|
How does buyer financing currently integrate with custom home marketing?
The typical marketing and financing programs for custom home projects virtually assure costly methods and extended sales times. Usually, a developer first confirms that buyer-financing products are available. They then decide to work with a local lender or bank loan officer who may or may not have experience with land and construction. Buyers are shown lots in hopes they'll buy based upon location, a golf course or the view. Once the buyer expresses interest, the sales agent sends the buyer to one or two selected Loan Officers, or leaves the buyer to whatever may happen in the open mortgage market. The Loan Officer advises the buyer to close the land with whatever land financing terms are available, and then sends the buyer off to design the house. The buyer doesn't find out if they can even get a construction loan, let alone how much cash they'll need until they have their plans, permits and their contractor. In many cases, the homes take longer to get started than originally anticipated and sometimes never get built at all, because inexperienced buyers are left to decipher a complicated process with little or no help.
Why is this costly and ineffective?
One word: FEAR. Buyers often want to build a custom home because they don't see anything on the market that is perfect for them. Rarely have they researched what is involved to achieve their dream. After the initial "honey, we-could-build-exactly-what-we-want" excitement wears off, buyers realize there is much more to building their dream home than the size of a "big" family room, or whether they want a three or a four-car garage. Important questions begin to surface with no reliable resource for the answers.
"How does the permit process work?"
"What is design review?"
"What are school fees?"
"What are soft costs?"
"What is included in $100 per square foot?"
"What does loan to cost mean?"
"How do draws work?"
"What is a contingency?"
"Why does the lender say my house won't appraise for what it will cost to build?"
"How much cash do I need now?"
"When do I have to make payments?"
"Do I have to own my land free and clear before I can build?"
"What is hardscaping?"
"What are mechanics liens?"
"What kind of insurance do I need?"
This is just a sampling of questions a potential buyer may come across in the early days of due diligence. Sales agents, architects even contractors can each provide answers to some of these questions. However they rarely paint the whole picture, and often contradict each other. The buyers begin to realize that they have begun a complicated and exhaustive process with no single resource to guide them. Horror stories surface about people who bought and never built due to poor financial planning or marriages that split over the arguments that took place during the build. No one with the buyers' best interests in mind knows how to smoothly take them from land to finished home.
With so many unanswered questions, uncertainty turns to fear and soon these custom lot prospects are back out looking for new homes or re-sales with their Realtor. Even if they decide to move forward, the construction ignorant, refi-busy loan officer they are working with uses a "You qualify today or go away." sales approach that scares or angers away many "fringe" buyers. These buyers would love to buy a custom lot, even at full price if they only knew they could. The developer is left deciding how much more money needs to be spent on advertising, and paying the additional carrying costs for unsold lots.
What does a buyer want?
The buyer who is looking to move into a custom home actually wants the same thing a resale or production home buyer wants; a well-built, solid home that reflects their lifestyle and taste. However, in trying to achieve this goal, the process becomes difficult along the way. A resale or production homebuyer gets an all-in-one package when they buy. Most good realtors can effectively cushion the home buying experience into a simple convenient process that minimally impacts the buyer's normal life. The custom buyer wants the benefits of a home designed and built for them with the same guidance and convenience. No one begins a project expecting it to have a negative effect on their career and maybe their marriage. But unbeknownst to them, the road to get there can require more than twenty people helping them through many stages over a year or two or longer. There are many pitfalls that can damage them financially and emotionally. They want someone who can take all of the mystery and fear out of building a home.
What does a buyer need?
Custom homebuyers need education and guidance. They need to realize that the process of building a custom home is a long term, wholly involving, financial, emotional, physical process that properly executed can be both financially and emotionally rewarding. When they walk into a custom home development where there are only vacant lots for sale, they need to see that the process has already been defined for them. They need the security and trust of knowing that the developer's sales team has interest in helping them realize their dream instead of just closing a land sale. They need a guide knowledgeable in homebuilding and financing. They need this guide to take them by the hand, advise them of what questions to ask as well as where to ask them. They need to know that their guide has a strong vested financial interest in the success of this project long after the lot sale has passed.
How can Stratford Financial make a difference?
All custom homebuyers would build their dream homes, if only doing it were easy and affordable. By removing the financing and process obstacles in the beginning, we allow the project's existing sales team to help buyers achieve their dreams rather than fight their fears.
We walk the borrowers throughout the entire process. We start with their personal finances. We discuss how their finances are going to look over the next 2, maybe even 3 years. We help them engineer a plan that integrates their finances with the process of building while incorporating a wide array of home, land and construction financing products. Accounting for time and financial requirements, we insure they know from day one exactly how to achieve their goal of having a finished home. We educate the buyers as to the players involved and their roles. This way the buyers don't expect a builder to do the job of an architect. We analyze the issue of cash flow, expense and tax deductibility so they know all the benefits and have no surprises. By eliminating myths and unrealistic expectations, we make it easier for the buyer to digest how the land purchase fits within the time frame of building and completion.
This method also helps the developer. By helping the buyer look at the total end cost and value of the finished home, any small issues regarding the cost of the land become minimized particularly if there is underlying equity. Why would a buyer be concerned about the price of a lot when they're making money on the whole project? Teaching buyers these facts make land sales easier.
When is the best time to work with Stratford Financial Services?
The earlier Stratford begins, the more effective we can be. Many developers consult with us during engineering so they can integrate our programs into their pro-forma. We have the resources and knowledge to research the market as to home size and appraised values. This information can be used to design the optimum value for minimal cost attracting many custom lot buyers seeking value. By starting early, we can integrate a marketing program with your sales team that removes most of the obstacles and provides education up front. We can develop printed materials that make the sales job easier. Many times we can get investors to create lending products specifically designed for a project. Many of these programs can take some time to develop, so lead-time is important. We want to be ready to close loans when you start releasing lots. Remember also, the buyer has a long road to travel. The sooner we start working with your buyers, the more successful we will be at identifying and removing the obstacles, thus helping you close the sale. If the buying and financing process is easy and flexible, you will broaden your market and close out your project quickly.
|
