aenspire delivering developmentprofit.com

You know what you are selling and when you have to sell, now it’s the mechanics of how you are going to market and sell. The steps range from establishing your marketing strategy through to practical sales delivery, and includes:

1. Competitive positioning
2. Method of sale
3. Set pricing
4. Create marketing collateral
5. Sale and purchase agreement
6. Advertising
7. Launch
8. Sales management

Competitive Positioning

The objective is to maximise your developments appeal to the buyer profile representing your target market. You want to optimise your marketability in light of your competitive position. This will inform your marketing materials, advertising and sales approach moving forward.

To define your competitive position, compare your project to your competition. You should already know everything about your competitors based on your analysis when you got to know your market (previous chapter — read it again!). If your project is underway and it has been a while since you looked at what your competition is doing, now would be a good time for a market refresher. Ordinarily though, once you have purchased your site, your radar will be firmly fixed on what the competition is doing in your effective real estate neighbourhood. It is important to regularly mine your competitors’ information so you know how to best position your project while you are selling.[1] Keep a record of all the what, when and how competitors are doing on their developments and identify the key metrics for your target market. Compare your project against your competition on these key metrics:

• Floor area and section land area
• Price per square metre of floor area ($/m2)
• Price per bedroom
• Price per square metre of land value ($/m2)
• Number of homes for sale
• Mix of homes for sale
• Rental rates and investment returns
• Absolute price point range
• Average price point
• Design quality
• Design standout features
• Quality of construction materials
• Quality of finishes specification
• Location (schooling, parks, shopping, water, desirability)
• Aspect, outlook and views
• Timing until they are delivered, their current stage of construction
• Targeting investors versus owner operators
• Target buyer profile characteristics
• Cookie cutter vs bespoke vs boutique.

Rank and score how your project compares in relation to competitor projects. Essentially you are creating a SWOT analysis of your project (Strengths, Weaknesses, Opportunities and Threats). Don’t fall into the trap of an overly academic approach. There will be a mix of objective financial data and subjective assessment so you will likely need to take a few liberties and generalisations with your comparison. That is ok as this analysis is just to inform your marketing pitch and make you and your sales team self-aware of your project’s relative positioning. Tabulate and organise the results to make for easy comparison, for example:

Metric	You	Comp 1	Comp 2	Your Rank
Price $/m2	5500	6000	5700	Cheaper
Price average $	500k	400k	520k	Higher end
Views	None	Good	None	Average
Quality	High	Low	Average	Higher
2 Living	Yes	No	No	Better
Style	Boutique	Cookie	Cookie	Exclusive
Target profile	Family	Family	Family	Same

Knowing your competitive position is important so you can espouse positives and have answers to deal with any negatives. Positives — your competitive advantage — should be embraced in the marketing for your project. Whether it’s a script for the sales person or appears bright and bold on advertising, make sure your potential buyers know why you are a better choice than your competition. Where your project performs worse than your competitors then you can tailor your marketing to address, reframe or deflect potential buyer concerns. In the above example your competitive positioning could be summarised in a key marketing message:

“With more value per square metre this boutique enclave of high quality

homes also provides two living areas — a must for today’s modern family.”  

We have embraced the positives (lower price per m2 and quality), enhanced our positioning where we are exactly the same (creating the image that two living areas is a must for our target profile of families) and quietly reframed a potential negative lack of views into a ‘boutique enclave’.  

             Identifying your competitive position and setting your key marketing messages will influence how you approach and what you produce for the remaining steps.

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[1] At all stages of selling, not just when you commence. For example, you might need to change your positioning part way into your sales programme, in light of new competition.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

In some markets for some types of properties, especially in the luxury bracket, you will only get the highest price for a new property that the buyer can touch and feel. Your best strategy may be to hold back as much product as possible until construction is complete and you have fully staged each home (staging means you hire furniture and fit-out the home to how it is intended to be lived in). Speculative homes are called as such because by selling only when complete you are betting on a rising sales market during the construction period to maximise profitability.  

Waiting until construction is complete to sell is a luxury most house and land developers do not end up with or want in the first place. For the majority you want to be sold and done by the end of construction so you can take your profit and move your resources on to the next project. Beyond the speculators, reasons why developers still have unsold product at the completion of construction include:

• The construction loan and other costs are repaid and the developer is under no stress to sell the last few remaining units. On a 20 unit subdivision the first 16–18 units are likely required to cover all your costs, so this only leaves a few to sell anyway. If the market is rising why not wait for maximum price?
• You have the capital to hold the remaining properties yourself as rental investments.
• You have not achieved high enough sales prices to generate sufficient profit and therefore are under stress to wait for higher prices. You have arranged an extension of finance to enable you to do this. The race is on to sell before your finance costs further decrease your profit.
• Purchasers are defaulting on settlement, in which case you are forced to resell units — and probably at lower prices than you originally did.

