Live from Las Vegas at IBS 2023 in the Custom Building Central!
At IBS 2023, we hosted a panel session that was all about changing market conditions and how they provide opportunities. Moderator Jad Buckman spoke with panelists Kevin Oakley (Do You Convert), Kyle Kelly (Kelly Construction) and Rob Krohn (Epcon Franchising) to discuss proven strategies for growing your home building business in any market cycle.
Jad Buckman: First, just want to welcome everyone. Thank you for being here. I’d like to do an introduction of our panel this afternoon and let you know who you’re going to be hearing from. I’m Jad Buckman. I lead business development for Epcon Franchising.
With us today, Kevin Oakley, managing partner of Do You Convert, Rob Krohn, VP of marketing for Epcon Communities and Epcon Franchising, and last but not least, Kyle Kelly, president of Kelly Construction and Epcon Franchise Builder. Thank you all for being with us today.
As we’ve been talking with builders around the country, especially in the last six to eight months, the conversation has begun to shift away from issues with production and supply chain and has moved toward this recurring theme that sales have hit a brick wall.
That at this point in time, new business is more difficult, buyers are hitting a brick wall in their decision to buy a home, and more and more builders are looking for guidance in how to move past these walls. With that, we want to begin the conversation with pre‑selling.
Kevin, pre‑selling is a novel concept for most custom builders. Do You Convert was obviously one of the first in the business to start promoting the idea of pre‑selling. What key points would you like to emphasize for our group today? What could they take away?
Kevin Oakley: Pre‑selling has become a lost art among all builders over the last two years because everyone decided that costs are changing rapidly, timeframes are unknown, so let’s just build the house and customers are optional.
In fact, we first saw that even pre‑pandemic in 2019. Our builder in Seattle in one of our calls said, “You know what, we’ve realized we, customers, are annoying. If we build the house, it sells, so we’re going to stop having customers until the home is done.”
The problem with that is that now, if you have inventory, one of our builders in Austin, he’s not a custom builder, but they have a lot of unsold inventory homes. They’re not worried about it because as long as they adjust the price to market, they’re continuing to move.
They can’t get customers interested in a pre‑sale home again because of a couple things. One, their sales team has forgotten how to sell the benefits of a pre‑sale, personalization, customization, timeframe, more time to make a decision, and how you’re going to transition from one home to another.
The second is what is the rate going to be? All the unknowns. One of the challenges that’s a little bit unique is that originally, pre‑selling homes was more about creating urgency and demand regardless of market conditions.
You build a list of interested parties or you talk a little bit about what the community is going to have in it, and then you build that one‑of‑a‑kind urgency using the process.
Now, customers need more emotional energy added to the idea of a pre‑sale purchase now because of the uncertainties of what the rate’s going to be when I’m done if I’m not using a construction loan. I don’t know when you’re going to be finished.
If I’m living in a current home and my house isn’t done, am I going to be homeless? Because we all know that there’s not enough inventory available for sale.
All of those unknowns mean that we have to learn again how not to just sell the benefits of being able to make selections, but about the benefit of the overall process. That’s unique and different from the way we were talking about it just a couple years ago.
Jad: Absolutely. Thank you, Kevin. Leading up to this, you talked quite a bit about messaging. What does the message need to be to help those buyers get over the emotional hurdle?
Kevin: We manage about $4 million a month in digital advertising for those around the country. The best messaging point for those of you who are taking notes that gets the lowest cost per interaction with the customer right now is this, design and price your home in an hour.
Most of you who are custom builders, I built a custom home, you’re like, “That’s impossible. Why would you say that? That’s setting very poor expectations.” We’ll get to that in a second. The more interesting thing to me is why does the consumer respond to that message so well, especially right now?
It’s because a lot of buyers in today’s market have been looking for a long time. What they don’t want is to have to come in and have another two‑hour conversation about all of the things that could happen only to find out that they can’t afford it or something about the process won’t work.
They want to quickly establish, “Can you solve my problem, and can I afford it?” If not, let’s please shortcut this. That’s the part of the marketing messaging that the consumer is responding to.
Now, the interesting thing is the builders who are using that messaging are finding out that it really doesn’t matter if you can get done with the whole process, but within that hour, can you conceptually tell the customer, “We can deliver a product that will meet your needs within your budget or at least be in the range?”
Part of what we have to understand is that the messaging has to, what I say, just directly hit the objection that we know the customer has. A lot of times, you want to dance around affordability questions, availability questions, or is this process simple or not?
Right now, the consumer has no patience for any of that. They want to get good information quickly and have the ability to move forward.
