The Tragedy of the Commons
May 29, 2009 by Coach Rick
So there we were in 2004, thinking we were on top of the world; we had it all figured out! We could do no wrong. Every piece of property we bought and developed was a winner; every home we built was a hot seller. We had a waiting list of prospects that would jump at our next new neighborhood and no matter what price we threw at them, they would accept it. Ah the good life!
What in the heck happened over the last three years? Some would say, ‘it’s the market.’ Others would add, ‘the whole subprime mess is to blame.’ Still others will comment ‘it’s a natural cycle. What goes up must come down.’ Obviously there is truth in all of these statements but I would like to suggest another idea, one where the solution and the cause are one in the same.
The Tragedy of the Commons is a type of social trap, often economic, that involves a conflict over resources between individual interests and the common good. A very simple example of this is our freeway system. Commuters have their own self interest at heart when they are traveling to and from work. Of course, they want to get to work in the fastest time possible so everyone uses the freeway. When this happens our freeway systems (the common good) become overwhelmed with traffic and cause everyone using them a much longer commute time.
How does this relate to the housing industry?
As a member of the home building/real estate industry, we all have the self interest of earning profits, preferably tremendous profits. Our resource and common good is the market we serve (and how we served it!). Obviously every market is a finite resource and for 6-7 years we tapped this resource for all we were worth. In other words, we had a field full of trees and we as homebuilders and developers cut down all the trees.
Consider the differences between our current housing downturn to that of previous cycles:
1. We now have national homebuilders with enough capital to discount their product by $100,000 and more.
2. Never before have we built so many homes on speculation.
3. Never before have we had such lenient lending practices (you fog the mirror, you get a mortgage).
4. We have 24 hour news sources and the internet to tell consumers just how bad the markets are.
This is the Law of Unintended Consequences rearing its ugly head. Take the above four points and ask yourself ‘why’ are we doing these things. Consider…
-If we didn’t keep building the same old designs in the same old neighborhoods, we wouldn’t have to discount them thousands of dollars to sell them. How does an automobile manufacturer sell new cars for more money? Change the design!!
-If we hadn’t bought or developed such large groups of lots at a time, we wouldn’t build speculative homes as an attempt to move them (of course this cycle continues to be our number one problem).
-If we wouldn’t have allowed marginal borrowers to purchase these homes with very marginal mortgage products, we wouldn’t be in the foreclosure mess we are now. Does anyone remember 28/36% qualifying ratios? I remember loans going through with a mortgage ratio 60% of the customer’s income and zero down. Now we’re surprised that these people are in foreclosure!
-If we had trained our salespeople to educate consumers as to the benefits of today’s market and the dangers of “herd mentality” we could deal with the confidence issue posed from the media and show them what really matters, improving their lifestyle today.
Our current market woes are the direct results of our own actions and inactions. We are 100% responsible.
I know this may be hard to swallow and accept but we as an industry must acknowledge this glaring fact. I remember sitting in a seminar two years ago where the speaker told a story of a developer selling homes in Florida. He told of a conversation where the developer said, “I knew the end was near when local Realtors were purchasing our homes and flipping them to investors prior to closing.”
How does this relate to your own business?
Remember the definition of The Tragedy of the Commons: A type of social trap, often economic, that involves a conflict over resources between individual interests and the common good. Your business is a bunch of individuals (with their own interests) trying to sell and build homes (the common good for the company). Here is my question: How are your own practices and procedures, or lack thereof, keeping you from selling homes?
A Quality Builder!
I hate the word “quality” with my entire being. If I could have one word removed from new home terminology it would be the word “quality”. Why? Have you ever met or seen a home builder that didn’t promote themselves as a quality home builder? The word quality is the number one reason why consumers think all of our offerings are the same. You have to be a “quality” homebuilder just to play the game! And by the way, what does quality mean to today’s consumer? If your answer is tight miter joints you are sadly mistaken. To a consumer, quality means the following:
1. You are building in the best neighborhoods
2. You have professional salespeople that create and deliver memorable experiences every time they interact with a prospect or customer.
