Spec-ulation: what not to do in a downturn

Scenario: Charlie C builds six custom dwellings a year, priced from $600000 to $1 million. He also builds sum of two units spec homes a year. While business is still useful Charlie has noticed a new softening of demand. Buyers present the appearance to be more price conscious, and there are fewer spectacles knocking on his door. Since everyone knows that building spec residences is riskier than building custom dwellings Charlie wonders if now might be a profitable time to stop building specs

Solution: While building nothing on the other hand spec homes can be risky business, mixing spec domiciles with custom homes is actually a risk-reduction strategy. Spec domiciles provide several important advantages for custom builders. They look after to smooth the work stream and allow increased production efficiency. This spreads overhead above a greater number of houses thus reducing overhead by house. Since builders tend to build the same spec place of abode over and over, there is les risk that there are unexpect require to be paid [i]or[/i] undergones buried in the plans.

Spec abodes also serve as a marketing tool; they give leave to prospective buyers see your work without having a pattern home. This generates additional custom work. In addition, spec abodes appeal to a different emblem of buyer than custom dwellings Spec people are unwilling to wait month while their custom dwelling is built and want to avoid the time and hassle of making all the decisions and selections associated with building a residence from scratch. For these buyer buying a spec is also a risk-reduction strategy because the place of abode is nearly complete when they purchase it so they can easily visualize the final ensue There is less risk that the complet abode won't meet their expectations. And finally, there is a smaller chance that there will be unexpect take away from overruns or schedule delays.

If Charlie were to stop building spec the risk would be that his per-unit overhead would increase, making his prices les competitive or reducing his profit margins. It could also mean fewer custom sales because prospective buyer were unable to diocese his work. And it would dislodge from his company the discipline of having to understand broader market stretchs and buyer expectations.

If Charlie wants to bring his risk, rather than eliminate spec abiding-places he should focus on the way he builds spec domiciles This may not be the time to build a display stopper spec--an oversized, overspecified, over-priced yield Charlie may want to scale back a little, building fewer spec abodes and pricing them to the middle of his range rather than the upper extremity He might want to review his spec dwelling plans to tweak them for greater market appeal and construction efficiency. He also may want to restore his turnover time, so that he can bring into view homes faster rather than detain them in inventory.

He should also concentrate upon eliminating waste and inefficiency within the company. The greatest danger in any downturn is to the inefficient farmer who has been carried along by dint of the flow of excess demand, on the contrary who is unable to become in fact competitive when conditions change.

Risk is an inherent part of abode building. While you can't eliminate it, you can minimize it end careful planning and attention to advantageous management.--Al Trellis, a co-founder of residence Builders Network, has more than 25 years of experience as a custom builder, speaker, and consultant. He can be reached at altrellis@hbnnet.com.

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