The ABCs of spec building

Building on speculation is like riding a roller coaster: You know there will be many ups and downs, but you don’t know when or how the ride will end. My previous column summarized the basics of lot acquisition, plan selection and estimating. Now in the second installment of this column, we will focus on more of these basics, including the following: financing, site planning, permitting, production, sales and marketing, and client satisfaction.

Financing

Lenders require stacks of documentation, including tax returns, personal financial statements and job-cost budgets. Present your reports in an organized, professional three-ring binder and include additional reports that the lender may not have requested. Include a 12-month company and personal cash flow, a year-end profit projection, a marketing plan, a market survey and project samples.

Site planning

The position of the home and the elevation of the garage and first floor are your first critical decisions. On lots larger than one acre, offset the home from the traditional perpendicular-to-the-street configuration. Order a house stakeout, walk the site and check the grades. Raise or lower the first floor if needed. You have more invested in the optimum result than your engineer, so double check what he has recommended. Dedicate time to being certain it is perfect. You have only one chance to site the home and set first-floor grades.

Permitting

The permit process often is long and expensive. Start early, and budget and schedule accordingly. Secure all permits before commencing. Nothing kills momentum or market presence more than a Stop Work order.

Production

Build according to the blueprints. If making field adjustments, review them first with the architect. If costs exceed budgets and you monitor job-cost actual vs. budget on a monthly basis, you can maintain your margin only by increasing your asking price . . . and getting it. The schedule directly impacts margins and absorption. You don’t know when the buyer will show up so create your own sense of urgency to maintain your schedule. If you build customs and specs, avoid the trap of ignoring your specs to keep your customer’s home moving forward.

Spec homes often sit idle for months. This can be costly. Hire more subs or an extra superintendent if your spec homes are the perennial stepchild to your custom homes.

Would you buy a new car from a factory because you saw a great steel frame with exposed wires and no leather on the seats? No. Cars are purchased in a showroom. Expecting your prospect to buy after showing them studs, rough-ins, unpainted walls, no tile, trim or cabinets is like buying a new car off the production line. “Build it and they will come” means finish it, and then they will buy.

Sales and marketing

Prepare to sell the spec on any day a prospect shows up ready to buy. You need a rendering, floor plan, features sheet and lot survey as your basic marketing tools. Supplement this with your company brochure, industry awards, client referrals and a photo album that demonstrates your past achievements. In order to avoid feeling like you failed in the event your spec home is not sold by completion, create a marketing strategy that begins only after the home is 90 percent complete. Budget three to six months after completion for sale and delivery.

Client satisfaction

You’ve sold the spec and now it’s time to deliver. There is a direct connection between the experience your buyer has negotiating the purchase, and his willingness to spread the word about your company’s quality. If the roller coaster ride had a pleasant ending, do it all over again.

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