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Maximizing Home Builder Profit Margin: Reducing Sales Errors (Part I)

By Star Report 4 min read

By Carol Douis, Sales Leader - New Home Star //

As a Sales Leader, it should always be your goal to help maximize and protect your builder’s profit and margins. Homebuilders are always looking to maximize margins by accessing overall cost, variances, and building systems. In your partnership with your builder, you must help influence decisions which will maximize profits by giving guidance on lot premiums, lot releases, and option pricing.

To view other parts of the article series, please click on the links below.

All of this feedback should be coming from you doing your do-diligence, and from listening to the trials and tribulations that your sales team is experiencing. Below are some ways that we can reduce sales errors amongst our team and take more ownership while maximizing results for your people and your builder.

Maintaining Accurate Collateral

Sharing outdated pricing, features, floorplan collateral with a buyer can be costly for a builder. When a customer finds that what was promised to them is not accurate, they first distrust the sales agent but eventually will distrust the builder. Compensating a buyer here immediately reduces margin. As a result, potential customers may be more hesitant to refer a friend which can cost your builder tens of thousands of dollars. Ownership Solution: Help the rest of your sales team get into some good habits. Any collateral they have should have a revision date on it, and they should consistently be discarding any outdated materials they come across.

Timely Collection of Builder Deposits Delays in collecting deposits mean carrying more overall debt which results in higher overall cost. Should a buyer default, and the builder is not in possession of the full deposit, they lose the ability to balance out the additional cost to put the home back on the market. By that point, a buyer will be less likely to default with more money at risk. Collecting change order fees also fall into this area of sales responsibility to maximize profit.

Ownership Solution: Have your sales professionals deliver written expectations for deposits and change order fees. They should be marking both their calendar and the buyer’s calendar, with reminders. In addition, they must continue to review their backlog weekly and alert you and the builder of any deposit delay that may impact decisions on moving the construction forward.

Pricing and Contract Accuracy

Mistakes in pricing and contract paperwork is a common area of loss of profit for your builder. You do not want your sales associates to be known as the ones that consistently make these costly errors. Not only will it hinder their reputation with the builder, but it will affect their relationship with the customer involved.

Ownership Solution: Encourage your builder to use a contract software program that populates pricing. If in fact, they agree to use this software, ensure that your people are checking and double checking all pricing components.

Managing Changes and Cutoff Stages

Design selections or change cutoff stages are created to protect margins by eliminating rework, waste, and delays. Without enforcing these procedures, you will cost your builder and the construction team countless hours and dollars.

Ownership Solution: Understand these cutoff stages and make sure your team understands them as well. Once they fully understand the stages, they should be using them to create urgency for their customers to buy while there is still time to make a change or selection within the builder’s schedule.

Scheduling and Communication

Delayed decisions, design appointments, and other customer deadlines can all impact a builder’s profits. Moving a closing from the last day of the month to the very next day could cost thousands in interest carry. Even short delays are costly. Homes are priced based on a defined cycle time and time is money.

Ownership Solution: Set expectations with your sales team and ensure they are adhering to any builder change order policies and fees tied to them. They should also be looking at each contract they write to see if there is a daily penalty for a buyer who delays a closing through no fault of the builder.

All of the points we hit will enable the sales professionals on your team to take responsibility for everything they can. At the end of the day, doing so will empower them to get better results and will enable them to grow stronger relationships with their buyers and the builder. By instilling these values and best practices in your team, everyone can begin taking responsibility and maximize the builder’s profits today, as well as earn their respect tomorrow!

Originally published May 14, 2018 under Explore the latest topics, updated March 7, 2024

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