Jad: Thank you, Kevin. Kyle, we’ll shift over to you. As someone with a custom‑building background, can you tell us about your experience launching your first step‑down community following these precepts of pre‑selling and the marketing that goes with it?
Kyle Kelly: Absolutely. As he said, our background from founding up and until now as well in adding in the Epcon product has been a mixture of custom, spec‑built, and pre‑sold. That’s how we got our start. We started speaking our very first home, and then it was off to the races from there.
We always just thought that we had to do that mixture of both, but then just as all of the trends and most builders out there did in 2020, ’21, we frankly got sick of customers and didn’t want them involved at all. We are 100 percent spec right now in our traditional building product. We have a whole bunch of inventory homes sitting right now.
They were great to build because we got to pick everything, we got to choose everything. We had nobody breathing over our back telling us we weren’t moving fast enough or it wasn’t done right. That piece of it was fantastic, but now we have a whole lot of stress of having unsold inventory.
As we became introduced to Epcon, it was just from a play of wanting to be able to scale faster. Be able to build more product without cannibalizing the product that we’re already building. That was fantastic. What we didn’t know going into it was that they had this systemized sales process that they really encouraged us to use.
We dove right in and used it completely. We figured they’ve been doing it for 30 years this way, what could be wrong with it? That process that we’ve just really fallen in love with is taking that sales process all the way from churning this interest in the market, having informational events, then shortly thereafter, having a reservation event.
At that reservation event, taking deposits on a specific home site. Refundable deposits at that point, but doing it in a very specific way without getting into the weeds with that process. Making it exciting, making it a fun event, but making it a competitive event.
When you have it, there’s urgency. People come to that event with their first, second, and third lot picks. If the first one’s gone because it’s a lottery system that we do. Some people came with their fourth, fifth, and sixth picks, which was exciting to see. Some of them got all the way to those picks.
We didn’t even have streets in our development yet, but we walked out of that event with 14 lot commitments at that point, which in our market, was absolutely fantastic. Our bank loved to see that.
It just gave us reassurance or assurance that the product was something that the market wanted, but also that we were going to have buyers there when we were ready to roll, when we were ready to release the lots.
Jad: Thank you. As you were going through that process, Kyle, did you expect it to work so well? What were your expectations going in? What surprised you most about your experience moving away from speaking or waiting for the phone to ring to moving to pre‑sale?
Kyle: It beat my expectations. Leading up to it, we were seeing with our social online interaction that we were going to have a pretty good response to it, but still, I was trying to temper my expectations and be a little pessimistic about it. I was hoping for 10 coming out of that, so I was surprised.
I think what I was maybe most surprised about was that this was a brand‑new product to the market. We didn’t have a model to show. We didn’t really have anything to show other than some drawings on paper, but some really fantastic collateral that Epcon provides to show images, videography, Matterport tours, and presentations from other communities that have launched.
That we could have that much success just showing what the community was going to be on paper without being able to actually show them, or even drive them out into the community because we couldn’t access it at that point.
Jad: Very helpful. Kevin?
Kevin: I think it’s important to just do a quick refresher that when I wrote Pre‑Sale Without Fail, when we started using this specific pre‑sale process, the year was 2008.
When he talks about being able to, without a model, without streets, without all these things, sell homes, quick survey of the room, how many of you, by show of hands, are having a better January than you expected you would have?
Fantastic. I love it. I’m excited for all of you. Yet the sad news is that Ali Wolf and Robert Dietz, two more important names, but then also Kevin Oakley, all would predict that the first quarter of this year is all that’s guaranteed. Right now, some of you are thinking, “Well, OK, maybe I’ll use pre‑sale as an option or I’ll have a mix like Kyle was talking about.”
No one’s predicting that it’s going to get anywhere near ’08, ’09 levels, but pre‑selling is not optional in a down market when you’re in a room like this. Meaning that if you’re DR Horton, you’re LGI, doesn’t really matter. You’re going to do what you’re going to do.
If you’re going to be a custom builder and you cannot pre‑sell in a down market, you will have skinny children or you will go out of business.
It is a skill set that must be learned. When he’s talking about are you surprised by the process, most of you have built enough homes that you don’t have to see a written process anymore. You know the home in your sleep, like how some of us drive to work and we don’t know how we got there, more or less. You’ve done this enough that the house could be built.
It has to be walked, it has to be inspected, all that, but you know how to build a house and you know the critical path. When it comes to pre‑selling, if you don’t have a written critical path, it doesn’t have to be my path or Epcon’s path necessarily, but a path that’s written down that you can iterate and learn from each time, then you’re just winging it each time.
You don’t have the ability to learn from past mistakes.
