About the Survey The 2005 BIG BUILDER Study was conducted by mail from June 6 to July 14, 2005, by BIG BUILDER magazine, a sister publication of PROSALES, under the direction of Readex, a nationally recognized independent research company. The results were tabulated and released at the American Housing Conference, which took place in Chicago Sept. 20–21.
The survey sample of 3,000 was selected from the domestic recipients of BIG BUILDER magazine and the recipients of BUILDER magazine (also a sister publication of PROSALES) classified as “builder, builder-developer, or general contractor” who work for firms that completed more than 100 residential dwelling units in the 12 months prior to the study. The survey was closed for tabulation with 582 usable responses, a 19 percent response rate.
Additionally, a companion survey was sent to a sample of 800 manufacturers to gauge disconnects between this sector of the supply chain and big builders. Total usable surveys numbered 156 for a 20 percent response rate.
(Note: Builders interviewed for this story were not necessarily participants in the survey itself.)
Profit Optional Suppliers are eager to tap into home buyers’ voracious demands for more products, styles, and colors. But builders say they don’t make much money selling options and would love to curb their customers’ appetites.
A recent article in The New York Times Magazine noted that customers who purchase a house built by Toll Bros., the Horsham, Pa.–based builder that specializes in semi-custom luxury homes, spend, on average, $103,000 of the $665,000 selling price on options and upgrades alone. Builders around the country, in fact, have seen their menu of options explode as they try to lure buyers who are always looking for something less cookie-cutter.
According to the recent BIG BUILDER Study, two-fifths of the 582 builder-respondents expected to increase their options and upgrades this year. One-fifth of the builders said that at least 20 percent of their homes’ selling prices came from options. “We’re constantly adding options because buyers demand it,” says Michael Collier, purchasing manager for Dallas-based Highland Homes, which operates 15 design centers in the markets it serves.
If this trend continues, it could prove to be a bonanza for suppliers and dealers that are willing to expand their inventories and special-order capabilities to accommodate the shifting tastes of home buyers. But that could turn out to be wishful thinking, as a growing number of builders are reining in what they offer to customers because, they claim, options aren’t big profit producers.
Options and Upgrades “We need to understand what’s the optimal number of products the customer wants to see, and the right products to go into their homes, and for those products to be priced accordingly so that we all make equal margins,” said Mark Voetsch, vice president of purchasing for Red Bank, N.J.–based Hovnanian Enterprises. Similarly, Novi, Mich.–based Crosswinds Communities has décor centers serving most of its communities, but its CEO, Bernie Glieberman, sees these centers more as a “convenience” for buyers than profit centers for his company. “If we could close down our décor centers and build a house with no changes, we’d make a lot more money.”
Walking away from options isn’t practical, but builders are taking a closer look at what they offer, with an eye toward editing their assortments to those items with the highest demand (see “Options and Upgrades,” page 62). Del Mar, Calif.–based Brookfield Homes has been deleting appliance options, as most home buyers seem to prefer purchasing appliances from retailers like The Home Depot, Lowe’s, and Best Buy, says Jase Prewitt, Brookfield’s purchasing manager.
For years, Lennar has offered “Everything is Included” first-time and move-up home packages, and several other builders seem to be taking the same route by converting options in such categories as lighting, countertops, flooring, and bath fixtures to standard features as a way of controlling buyers’ choices and getting better deals from suppliers.
Many of the industry’s largest builders are part of a consortium with leading manufacturers that’s testing a new program called Envision, a data warehouse that would serve as a “virtual design center” that would make the selection process simpler for buyers, and help builders track product movement and profitability. “The Envision product is going to allow this industry to have a tool that home buyers [can use to] look at all the options and select what they want rather than what a design studio consultant feels comfortable with,” said Tony Callahan, director of corporate sourcing and procurement for Atlanta-based Beazer Homes USA.