Therefore ‘when are you  going to sell?’ involves deciding and managing how much of your product you sell before you start construction, how much during construction and how much you want to leave, if any, until construction is complete. It’s a juggling act and achieving maximum profit is contingent on the market at each stage and the constraints imposed by your funders.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

When you sell a section or home before construction you are trying to convince purchasers to buy into two visions. The first vision you have to sell is that the development will actually proceed. Some buyers may be previously fatigued by pretty pictures and promises of developments that never got built. The second vision is that the completed home and section will deliver on all the promises, expectations, features and benefits you are presenting on paper.

            If your subdivision has started earthworks and civil infrastructure then you no longer have to convince a purchaser if the development will become a reality. This will increase your potential buyer pool as many will be spurred on by a project under construction.  If your subdivision works are complete, buyers can physically see how each home section relates to its surroundings and the value of the amenity you have created (parks, paths, access). With house construction underway, a new group of buyers who want immediacy come into play and much less is left to the imagination. Eventually the homes are complete and there is no need to sell any vision as they can touch and feel the finished product. Of course if the delivered product does not meet the expectations set (by the vision presented when pre-selling) then you may find it now harder to sell.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

Now you know what you are selling the question becomes ‘when are you going to sell?’ There are three different stages of development when you can sell your subdivision down:

1. Pre-construction (Pre-sales)
2. During construction
3. Post-construction (Spec Building)

Pre-Construction (Pre-sales)

Obtaining sales before you start construction helps to de-risk your project. It validates your estimated sales prices and provides collateral to secure funding from a lender for construction. However, the longer the time between pre-selling and when you start construction the greater the risk of costs blowing out and you have sale prices you cannot deliver on (as profitably). In a rising construction market, due to increased demand and a shrinking amount of available resource (previously decimated by the last recession cycle), construction costs can accelerate rapidly. It is common for developers to get excited and sell out product early in the development cycle. Unfortunately, when they find out construction costs have escalated, the project may no longer be profitable enough to secure financing. They either must go back to purchasers for more money, or if that fails or is not a contractual option, cancel the development.

Where sales prices are continuously rising, the developer may find in retrospect they have undersold their product and not made as much profit as they could have. In a red hot market you might sell 20 homes out in one week, then have to wait six months for consents and to arrange contractors and funding and then another two years to complete construction. If the market continues to rise, you could have made more money by staggering sales throughout the development period.

The flipside is you may not want to miss the market and have product left unsold once construction is complete. If prices stay flat or go down then you are in a better position by having your product pre-sold. However, if the market continues to deteriorate and the value of the home becomes less than what purchasers paid you will start to see settlement risk. This is when purchasers are no longer willing or in a position to obtain their own funding when the time comes to settle. If the value difference is greater than the deposit held then this puts the developer’s profit at risk.

So there are positives and negatives to presales. Nevertheless, the ‘pre-sell or not?’ question is often one the developer has no control over anyway. An external lender may require pre-sales before advancing construction funds. Therefore, without pre-sales there is no project. For example, in the middle of a rising market the lender may require 50% of the sections or houses pre-sold. So the developer works as quickly as possible to secure those pre-sales so they can tie up financing and contract with a builder to commence construction. Only once pre-sale numbers are satisfied does the developer have the option to consider whether to pre-sell the remaining product or sell it down during construction or hold it until construction is complete.

Experience shows that after a prolonged rising market where lenders become increasingly nervous, or at the start of a rising market where the pain of the last downturn still hurts, then lenders may require an even higher pre-sale percentage. The requirement can be as high as 120% of the amount borrowed. That means the developer must achieve enough pre-sales to cover the entire loan amount — this could be 80% or more of your sections or homes.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

You can create additional income by selling upgrades or optional extras with your sections or homes. It may be all your competitors are doing this and you must provide optional extras in order to compete, or no one else is doing it and this is your point of difference. You can offer just a few upgrades to add interest to your sales and marketing or a whole household menu of items. The extreme example is where every home is customised to the individual purchaser such as when you provide full interior design services.

What you offer as an upgrade means you are not providing it as part of your standard base product pricing, so this needs consideration in light of your competition and target market. Your buyers may consider some upgrades as necessary items and view an upgrade as cheapening the base product. For example, while offering a tile upgrade to vinyl flooring in the bathroom may be reasonable for affordable housing, it would be ridiculous to have vinyl as standard for luxury homes.