3. Everyone in your organization knows what everyone else in the organization does and how this impacts the customer.
4. Your construction people know the difference between talking to your trades and talking to your customers.
5. Everyone in your organization knows why you are the best and will do whatever it takes to exceed a customer’s expectations.
In other words, the customer trusts you and has an open and consistent line of communication with the key individuals in your organization.
Every homebuilder has some disconnects and mixed messages that are received by the customer or prospect. The more you have, the less likely you are to make a sale or gain a referral. As an industry, we can’t go back and fix our mistakes of the past. As a company, we can:
1. Identify our “quality” issues and fix what ails us.
2. We can make sure the individuals within our organization are not working against one another, costing us the Unanticipated Consequences of missed sales and referrals.
If we are to sell homes today, and sell them for a profit, each individual home builder must fanatically review what experience their customers have with their salespeople and staff. We must eliminate any hurdles that we, as a company, are placing in front of the customer that are keeping them from owning our homes.
We all can become great, we just need to decide to do it. I hope your decision is the right one.
Happy Selling!
Related Posts:
She Gave In
May 29, 2009 by Coach Rick
I’ll never forget the feeling I had on that fateful day in July of 2001. I was fairly new to the world or power boating (I say “I”, even though my wife Nancy was the co-owner of our boat, because this was my baby) and was enjoying another great weekend of fun cruising down the Mississippi River.
We were just returning from a weekend trip to Lake City, MN and heading back to the Marina when I saw the tachometer on the port motor all of a sudden rev way up and then die. I pulled back on the throttles and tried to re-start the motor and there was nothing. My worst fear had come true; we had blown a motor and not only would there be an obnoxious repair bill but we were in the middle of boating season and now out of business. My heart sank.
After delivering the boat to the repair shop we got a call from the service manager later that week confirming the news. We needed a new motor and it would take weeks to get one at a cost of about $5,000. Our boating season for the summer was done and so was our bank account (notice now I say “our” when it was time to pony up and fix it). I was officially in a walking depression.
A couple of days later our salesperson from the marina called to offer his condolences and said he had an idea for us. I called him back to inquire on the idea and he suggested that there might be a way to put us in a different boat and the marina would assume the responsibility of fixing our old boat. Needless to say, I was intrigued!
The boat we owned was a 1994 Formula Fastech 303. It was 30 feet long, had a sleeping area, port-a-potty, refrigerator, sink and camper top. We could pull into a marina and hook up to shore power and all the systems would run off of that, saving our batteries. Oh, and did I mention it would do about 67 mph?
Lesson #1: Build value and get the prospect emotionally attached
I showed up at the marina to meet Eric and he took me over to another warehouse where there sat the most beautiful red, white and blue 2000 Formula 353 Fastech. I tried to hide my drool from Eric but I think he caught me wiping my mouth out of the corner of his eye.
Brand spanking new this thing had everything including an enclosed stool with Vac-u-flush (for my wife) and twin 502 motors with about 1,000 horsepower (for her husband). I tried to act cool and looked over the boat and calmly asked, “How much?” He said, “Let’s go back to my office and take a look at some numbers.”
Lesson #2: Logically justify the sale with financing
Back at the office Eric pulled out a spreadsheet showing the trade in for our current boat, the cost of the new boat and some financing. Basically, they would pay off our old boat and assume the cost to fix the motor. Then, they had an interest buy down period for the new boat for the first two years that put our payment only a little higher than our current payment. Plus, the boat had warranties and they would throw in an extended warranty on the motors (do you think that was a hot button for me?).
Lesson #3: Get all decision makers on board
Driving home from the marina I was strategizing in my head how I could convince my wife to be another co-owner of my boat. When I presented the idea to her and went over the numbers I was shot down fast and furious (Eric’s only mistake was showing me the boat without my wife along. She wasn’t emotionally attached). I walked away from her sulking and slipped back into my walking depression.
After about two weeks of pleading and begging I finally got her to agree to come along and at least “look” at the boat. She was a lot stronger than me and thought the boat was ‘nice’ but that we didn’t ‘need’ a boat that big. Of course we didn’t need it. I wanted it!
