As homebuilders, we are all starting to feel the “pinch” of pricing increases that have grown at a disproportionate rate from wage growth—and not in our favor. Some markets in the country are seeing up to a 30% premium on new homes, compared with their used home counterparts, broadening the divide and causing homebuyers to raise the question:

“Wait a minute here. Why would I pay up to 30% more for this home when I can get that resale home that’s the same square footage and not that old for substantially less?” 

“After all, that resale home has all the mature landscaping and has stood the test of time. I already know what I am getting from a quality standpoint. And I don’t have to go through the hassle of building a home or dealing with the builder.”

If you were an uneducated buyer, you might feel the same. But you’re not. And this buyer isn’t grasping the value of a new construction home. In fact, a growing number of buyers aren’t getting it.

The Great Divide

The Zillow Group New Construction Housing Trends Report 2018 found that 38% of potential new home buyers considered a new construction home in 2017, but only 11% purchased one. 

As 2018 is coming to a close, this gap between browsers and buyers feels like it is only getting wider. More and more people seem to lean toward choosing the “used” home over the new home.

So, the question remains, how do we overcome the barrier to buying and get our customers to choose our new home over the used one?

We need to convince them of the added value that surpasses the price tag and look at TOTAL cost of ownership. It all starts with the demonstration. As the saying goes, “A rising tide floats all ships.” The great Warren Buffet added, “only when the tide goes out do you discover who’s been swimming naked.”

Stop Swimming Naked

Take a look at yourself. We have been in an upward trending market since 2012. Things are still great, but the job of selling has become harder and harder. Why? Because we are discovering that we ourselves have been swimming naked for a while. We have stopped paying attention to the very basics of the business, of blocking and tackling, because for quite some time now, any activity delivered a positive result. We stopped training on the basics because the sales were coming in with ease. And when sales are really good, we somehow overlook a lot of problems that we either didn’t know we had or were too busy counting our contracts to address. 

This past year, in talking with builders of all sizes all over the country, I have found one consistent thing: we have forgotten to actually demonstrate our homes and the value they provide to the customer over that used home. They aren’t comparing apples to apples because we’re not showing them the difference. 

When I say demonstrate our homes (I stress that “demonstrate” is a verb), I don’t mean walking them through the model home and pointing out which rooms are which. Come on. They know what room is the kitchen—it has a sink and all the appliances in it! Don’t waste their time (and yours) with the obvious. That’s not selling. That’s Vanna White waving her hand.

What Else You Got?

It’s your job to showcase the differences between what they are seeing with you and what they AREN’T going to get in that used home. You have to train your team on the tangibles of the key points that a customer must walk away knowing and understanding. Give them something they can see and touch. You’re not allowed to use the words, “Quality”, “Service”, and “Warranty”. Those are things that the customer expects from you, not why they should buy your home instead of a resale. Make a compelling argument that the resale doesn’t offer the same benefits in the short- and long-term. 

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Selling a home to your buyers means showing them the value of a new home

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So here are some tangibles that you can start training your team on:

1. Close the price gap. If your home is priced 20% more than the average used home, show them why that isn’t actually the case. What are all the items in that used home they will have to replace within a few years of ownership? They’re seeing it as “not that old”, but what does age mean to homeownership?

If the home on average is 10-15 years old, what are they looking at spending for repair and replacement?

   - Roof: on average $8,000-12,000
   - HVAC: $7,000
   - Water Heater: $1,500
   - Appliances: $3,000-$10,000

The list goes on and on, and these items are CASH items, not something that is built into the mortgage. The goal here is to show that it isn’t REALLY that much of a price gap between your home and the used home.

2. Ask them about HERS. Energy efficiency can be a major differentiator in the total cost of ownership. What is the average HERS score of your homes? What does that mean to the customer? Why should they care? Does your team know what the average HERS score is and how to break down the differences to the customer?

Explain how the energy savings contribute to the bottom line value of the new construction home. If we just focus on the house payment, we will lose. The used home is cheaper than the new one on paper, which is why we have to show them where the new home benefits them in the long run. It’s all about the total outgoing expenses that are related to that home, not just the mortgage payment itself.

3. The weekend warrior. Now that we have shown them it’s more expensive to buy the used home, we need to discuss the value of their time. “Do you like doing home repair?” All of those cosmetic changes are going to cost them time and money. Do they have plenty of both? Instead of picking out their new home features in your design studio and getting a home that is truly move-in ready, and built just for them, they will be spending their weekends for the next several years in Home Depot (the used home design center).

4. Address the peace of mind benefit. Remind the buyer about the warranties that come with buying a new home. Everything is covered: the structure, the systems, the appliances, flooring, windows, and more. Tell them to think about buying a used car and wondering what you’re really getting. What’s “under the hood” of the resale home? You expect the home inspection to give you a clear picture, by only a cursory look in an hour or two. These are only going to show the major obvious things that you can see today, not thinking about the items that will come up later.

What have we done here? We have painted a picture that uses emotion with bold strokes of logic.Because that is how the home buying process works.

These four steps aren’t the only things you can do to close the great divide between new and used homes. But if you implement them, I promise, you will see a positive impact right away.