When The Price Isn't Right

I had an interesting conversation yesterday with a very frustrated sales agent.

It seems his builder’s pricing has become non-competitive in the market they are positioned in, and it’s tough for him to close any sales.

While I can sympathize with his point of view, it’s not always about price in this business.

Remember that reference site ontariocontractors.com I spoke about in a couple of previous blog posts? There is a calculator there that illustrates the difference between three types of builders: tract, custom and high end.

The term “tract builder” came out of the 50s, when the post-war baby boom was occuring and developers were buying up whole tracts of farmland on the outskirts of every major city in North America — literally manufacturing whole suburbs at a time.

These major builders are experts at low-cost, high-volume construction. They are a bit like Ikea, or Walmart. Systems replace people, and price point rules. They serve the mass market very well, and bring thousands of new homes to market every season. We absolutely need them; our economy relies on them greatly.

I worked for tract builders for years, and I have an appreciation for their organizational ability and their financial strength. But at the same time, it vexed me to see how inflexible they can be in dealing with trades, suppliers, and homeowners.

Basically, there is nowhere else where the phrase “you get what you pay for” applies so well. Tract builders put out reliable, well-planned standard plans. As long as this is what you are looking for, they are your best bet. But if you want to customize, or think you may want to be part of the process, you are going to be a lot lighter in the pocketbook and a lot more frustrated when it’s all done if you choose a tract builder for a custom home experience.

Tract builders make their profits on the extras. Believe me when I say what you save on the original price will be long gone and more before the roof is shingled. Average upgrade fees are between $20,000 and $50,000 (This number was given to me today from a tract builder’s sales rep being unusually candid.) That’s the average “plus” every buyer ends up paying over and above the list price. And that number is from a builder who produces over 200 homes each year.

My frustrated friend is in a tough position, though. His builder claims to be a custom builder, but behaves like a tract builder. Without the volume and the organization behind him though, he is priced as a custom builder with a tract builder’s attitude. The two do not make a good combination.