Jad: Thanks, Kevin. Rob, we’ll shift gears a little bit. I think we started in the wrong order because is it sales and marketing or marketing and sales? In order to execute a quality pre‑sales strategy, marketing is critical. Rob, maybe you could talk about Epcon’s strategy or the resources that are available to help builders launch.
Rob Krohn: My opinion on the marketing and sales is pretty clear‑cut. Marketing comes first, sales come second. Nobody buys anything unless they know about it.
Rob: If you think about a pre‑sale model, you don’t have anything. It’s an empty cornfield, the desert, I don’t know, but you have to create the vision. Put it in people’s heads. What is it that’s coming? How’s it going to benefit me? What’s it going to look like?
We, within our network, we have 80 Franchise Builders on top of being a corporate builder ourselves, we do a lot to bring those assets to our builders. To say, “Here’s an empty field, but what’s going to be there is going to be amazing.”
It’s through photography, virtual assets, video, commercials, and other types of things, we try to set that vision for our buyers so that they can see it. They can’t touch it, but they can virtually touch it, they can explore it, and they can tour it.
That’s what we try to bring to our builders so that they can really start to paint that picture for that buyer. We have a marketing co‑op to invest in those things. We’ve been investing in those assets since 2008 some of the very first virtual tours that were available.
Just imagine how much easier that is to pre-sell a buyer, as well as pre‑selling a zoning board. What are you going to be bringing into my community? You’ve got to convince the mayor, you’ve got to convince the housing council that you’re going to be bringing X product or X type of community into their area. They want to keep a lot of things out. There’s a lot of NIMBYs out there.
How do you start to paint the picture for them to get quicker through zoning? How do you go to your banks and say, “This is what we’re going to be building,” a type of product or a type of community? Show them where those funds are going to go and what their likelihood is of getting the return on the money that they’re going to loan you.
It’s not just about a buyer, but it’s many steps prior to that. All those steps have to happen in order to launch a product, launch a home, launch a community. It’s great when you have a spec home, you can go physically touch it, but you’ve had to invest a lot to build that home. If it’s not selling, you’re just sitting on it.
In a pre‑sell model, you get to use those funds that people put down and invest that into the building process that you’re going to do.
Kevin: You can cut the mic anytime you need to. How many people in this room, by show of hands, if you build or sell fewer than 20 homes a year, raise your hand? About a third of you. What we’re talking about is if you have the right tools and the right partners, who here has kids that buy clothes on an app called Shein?
Most of the clothes on this app do not exist. When your child, in my case, teenage daughters, 13 and 16, order a piece of clothing, that clothing does not exist. It’s been digitally created. It’s put on a digital model. They think for $3.50, that T‑shirt looks pretty darn cool.
They’re not going to get it delivered maybe for 30 days because it doesn’t exist yet. They’re taking pre‑orders. What does Tesla do when they launch new cars? They take pre‑orders. A software that I know Epcon’s big on, Higharc. The ability to digitally create a floor plan or 10 and then show your potential buyers, “Here’s 10 homes that I could build for you,” in that digital representation.
Even if it’s not in a community Epcon setting, you can take all the things that Rob was talking about and apply to even folks who are doing 20, 30 homes a year by saying, “I could build any one of these 10 floor plans that are fully designed digitally, you can walk through on this home site. You get to pick the 10.”
That’s not typically how custom builders work. Let’s pull out a blank sheet of paper and dream. Well, dreaming takes months, and sometimes people get divorced over it. If we can simplify that part of the process, it’s a good idea, too.
Jad: Absolutely. Kyle, what marketing resources did you find most helpful as you were moving into this business?
Kyle: I would say the most useful, we had two stages. We procured our land and had to take it through all of the governmental bodies, but then also in the pre‑sale process. It was helpful in both because really, there are always questions about the lot dimensions that we want to do and the lot configuration and whatnot.
To be able to show that from other communities, whether it’s from aerial photography or just really high‑quality imagery, or high‑quality drawings, sketches, and whatnot, showing the configurations of the homes, that’s what helped us the most as far as making it a breeze, taking it through the city, and getting our approvals on it. Many video drive‑throughs of other communities.
As far as what helped us the most in selling the community ahead of time, everybody’s visual. All of our buyers, we know are visual.
To be able to walk them through the homes from other developments, whether they were corporate developments or other franchise developments, through the 3D modeling or anything like that, that they could get as close to touching it without touching it as possible was a huge win for them.
It gives them that assurance. They know that, “Hey, if it’s going to look something like this, if it’s going to be substantially what I’m looking at here, then yes, I’m willing to sign my name to a document and at least put some refundable money down.”