 Upgrades and optional extras to your sections and various house features are only limited by your imagination and the vast amount of products available. Here are some ideas:

Sections

• Fencing packages.
• Taking grassed building footprints to foundation ready with hard-fill and retaining.
• Driveway crossings.
• Adding additional services like gas (assuming the main trunk gas line is installed).
• Irrigation.
• Section contouring and landscaping.
• Retaining wall upgrades (from timber pole to crib wall or stone).

House Structural, Services & Design

• Room conversions like adding a bathroom, extending a toilet to include a shower or turning a second living into a bedroom.
• Adding a kitchen island, extending benchtop.
• Skylights.
• Upgrading sliding doors to French doors or bi-folds.
• Adding electrical and data points.
• Electrical upgrade to gas water/cooking.
• Underfloor heating.
• Heat pumps/air-conditioning/fireplace.
• Air pressurisation ventilation systems.
• Burglar alarms and intercoms.
• Sound system wiring.

House Finishes & Fittings

• Hardwired appliance upgrades (dishwasher, oven, range-hood).
• Appliance packages (fridge, washing machine, dryer).
• European (or more luxurious) kitchen and bathroom fittings.
• Feature lighting.
• Feature kitchen tapware.
• Rainwater shower head.
• Tiling material upgrades.
• Tiling from floor only to floor and wall.
• Kitchen and bathroom benchtop upgrades (laminate to engineered stone to granite to marble).
• Carpet weight or quality upgrade (from 20oz to 32oz, from synthetic to wool).
• Wardrobe organisers.
• Garage storage systems.
• Garage marine grade carpet.

Home Furnishings

• Curtains and blinds.
• Custom furniture packages (beds, sofas, tables, chairs).
• Custom built-in cabinetry.

External House Works

• Decking and paving.
• Pergolas and sun shades.
• Clotheslines.
• Security lighting.
• Video surveillance.
• Utility sheds.
• Swimming pool or spa.
• Green waste systems.
• Letterboxes.
• Landscaping packages.

While it is all very well to offer a vast menu of extras to buyers, they do present delivery complications. Product selection needs to be confirmed before the house reaches the relevant stage of construction. Confirming upgrades during the pre-sale stage allows you to add them into construction contract negotiations. However, once construction has started you will need cut-off dates for when upgrades can still be accommodated that don’t delay the construction programme. Items such as tiles can have long lead times so the cut-off date may have to be many months before installation.

Managing the delivery of numerous extras requires additional resource and systems from agent, developer and contractor. You may already be offering different colour options, and integrating additional upgrades can get complex. If your project has multiple house designs, an option may require different pricing based on each design. For example, upgrading the carpet requires each house type to be measured. Adding a room may be simple in one house type, but require structural changes in another. Some extras may require design changes by the architect or other consultants or even a revised building consent, increasing the cost and taxing management resource further. Without a dependable communication process (from buyer to agent to developer to project manager to designer to contractor to subcontractor to supplier to manufacturer), mistakes will be made. Resolving the mistake later (like adding a wall) can easily affect the critical path and cause rework with additional cost.

For those reasons you have to charge a high margin to the purchaser, on top of the contractor’s margin, to justify providing upgrades and extras in the first place. When the real cost is promoted it may look very expensive to purchasers and deter them from upgrading.

Offering supplementary upgrade services beyond physically altering your product is a further option. Consider financial products by establishing relationships with funders and mortgage brokers. You could also provide post completion management services. If you convince suppliers that you are presenting them with a captive market and purchasers in bulk you should be able to secure some favourable deals. These can include:

• Lower interest rates (bank promotion for the development as opposed to the developer buying a lower rate for buyers, effectively hiding the cost in the purchase price).
• Low deposit bonding.
• Discounted property insurance.
• Advanced financial engineering products such as rent-to-own schemes and equity share.
• Property management and letting.
• Property and landscape maintenance.
• Long term home warranties or new build insurance (if not already provided by builder).
• Utility service agreements (i.e. you become the retailer to the home buyer by securing a distribution agreement with a wholesaler that allows you to take a margin).

Upgrades can equip you with negotiation ammunition in a softening market. You can throw in some extras when negotiating one on one with buyers or even convert some of your upgrades into your standard offering without decreasing your purchase price. Of course this will hit your bottom line profit but it will provide greater psychological value preservation (to potential buyers) than dropping prices or offering gimmicks like a ‘free holiday to a tropical island’.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com