5 Key Purchasing Tips When House Starts Slow Down

Things get a little loose and freewheeling when things are going well. When the market turns – and the house starts slow – it’s the perfect time to refocus and rein in those things that may have slipped a bit. We talked with our Senior Consultants, Sean Means, Russell Pelt, and Brad Haubert, who shared some of their best purchasing tips when your house starts to slow and the value of construction management software.

1. Value engineer your plans

Now is the time to take a fresh look at your standard plans – and – consider ways to save costs. This doesn’t mean that you just remove things and “cheapen up the product.”

On the contrary, this means you can consider several things that can reduce costs without reducing the home’s value to your buyers:

• Review the brands you offer. Do your buyers care as much about that name-brand product – or – do you just assume that? You might be surprised.
• Consider making minor changes to building practices that are rarely noticed – but – save money on each house. A good example is the depth of a roof overhang.
• Explore different framing methods – including offsite construction/pre-built wall panels).
• Look at your “Standard Specifications” and compare those with your selling options. Consider if you could save money purchasing if some options became standard specifications.

“Home builders often get caught up in ‘thinking’ they know what their buyers want – but – their own biases and experiences often jade their thinking. Often, changes to products and/or practices are not even noticed by the buyers – and – builders can be pleasantly surprised that buyers are willing to pay more (and have always been willing to pay more) for items that were freely given away for years!” -Brad Haubert, Senior Consultant

2. Audit your options

If you use our MarkSystems home builder management software, look at the option tracking reports to get an idea of what is selling in each of your developments. Compare those to your entire options list – and – start to simplify.

Have regular meetings with your sales department to review the option lists. Since they are the front line and interact with your buyers directly, they’ll have a lot of insight into your current options menu.

Your purchasing department can then take the following actions:

• Retire those options that aren’t selling anymore (or never sold).
• Review the option budget maintenance for any/all remaining options and update or fill any holes.
• Figure out if you need to bring options into your parent company/development to have ONE location to manage them moving forward. Too often, options ended up being created in different places manually.
• Value engineer your options, too. Remember that your buyers may perceive value differently than you do.

“I’ve found that home builders often have difficulty removing options from their menu – especially when sales are slow. It’s a mentality that ‘we need to offer more,’ but that is not always the case. The numbers don’t lie – even if management just loves an option. It’s better to focus more time and effort managing costs and specifications for fewer options that ARE selling than wasting time on options that ‘might sell’ one day.”-Sean Means, Senior Consultant

3. Improve your bid package

Smart and efficient home builders have a complete bid package for both base elevation plans and options. When business is humming, bid packages often get lax (or – let’s face it – sometimes have never been created in the first place).

A slowdown is the perfect time to put some focus on these. This is a joint effort between your internal departments and trade partners/suppliers. Find ways to clarify what is expected from your trades – and – what they can expect from you.

Use these “best practices” to streamline your bid process:

• Use the updated value engineering specifications and ensure they are clear to all involved in your trade partner agreements.
• Have different departments scour standard plans and options to correct any errors and/or update to the mutually agreed-upon specifications. Admit it: you have some plans that get redlined every time you build them (or your team just knows they are wrong).
• Scopes of work become even more important now. Much of the document can be duplicated – so work on standard wording for the general items and get specific for trade-specific items.
• Use the House Scrub Report – and – focus on the variances. Often, this report will show you where you have inefficient bidding or estimating.

“Be sure to include sales, construction, accounting, and even the trades (when necessary) as you review variances from the House Scrub Report. Don’t assume you know what happened. The front-line folks will know the ‘true’ story.” -Russell Pelt, Senior Consultant

4. (Re)Negotiate with your trades/suppliers

You’ve value-engineered your plans and created rock-solid bid packages. Now, it’s time to talk pricing with your trades and suppliers.

Use this time to bring the trades and suppliers into your office (or meet them at their office) to discuss updated pricing based on the new specifications. Make an earnest attempt to be as interested in saving their companies time and money and ask them to help you keep costs in check. After all, consistent sales on your part means consistent work for them.

Here are some tips to help with these negotiation discussions:

• Freely share the variances you’ve had that pertain to the specific trade’s activity. This doesn’t mean that it’s a variance caused by the trade; however, it does mean discussing costs your company has incurred. It will open a great discussion that can lead to even bigger savings than you initially thought.
• Ask the trade/supplier for their thoughts on your standard products/practices. Ask them for their thoughts on reducing costs for both them and you.
• Listen as much as you talk. The trade needs to know that you are invested in their success for them to be interested in reciprocating for you.

“Home Builders are often reluctant to bring their trades back to talk pricing – thinking it will ultimately lead to the Trade asking them for a raise. But – if you’ve done your job at value engineering, building a strong bid package, AND included the trade in the conversations (with an honest desire to save them money in their operations), you’ll find that you’re pleasantly surprised at what you can accomplish.” -Brad Haubert, Senior Consultant

5. Clean your system data

Next, make sure your construction management software matches all your hard work. You know there is some bad data in your system, so it is best to slow down to clean it up.

• Establish rigid data processes with your purchasing team to constantly improve your purchasing data.
• Tackle one elevation at a time. Run the Elevation Audit Report and start your data cleaning.
• Use the Data Hierarchy to figure out the most efficient means of maintaining your data on both the budget side and the purchasing side.
• Be relentless at exploring every VPO that happens – maybe even by putting one specific person (position) in charge of this.

“Issuing a VPO or making a manual change to a work order or purchase order works in the short time, but your company never learns what happened – and – how to fix it.” -Sean Means, Senior Consultant

Conclusion

When the housing market slows, it's the perfect time to refocus and rein in your purchasing processes. Remember the five tips we laid out in this blog to save money, improve efficiency, and be better prepared for the next upturn in the market:

1. Value engineers your plans and options. Take a fresh look at your standard plans and options and consider ways to save costs without reducing the home's value to your buyers.
2. Audit your options. Review your option tracking reports to see what's selling in each development. Simplify your options list by retiring options that aren't selling, updating budgets for remaining options, and consolidating options into a single location.
3. Improve your bid package. Create or update bid packages for both base elevation plans and options. This will help to clarify expectations for your trade partners and streamline the bidding process.
4. (Re)negotiate with your trades and suppliers. Use your new value-engineered specifications and bid packages to negotiate updated pricing with your trades and suppliers. Be willing to listen to their suggestions on reducing costs for both of you.
5. Clean your system data. Make sure your construction management software matches all your hard work. Establish rigid data processes with your purchasing team, tackle one elevation at a time, and use the data hierarchy to determine the most efficient means of maintaining your data.

By following these tips, you can position yourself for success in any market condition.

Need help or want to learn more about these steps? Reach out to Sean (smeans@ecisolutions.com), Russell (rpelt@ecisolutions.com), or Brad (bhaubert@ecisolutions.com).