If you can get somebody to that point, even if it’s refundable money, they are psychologically committing to that. To have a signature on a piece of paper and a check that you’re going to deposit, even though all they have to do is ask and they’re going to get it sent right back to them immediately, most of the time, they have committed to that sale at that point.
Jad: Thanks. Kevin, one more for you. In the same vein as your daughters buying pre-sale clothes online, can you talk about how this pre‑selling methodology affects the buyer as well as the builder?
Kevin: Has anyone ever experienced a situation where you get someone to write an initial purchase agreement and then it seems like they become world travelers? Like, “Hey, I just need that other document. I need you to make this selection.” Like, “Oh, I’m in Greece for three months. We’ll get back to you on that.”
They just don’t seem to have urgency because in their minds, they’ve put…In our minds, we think we got the sale. In their minds, they gave a reservation that may be refundable or partially refundable. It’s like now we can just relax and either keep shopping or just know that that’s available, but they don’t have the same sense of urgency.
One of the things that we’re big on in the pre‑sale process, which always makes salespeople mad, is we train them how to say, “No, not yet.” All the way through the urgency process of releasing information about the home that you’re going to be selling or able to allow people to contract on, someone’s going to say, “OK, I love it. Can I give you a check?”
You have to say, “No, not yet.” Practice that and learn different ways to say that without throwing up if you’re a salesperson who is used to taking checks all the time. What that does is it creates a clear sense of who is in control of this process. That the builder is the expert.
If you want this home, you are going to need to follow the process that I need you to do. That means that it’s not just an initial agreement with a check. That I need you to finish your selections on time. I need you to turn in that paperwork. I need you to get pre‑approved or get a full approval from the mortgage company.
The biggest pushback anytime we talk about the pre‑sale process, and hopefully, you will have questions about it and how it’s changed too for us, but is, “Well, it just seems like this is drawing out the process and making it longer than it needs to be.”
What we tell customers is, “We’re going to be in a relationship with you for a year. You need to learn more about us and we need to learn more about you so we can make sure that this is a good thing for both of us.”
In the end, the high‑pressure sales feelings that they get are all internal to them. You’ve spent a month making sure they have all the information they need leading up to this release event or when the home can be contracted. They’ll look at you and be like, “Oh, this is really nerve‑racking.”
Like, “I know. I understand, but there is really high interest in this home or this community. I’ve spent a month slowly giving you all the information you need so you can make a well‑informed decision. It’s not me. I’ve released this information to you in a logical path.”
“Any urgency you feel is coming from within. I wish I could take that away from you, but the only way I can do that is if you do everything I need you to do and then turn in the contract on that date complete with a check.”
Jad: Thanks very much. We’ve got about five minutes left, so I wanted to open it up for questions from anyone who’s here with us today.
Audience Member: Hey, what did your reservation event look like?
Kyle: I’ll even backup prior to that. 30 days prior to the reservation event, we had an info event. Held it at a golf course country club that was close to the development that we are launching. Had it catered, had drinks, and had a real build‑up to it.
We did that informational event first just so those people that we were getting logged into our CRM, they were building up our VIP list is what we call it, building up this community of people that are really interested in what our product was but knew very little about it.
30 days before, we have the info event. We give a decent amount of information at that point, still not a ton of information, but enough to where we’re still keeping their appetite very, very high. Then 30 days later, we have the actual reservation event.
I have to think back a little bit to that of how that was run. We had our agent pretty much interacting with everybody that was RSVPing saying that they were going to come.
We actually had him do a half an hour to one hour sit down with each one of them because we wanted them to come with at the very least, which floor plan they wanted because that would help us guide them to which lots would work best for one of the three floor plans that we offer in our development.
At that point, he could have some one‑on‑one education with them and also tell them, “Come with your first, second, and third lot choices because it’s going to be a drawing as you walk in for which position you get to pick. You might be the first person that gets to choose your lot or you might be the 35th person to choose your lot. Be prepared. Have backups in place.”
Once the event started, people walked in the door, they drew a number out. We logged that number down, but then we threw all of those numbers into a bowl so it wasn’t just first person in was the first person to choose. It was like a lottery at that point. It was fun. Like, “Number 301.”
Some people would jump out of their seats with excitement that they got to come up front. We had a big graphic of the neighborhood. They would stand up there. Most of them would come up and say, “I want Lot 37.” They would just know. Some of them stood up there. One gentleman, in particular, was up there for 15 minutes. We had to say, “Dude, there’s other people here. We got to keep this moving. We’re losing the room.”