Lesson #4: If at first they don’t buy, follow up, follow up and follow up again
The next few weeks seemed like years as I watched summer and my boating season slip away. Eric kept in touch with me with different finance scenarios and mailing some brochures over to our home. I could tell my wife was starting to soften and I finally pulled together our family budget and plugged in the new boat payment, showing her we could still live comfortably with our current salaries. Finally, the sweetest words in the world came to my ears one
night. “Alright, if you want your dumb boat, go ahead and get it. Just quit whining!” Nancy said after admitting defeat to my constant barrage.
Step #8 in the new home sales process, justify the sale with finance
The Critical Path to new home sales (in chronological order):
1. Preparation
2. Greeting-Attention
3. Discovery/Needs Analysis- Interest
4. Presentation- Interest
5. Demonstration- Desire
6. Select One- Desire
7. Objections- Action
8. Finance- Action
9. Closing- Action
10. Follow up- Action
11. Due Diligence- Action
12. Referrals- Action
I never would have gotten my new boat if Eric couldn’t lay out a spread sheet showing me it was only a few dollars a day more for my new boat. He used an interest rate buy down to help me get used to the payments and I had two years before my rate adjusted to the full amount. Can you do this with your homes?
The key ingredients to helping your prospects justify owning are:
1. How much house for how little per month. Unless your buyers are paying cash, always work off a monthly investment.
2. Tax advantages. Uncle Sam allows us to write off our mortgage interest and real estate taxes. Find out your buyer’s state and federal tax brackets and show them the savings on a monthly basis.
3. Potential appreciation. Even though many markets are flat, they won’t stay that way for long. Look up the average annual home appreciation in your market and break it down to the month.
Just like I wanted my new boat, your customers want your new home. A top notch salesperson knows the key to selling more homes is getting their prospect emotionally involved first and then help them logically justify the decision. Learn about finance and be ready to show your prospects, on paper, just how easy it is to get the home of their dreams!
Happy Selling!
P.S. The name of this article was the official name of our last boat “SheGaveIn.” A fitting name indeed!
Related Posts:
My Memorial Weekend Fun Run
May 22, 2009 by Coach Rick
Here’s my 8 mile fun run this weekend. I’m running with a friend that is training for a 1/2 marathon. Exercise is a lot like selling and business. If you don’t constantly challenge yourself (mind and body) to try new things you reach a plateau.
I haven’t run 8 miles for quite a while so I’ll be sore for a couple of days from the experience. But, once I’ve achieved this I know I’ll be in better shape and able to see the results of my training with increased energy and stamina.
Marketing, sales and business education are the same. You push yourself to learn new strategies, implement them and measure the results. Most of the time, just like exercise, it may take weeks and months to begin to see the effects. Six months, 1 year and more later you look back and say, ‘look how far I’ve come. They’re still so much more to accomplish but I’m so far ahead of where I was.’
Happy Selling!
Related Posts:
Beware of Popular Thinking
May 18, 2009 by Coach Rick
As a trainer, leader and manager, it is my job to stay positive and always be searching for new ideas and solutions. I want to share a little secret with all of you: I have the same feelings of insecurity, despair and disappointment that you all have. I have ridden the same emotional roller coaster that every home builder and new home specialist has. One advantage I have that some of you may not is that I avoid popular thinking. May I explain?
Let me define popular thinking with an analogy. You are scanning the business section of the newspaper and see an article on the next great stock pick. You take the advice of the author and buy the stock, only to see the value of the stock drop dramatically over the next weeks and months.
My personal experience with this type of thinking was investing $3,000 in the Munder Net Net mutual fund in 1999. This fund was a conglomerate of internet start up companies that we all know crashed and burned in 2000. I jumped on the “tech” bandwagon when everyone was already on it and I should have been on it before everyone else climbed on. In other words, I was following popular thinking.
Popular thinking as it relates to the new home industry sounds something like this: “Now isn’t a good time to sell my home. We’re going to wait for the market to get better.”
“The economy isn’t good and we think we should wait.”
“Nothing is selling in your neighborhood so we’re going to wait and see what happens,” or “Something must be wrong because no one is buying in your neighborhood.”
