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How to Compete with Foreclosures |
By Kevin L. Crook Architect |
In today’s challenging market home builders are looking down every avenue for ways to reduce sales price. It used to be that builders only needed to worry about direct competition from other new home builders. But with the emerging foreclosure crises new home builders are finding increased competition from recently completed existing “used” homes that have been put back on the market by their lenders at drastically reduced prices. Recent data shows that sales of these foreclosures have skyrocketed while new home sales continue to weaken. With an estimated 8 million more foreclosures due to hit between January 2009 and year-end 2012, the supply of foreclosed homes will take years to abate. Many of these homes are only a few years old and have all the amenities of new home construction. They include today’s high energy efficiency, well thought out interior spec levels and current exterior elevation styles. Not to mention neighborhood amenities that are equal to or better than those you may be currently proposing in this current economic climate. All of these were areas that the new home builder once used to their competitive advantage over “used” homes, but no longer. So how do you compete these days knowing buyers propensity to simply divide the sales price by the square footage to determine who is offering the best “value” per square foot? Assuming all things being equal as outlined above, it is imperative that new product sales price is reduced as much as possible. There are three ways your architect can help you reduce the price point of your community. VALUE ENGINEERING by reducing hard costs per square foot, developing SMALLER PRODUCT with less square footage and creating HIGHER DENSITY product that will allow for a lower land cost for each home. VALUE ENGINEERING I define “Value Engineering” as the process by which we take costs out from behind the walls,
We all know there are a few major cost saving principles to keep in mind when developing the basic massing and layout of the house. Exterior walls are expensive, the more square footage you can surround with the least amount of exterior wall surface the lower your hard costs will be. Minimizing corners will save costs starting with the foundation continuing up thru and including a more simplified roof form. Either, build over the entire garage or not at all. Building over just a portion of the garage will require adding beams. Condense your plumbing runs by grouping your wet areas together. Finally, with two story homes stacking your livable space will go along way to simplifying and consequently reducing your structural costs. In which ever market you find yourself you can no longer afford to bury costs in areas that are not seen and touched and therefore appreciated by your prospective homebuyer. SMALLER PRODUCT It’s simple, the less square footage in the form of wasted circulation space, non usable (read un- It is imperative that as the square footages get smaller, the more important it is to develop the perception of larger spaces. This is done by allowing the prospective buyer to view through more than one space horizontally either through adjoining rooms or through to the outdoors utilizing glazing in strategic locations. Specific attention should be paid to creating an open and airy entry, as well as the hub of the home, the kitchen/family/eating area. Another critical area occurring in two story homes are at the bottom and top landing of the stair. Anytime you can create a sense of spaciousness through open floor area or a view out to the exterior at these locations you are ahead of the game. It should be noted that the elimination of the traditional living and/or dining room configuration in favor of the great room concept is now widely accepted and in fact desired especially in the smaller square footage ranges. Remember, buyers don’t always know why they like one plan over another within the same square footage other than to say it “feels better.” An open plan that flows well is usually the reason why. HIGHER DENSITY We all know the more units you can amortize your land costs over the lower the land basis will be for each home. There are many higher density product types available both attached and detached depending on your zoning. Let us focus on detached product types of which there are a myriad of choices that boosts density. Not only do you want to reduce the amount of land costs devoted to each home but also the amount of street infrastructure cost as well. Making the lot shallower will do the first but not the second, by making the lot narrower you will do both. We have the zero lot line product which evolved to the “Z” lot concept, patio homes, two-pack product and more recently cluster product, all of which will reduce both land costs and infrastructure costs.
FINAL THOUGHTS Where you are in the approval process dictates which of these three areas you can utilize without having to start over with the local jurisdiction. If you are just beginning the design process and have not yet gained any approvals from the local authorities than you should - depending on zoning, overlay districts, design guidelines etc. - be able to utilize all three methods to help create value and lower costs. If approved maps are in place then the decision must be made as to whether opening up the approval process to gain higher densities is worth the risk, time and expense. It should be noted that we are finding jurisdictions are beginning to realize the benefits of higher densities through their increased ability to fund infrastructure as well as its desirable green building aspects. If you are currently selling within a community with models open and residents living in the first phases of construction then your options could be limited. Ultimately it will be up to the local planning department and current residents and how willing they will be to allow you to downsize All of us in the home building industry are use to competition but what we are facing now is an opponent in the form of bank foreclosures that don’t have the same economic constraints we have and are now no longer concerned with making money, just loosing less. Your architect can help level the playing field by applying these three cost saving measures to your current and up-coming communities to help you better compete during the tough economic times we are currently in. For a comprehensive list of cost saving items along with a sample “before and after” value engineered floor plan and samples of high density detached product types email your request to: info@klcarch.com. Kevin L. Crook is a licensed architect in 13 states. His award winning firm located in Irvine CA specializes in all types of “value oriented” residential architecture and land planning. As an industry veteran of 27 years his communities have been featured in major home building publications. Kevin has participated as a judge for industry awards programs as well as an industry speaker. He is a member of NAHB at the national, state and local levels. |
floors and ceilings and either re-allocate these dollars to areas that are appreciated and valued by the buyer such as cabinetry, finishes, fixtures, etc. Or, simply pass the savings onto the buyer in the form of a lower sales price. Your market research will tell you which approach will provide the best value to your particular buyer. 
furnishable and non-functioning) floor area that you build the more efficient your plan will be and consequently less expensive to build. Designing plans with rooms that are furnishable AND at the same time allows for circulation to occur reduces or eliminates the need for hall space. To waste square footage on a hall way that is used a few moments each day as we walk through them is a luxury we can no longer afford. 
Keep in mind that when developing a small lot community you may be required to provide common areas which could include additional amenities that require an HOA to administer. This will result in adding costs
back to prospective buyers both in the form of higher lot costs as well as adding HOA dues as well. These offsets need to be weighed carefully always keeping in mind the affordability factor to your prospective buyers. 
square footage and simplify the level of
exterior fenestration. It has been our experience that it is imperative to include the existing homeowners in your plans. You need to involve them in the economics you are now faced with and why it is in their best interests to sustain sales in the form of a thriving, viable community. Usually the local jurisdictions are very sympathetic to the concerns of the existing homeowners and will follow their lead.