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Plight of New-Home Marketing Companies: Struggling to Survive?

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By George W. Mantor

RISMEDIA, November 21, 2008-Lost among the bank failures and resale downsizing has been the plight of new home sales and marketing companies. Once the high-flying benefactors of an explosion of new home sales, they now find themselves wondering where future closings will come from.

While there is excessive new home inventory at the moment, builders have withdrawn from the market and will not return any time soon. In regions with limited developable land, such as San Diego, they won’t be back at all. Infill, multi-family, and urban redevelopment characterize a builder’s options. They may not offer the economy of scale required by large builders nor the large promotional budget needed to support the infrastructure of a sales and marketing company.

For the most part, new home sales and marketing companies are paid for their expertise and act in a consultant’s capacity, advising developers. At the moment, most of that advice is being directed toward lowering prices because, in reality, it doesn’t matter how much traffic you generate if the traffic perceives the product as overpriced.

Generally, they are the organizations who coordinate the work of an ad agency, designer, and a public relations firm while also providing an on-site sales force. Compensation is usually a commission at closing and, possibly, bonuses for hitting certain milestones. In many ways, new home marketers aren’t all that different from a resale real estate agent.

But, the perception is that new home sales and marketing companies are able to do things that individual real estate agents cannot. Advice on a print media ad campaign or directing public relations initiatives are their primary activities. Generating traffic to the sight and converting that traffic to sales are their objectives.

Obviously, the developer feels as though he hired the consultant to help him make a profit. But, with business dwindling, new home sales and marketing companies can be tempted to not be emphatic for fear of losing the account altogether. As a result, builders have been chasing the market down, compounding expenses and making sales even more difficult to close.

If the developer lowers prices, he is forced to adjust his proforma. Profit margins, already narrow, make it difficult for a developer to afford both the inevitable “mark to market” and expensive consulting.

In addition to not pulling permits, builders with remaining inventory are going to rental, bringing sales and marketing in-house and, in some cases, turning directly to resale brokers.

Add to that the shift away from long established consumer behaviors, and much of what a marketing company offers is obsolete. The traditional forum for new home marketing has largely been newspaper advertising. But, with readership declining and builders being forced to rein in expenses, advertising has been one of the few places builders can make dramatic savings without sacrificing high quality traffic.

There was a time when research and tracking systems were part of the new home sales and marketing company’s value proposition. Unfortunately, many have been forced to reduce or eliminate their research staff as business has declined. And, there is no shortage of research-it’s everywhere and its commonality has lead to its loss of value. Interpreting it so that the client makes the right decision in a timely manner is the new challenge.

Ironically, for equilibrium to return to the marketplace, an awful lot of real estate will need to be sold; some new, some slightly used, and some real trash that will need to be rehabilitated as part of the marketing process. And, if they are willing, there may be opportunities to convert their infrastructure to more of a resale orientation.

Options for participation in current and future real estate activity are somewhat limited. Some are exploring becoming leasing agents, reasoning that if developers can’t sell them, they will need to lease them. But, unlike commercial leasing, residential leasing offers a substantially lower compensation per unit and much of that activity is also going in-house.

About the author: George W. Mantor is known as “The Real Estate Professor” for his wealth building formula, Lx2+(U²)xTFP=$? and consumer education efforts. During a career that has spanned more than three decades, he has amassed experience in new home and resale residential real estate, resort marketing, and commercial and investment property. He is currently the founder and president of The Associates Financial Group, a real estate consulting firm.

Prior to launching his own firm in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition, he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS. He is the creator of the Personal Best System, a business and life planning process, and the Red Zone Time Planning System for Business Professionals.

Mantor can be reached at GWMantor@aol.com.

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