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June/July 2007 Can discounts and incentives save the day? With demand for homes on a downswing, inventories high and homebuyers in a mood to negotiate, some builders are turning to price reductions and special bonuses to stimulate buyer interest. · Nearly 77 percent of home builders offered some form of sales incentives as of September 2006, according to the National Association of Home Builders (NAHB). That's up from 58 percent in 2005. · Some 60 percent of companies were offering complimentary home-option items as of this January, up from 55 percent just four months earlier, reported the NAHB.1 Whether you've jumped aboard the bandwagon or are still considering the move, these insights can help you make smart choices about using price reductions and “freebies” at your company. Discount Sparingly Discounts are relatively simple to set up and may seem like the most obvious way to attract buyer attention. However, a recent article in Sales + Marketing Ideas magazine cautions builders not to offer discounts too frequently.2 Numerous price cuts can damage your reputation because buyers may perceive that quality is being compromised. In addition, dropping prices may upset customers who have already purchased from you at higher prices and may cause them to worry about their new homes' future value. However, price discounts may be effective when positioned carefully and used sparingly. For instance, you might promote a “quick move in” offer, lowering the price if the buyer closes by a set date. Add Value With Incentives While it may take a little more creative thought, you may find that it's actually less expensive to give buyers a higher-retail-value item - which you can obtain at cost - than to make equivalent cash reductions.2 Choose incentives that increase the perception of quality, so buyers feel they're getting more for their money. Tailor your programs to your buyers and price range, and see what your competition is offering. Also consider these suggestions from Sales + Marketing Ideas magazine:2 1. Buy-down and buyout. Provide a buy-down finance package to the buyer of your customer's existing home. Or offer a renter's lease buyout program. 2. Grab a partner. Collaborate with a mortgage provider to buy-down rates on new homes. For instance, Countrywide has innovative financing programs, such as Builder Rate Cap and SmartStepSM, that can help you close more deals. 3. Call the concierge. Offer interior design consultation, home staging, moving services or a gift certificate to a furniture store. 4. Pay up. Offer to cover the costs of real estate taxes or homeowners association dues for six months or a year. 5. Focus on the outside. Provide free landscaping packages, upgraded driveways, sprinkler systems or deck/patio upgrades at no charge. 6. Add options. Include the most popular upgrades and options in the home's base price, thereby adding value in buyers' minds. 7. Clean up. Give away yard maintenance, such as snow removal and aeration, for a specified time period. 8. Offer a test drive. Allow serious potential buyers to take the home for a test drive. Set out some wine and cheese, turn on the music and then hand over the keys for a few hours. Used with care, discounts and incentives can help your business win customers and close sales even in today's challenging economic times. 1 "Nervous Home Buyers Want More Concessions,"* by John Spence, MarketWatch, posted March 9, 2007, accessed on April 25, 2007. 2 "Add Value. Create Urgency. Mold It to Every Buyer," by Jim Brownson, Sales + Marketing Ideas, March/April 2007.