“I can’t get any traffic,” or “YOU have to do something to get me more traffic!”
In other words, popular thinking is buying into what the media, many of our own builders, salespeople and trades are saying about our current market. Ask yourself this question, ‘Am I a popular thinker?’ Here is your Litmus test:
1. Do you read the newspaper and commiserate with colleagues about how bad our current real estate market is?
2. Are you fixated on prices and believe your homes/home sites are too high?
3. Are you still waiting for the next Parade of HomesTM to save your year and make your sales for you?
4. Are you waiting for walk in traffic?
If you answered yes to any of the above questions, you are, at least partially, a popular thinker. In my 15 year career I have done a tremendous amount of study on change. Earlier in my career, I believed I could motivate people to change through the sheer force of my personality. I could not have been more wrong. I have discovered the only true way to get a person to change is to invite them to change their thinking and then they will change their behaviors.
Change your Thinking
If we want to eliminate popular thinking from our minds I encourage you to consider the following ideas:
1. Quit reading the newspaper and participating in activities that encourage popular thinking. Get away from negative people; quit watching the news and four hours of TV a night. Seek out magazines, books and people that will give you new ideas to incorporate into your business and personal life.
2. Start working on yourself. Look at how hard we work at our jobs but how little we actually work on ourselves. Imagine what you could become if you invested just one hour a day on personal development!
3. Get uncomfortable. If you keep on doing what you have always been doing, you will keep on getting what you have always been getting. Try new things that make you uncomfortable. This can be a simple as eating at a restaurant you have never been to before and notice how you are treated as a customer. Are there things you can learn and incorporate into your business?
4. Join a support group. Seek out and join a group of people that will encourage, give critical feedback and suggest new ideas. This could be a networking group such as Business Networking International, a local Chamber or Rotary club, Toastmasters or put together your own group of business associates. These clubs are all around you.
5. Write down your goals. Many of us have had very difficult years and are not satisfied with our sales to date. Write down realistic goals for the next 5 months knowing what you now know. Once you have identified those goals, set a stretch goal on top of that. Here is a hint on goal setting: start from the top down. That is, what do you need to do on a monthly, weekly and daily basis to make that next sale? Write it down and review it weekly.
6. Don’t reinvent the wheel. Every industry goes through cycles and the answers to our current challenges are already out there. One industry I like to study is retail. Look at what some of the most successful retailers are doing to create customers and generate referrals (By the way, do you think Target Corp. may have some ideas we can borrow?).
Another great resource is the local Sales and Marketing Council at the builders association and www.BuilderBooks.com.
Become a Shared Thinker
Shared thinking involves surrounding yourself with great people, mentors, authors and speakers and asking for help and ideas. Ask your customers about how they would improve your communications and home designs. They will tell you everything you need to know about your systems or lack thereof. Drop your ego and open yourself up to improvement and see how far it can take you!
One final note, beware of compromise. Compromise too often will take a great idea and dilute it to the point of mediocrity and make it average. You will face many naysayers’ on your journey to eliminate popular thinking. Once you have set your goals, never compromise and let popular thinking rain on your parade.
Related Posts:
By A Nose!
May 18, 2009 by Coach Rick
Why do some salespeople excel over others? Why do some always have follow up activities going on, regardless of how many prospects are coming in the door? Why is it that some salespeople consistently get higher customer satisfaction scores than those of their peers?
As a sales trainer and coach I am constantly seeking the answer to those and similar questions. The 80/20 rule states that 20% of the new home salespeople will make 80% of the sales (and commissions!). On the other hand, 80% of the salespeople make only 20% of the sales. I’m guessing that those of you in the 80% group would like to figure out how to get into the top 20% or even top 10%. On May 19, 2007 I found some answers on just how to do that.
I’m not a horse racing fan but for some reason, the results of the 2007 Preakness caught my attention. There were two horses battling it out right to the end of the race. Street Sense, the lead horse, had taken a big lead against the rest of the group and looked like he would run away with the crown. But coming around the final turn, a horse named Curlin started to gain on Street Sense at every stride. They were neck and neck coming into the finish and it was Curlin, by a nose.