The moment they chose their lot, we shifted them over to a table where they would sign, they would hand over a check, and they’d go back and sit down. At the same time, we had the next person coming up and choosing their lot. We kept it moving. It was an hour long.
Audience Member: Thanks.
Rob: There’s a psychology to that. It’s, “Other people are here and they might get the lot that I want. Now that one’s more valuable if I get it.” It’s a higher emotional commitment by that buyer to the home that they’re looking at and the lot that they’re looking at.
You’re seeing all these other people, so you get that communal effect. All these other people are interested. “This is something that I should really take seriously.”
You put out the commitment that they have to make between that information event and the reservation that, “This is serious. We’re going to go through these steps. Are you committing to going through these steps?”
Now it’s not just a, “Here’s my check and I take off for a couple of weeks.” They know if they don’t follow the steps you’ve outlined, they’re probably not going to get the home or the lot that they’re looking for.
Jad: Thanks, Rob. Any other questions?
Audience Member: I’m just curious, what was the earnest money requirement?
Kyle: Earnest money, just as a technicality, it’s a deposit. It’s a deposit that we get to put into our checking account the next day. Earnest money would go into a trust account that we couldn’t touch. This is a deposit that we get to use as working capital on the project, which is fantastic as well.
The night of the reservation event, they put $5,000 down. That’s the refundable money. Then when we start releasing lots to go into construction, they then have 10 days from when we release that lot for them to come in and sign a binding purchase agreement. At that point, they put another $5,000 down for a total of $10,000, and it all becomes non‑refundable at that point.
Audience Member: Average purchase price?
Kyle: In our community, the average purchase price is $750,000.
Then, within 14 days, they have to come in and do their design consult and choose all of the finishes, all of them. Within 14 days, they put another 20 grand down. They have a total of $30,000 down, hard money, and then it’s off to the races. No changes after that point, which was hard for us as a custom/semi‑custom builder.
Some buyers got upset. They’re like, “Take my money,” but we had to tell them no. We committed to everybody that was RSVPing to that event that, “You’re all going to have a fair shot at this. It’s going to be fair and equal.”
We had to live up to that. We just told them, “Hey, we’re going to treat you the same way we’re going to treat everybody, and we’re not going to give anybody preferential treatment.”
Kevin: The psychology effect…First of all, if you have never read the book “Influence” by Cialdini, it’s required reading as a business owner, or a sales and marketing professional. Influence by Cialdini is one of the best books of all time about how humans think.
You’re actually at a bigger risk of losing additional interest in your community and sales by putting “solds” and “holds” on before it releases. What I mean by that is, everyone is interested in new communities or new offerings. We know that people do want to be the first to know. They want to get first pick, they want to get the perceived best.
What is best for each individual person is not what is best for every individual person. Let me say that again, what is best for Kevin Oakley is not the same as what is best for you. We have different preferences.
Our perception is, that if one sold or hold sign goes up there or two, or even worse, three, “Well, I missed out. I wanted the pick, I wanted an opportunity at the best, and now this is just like any other open community, and so let’s just look around.”
By withholding that demand and keeping it pent up…Obviously, you have to give them good service, you still have to talk to them, and you have to give them time. Again, that’s hard for salespeople because they’re like, “I’m spending time with people that are not writing contracts yet, and may never write contracts. This makes no sense.”
It’s just like a wedding. That’s the analogy that I use, is that you spend all this time and energy for an event that is short but impactful. When you do a pre‑sale process correctly, the thing that doesn’t get talked about enough is, you go to bed the night before that event, already essentially knowing.
When he was talking about those individual conversations that were happening, his sales team already knew the night before that they were going to probably be writing at least 8 to 10 contracts. That’s very different than going into a reservation event where you have no idea.
This is not a new concept either, by the way. I did write a book about it in 2010. This is what master‑planned communities were doing, gosh! In the ’50s, in the ’60s, bringing down busloads of people, and selling based upon urgency of seeing other people buy.
We’re using that unknown to attract a crowd, because one‑on‑one conversations are incredible and powerful for sales progression. It’s not fully believable when the consumer is reading headlines and articles about how it’s a terrible time to buy and real estate is in the toilet.
It’s only if I can get 15 people to show up in one space about the community or the offering, where they go, “Oh, my gosh. Like, I thought Kevin was lying, and saying that all these people are interested in this neighborhood, but there’s a room full of people here, in a terrible housing market, trying to learn more about this neighborhood.”
It’s counterintuitive, but it is true, that you’ll lose more if you get that initial reservation first.
Jad: Thank you, Kevin.
I want to thank our panel ‑‑ Rob, Kyle, Kevin. Appreciate you.