of their home. If we are fortunate we may acquire additional discounts that cover all or part of our fee reduction. All parties benefit.

The owner

The primary benefit to the homeowner is financial; they get their house for less. However, sometimes the money itself isn’t that important. They get a chance to add more features to their home with “free money” because the homes don’t cost more than their original budget. They add the options they would otherwise forego. This of course is great for the builder because the model home looks better.

Owners also are able to receive large discounts for items outside the builder’s contract for audio-visual equipment, landscaping, artwork and furniture. We coordinate these elements for the owners. Sometimes showrooms will provide upgrades for the newest products at the standard price, and owners love this. Additionally, owners know they have an absolute completion date and a virtually nonexistent punch list.

Our owners take great pride in their furnished models. We see them giving private showings to their friends during off hours, and dropping by to hear the compliments during the show. The primary disadvantage to owners is that strangers have been in their house. No one knows the owner’s name, but there is a perceived lack of privacy, so this might not be for everybody.

The builder

The builder doesn’t have to buy a lot, do a spec design, take out a construction loan or pay carrying costs. These costs can add up to more than the buyer’s discount. There is a guaranteed closing date, and most importantly, the builder gets to meet with potential buyers in one of its furnished homes.

The potential disadvantage to builders is a lack of total control over design decisions. But providing design/build services gives us a huge advantage. We draw the plans, design the details and work with the owners from start to completion. We can guide all these decisions.

Many times, suppliers are asked to give both discounts and terms (deferred payment) to builders for model homes. They are relieved to know there is a set closing date instead of having to wait until it’s sold. They can showcase their products in a house, and the builder provides a great third-party endorsement for their showroom. Plus, they can sell products to other consumers based upon the products in the builder’s house.

What we’ve learned

We’ve been in business 27 years and have done approximately 30 of these homes. Only four have been spec; none for the past 18 years. Following are some observations we’ve made and lessons we’ve learned (some the hard way) over the years:

• These houses have an incredible shelf-life. Customers might visit your homes for years until the time is right for them to buy. The magazine and newspaper ads fade away, but customers remember being in your houses and talking to you.

• Location counts. We’ve done a few terrific houses on out-of-the-way sites. But it ends up being the same amount of work for results that aren’t as good.

• Clients count the most. You need clients who have good design eyes and can make timely decisions. Selection dates are absolute. You can weed out those afflicted with circular decision-making skills during design.

• The field of dreams theory isn’t enough. Just because you build it, it doesn’t mean they will come, even though we’re part of a well-advertised event. We send 1,000 invitations with a sketch of the home. Most are sent to people who have signed in during previous shows plus realtors, bankers, etc. Extra copies of the invitations are given to the suppliers. We often hear “thanks for the card, I wouldn’t have remembered to come.”

• Throw a party. Each year we host an open house in the evening, for which we send special invitations. Past and current clients are invited. Key subs and suppliers bring their spouses to see the finished home (many subs never get to see a finished home). Key realtors are invited.

The owners invite their friends and relatives, and the mortgage company caters the party. It’s part reunion, part party and part marketing event. We get calls each year asking, “Where’s the party. I haven’t received my invitation yet.” It is a terrific setting for potential buyers, those in the market or those who may be thinking of building in a few years.

• People want to talk to the builder. Honestly, most people who go through these homes never say a word. Those who are thinking of building prefer talking to us instead of a realtor. My partner and I split most of the shifts between us, with our design staff filling in. We keep two people in the house with three people on the busy weekends. Everybody in our firm works at least one shift; superintendents, office staff, designers and customer service staff.

The staff gets to hear firsthand reactions, as well as compliments. We run a continuous loop of photos of past homes on one of the large-screen TVs, so visitors can ask about them and our staff can answer any questions.

• It’s a lot of work. The house has to be nearly perfect. Landscaping should be complete and the home should be fully furnished with artwork and accessories. We feel we’re marketing a lifestyle as much as a house.

These events are like a second job for several weekends, but in the end it’s great marketing for a small risk.