Now in my book, it didn’t matter if Curlin won by a nose or six lengths. He will go down in history as the winner and Street Sense will forever be second. After hearing this it hit me that in order to “win” in new home sales, we only have to persuade our prospects just a little bit more than our competitors. Consider these other thoughts I looked up:
1. The average margin of victory on the PGA tour over the last 25 years is less than three strokes.
2. An Olympic sprinter will train for six to ten hours a day, six days a week for three years for a race that usually lasts 10 seconds. In 2004, the difference between first place and fourth place in the Men’s 800 Meters was .71 seconds!
3. At 211 degrees, water is very hot but if you increase the heat by only one degree, water boils and turns to steam. Steam can power a locomotive! (For a great inspirational video on this concept, visit 212 movie.)
If you want to win at new home sales, that little bit of extra effort will put you in the winners’ circle (or in our case, at the closing table) more often than not.
Here is the key point: to get what you’ve never had you must do what you’ve never done!
Question: “How do I apply this ‘extra degree’ of effort to the new home sales process?
Answer: Read on!
In May, we discussed Presenting and Demonstrating. Our next two steps are Selecting One (creating urgency) and Objections. With Objections, we are moving into the Action phase of the Critical Path. This is really what separates the winners from the losers.
A=Attention
I= Interest
D= Desire
A= Action
The Critical Path to new home sales (in chronological order):
1. Preparation
2. Greeting-Attention
3. Discovery/Needs Analysis- Interest
4. Presentation- Interest
5. Demonstration- Desire
6. Select One- Desire
7. Objections- Action
8. Finance- Action
9. Closing- Action
10. Follow up- Action
11. Due Diligence- Action
12. Referrals- Action
Selecting One (creating urgency)
“If you don’t want this home there are two other families that do,” or “We’re selling one home per week at Wild Meadows so if you don’t reserve this site, there is a good chance it won’t be around two weeks from now.” The previous are statements that were heard far and wide between 1998 and 2004. As you all know, you can’t use them anymore. How do we create urgency in today’s market? By narrowing down each prospect to one specific home or homesite.
The only way to accomplish this is to create a Unique Selling Proposition (USP) for each home or homesite. Take a look at the following list of ways to distinguish your individual homes or sites from one another:
1. Price
2. Size
3. Style (flat, LO, WO)
4. Vegetation
5. Location within neighborhood (near park, amenities, larger homes)
6. View (trees, water, green space)
7. Orientation to sun
8. Easements (utility, drainage, conservation)
9. Cultural preferences (address, cul-de-sac)
10. Limitations (width, depth, water table)
Use this list to give every home/homesite you are selling some unique characteristics. The idea is you don’t have 20 sites available, you only have one or two that will work for your prospect. For more information on creating urgency, click here Creating Urgency.
Objections
I’ve got a great article on objections here Objections but today I wanted to share my favorite technique for dealing with objections in today’s market. It’s called, Just Suppose and here is how it works.
The next time you have selected one with a prospect and now you are moving into the objection phase of the sales process, try this.
Prospect: “We would buy from you if we could afford it,” or “If the (road, power line, gravel pit, etc.) weren’t there, we would buy.”
All Pro Salesperson: “Mrs. Prospect thank you so much for bringing that to my attention. In addition to (list objection), is there anything else that would keep you from owning today?”
If the prospect gives you another objection you say, “Besides that, is there anything else?”
If the prospect says “No, that is all,” you use the Just Suppose method.
All Pro Salesperson: “Mr. Prospect, just suppose (the road/view/power line) wasn’t there, would you want this home?” If they say yes, it’s a legitimate objection and you move to changing the base of the objection (list out all the positives of the home/neighborhood/community) and simply ask, ‘what is more important, you getting all the amenities you want at the budget you’ve determined or the fact that the view could be a bit better?”
Now, if they still say ‘no’ after you have removed the objection you have a smoke screen. Something else is wrong that they are not telling you or they are not a ready, willing and able buyer. It’s time to dig deeper!
Try this technique the next time you get an objection and see how good it works.
