Whether you call them extras, options or amenities, the efficiency with which you sell them and the profitability you derive from them may be a key to success as builders start to see the beginnings of a slowdown in the housing market. Simply ask yourself: Are we doing as much as we possibly can to increase sales of options in our model homes, design centers and Web sites? If you are like most builders, the answer is a resounding, "No."

One way to change your position 180 degrees is to think like a retailer. It doesn't mean you need to start displaying mannequins in your model homes, but it does necessitate a series of questions:
What options are you providing?
Are you carrying too many total SKUs?
Who is staffing your design center and how well trained are they?
Who is staffing your model home and how well trained are they?
Is your model home filled with lavish displays that can never be matched by the homebuyer, thus leading them to be disappointed in their new home?

The answers to these and many other questions, along with a reworking of how you present options to homebuyers, can lead to a potential 60 percent increase in amenity sales, eliminate 10 days from the building cycle, and save sales staff time by as much as 50 percent, according to one industry expert. With all that at stake ... what are you waiting for?

New Homes As Fashion Statements

Many builders today ask their homebuyers to sift through an options list averaging 72 pages in length, with some bulging up to 140 pages, according to Mike Moore, executive vice president of Options Online, a San Diego-based provider of online amenity selection software. The choices range from deciding the actual amenity to the option's color. In all, hundreds of decisions need to be made. The forgotten element is that buyers are not really buying amenities, but they are in fact purchasing a new home which will create a living environment that reflects their personal taste and lifestyle. The sum of all their options selections is what creates that lifestyle. It could be argued that options have no value by themselves, but only have value when blended together with other options to create rooms and the entire home.

Unfortunately, builders are focusing on their own experience, not the experience of their buyers. For many, amenity selection is a one-at-a-time, time-consuming process that typically is started way too late in the sales cycle. Builders need to start directing buyers to make amenity selections while they are still shopping for their new home, focusing on how the amenities will complement each other in the home.

"New-home builders are retailers," says Moore. "A new home is now a fashion item that homebuyers expect to reflect their lifestyle and personal taste." He adds that in a stand-alone community, the model home and sales office act like a "free-standing store." Likewise, Moore equates a master-plan community to a large mall, with the model home in that community equivalent to a store inside a mall.

"Models display lifestyle and design choices that create demand from the homebuyer. It is the home's move to a fashion item that challenges builders to be fashion retailers," he says.

How bad are builders' model homes, design centers and online selection tools? Bad, according to Moore. He compares today's homebuyers to customers standing in a long line at a Starbucks to buy a cup of coffee that they really, really want, only to end up with bad coffee in a leaky cup. "But when you love the drink, you accept the line," he adds.

"How many homeowners are complaining because they are disappointed with their home after they move in ... [that] it doesn't look like the model?" Those same disappointed buyers will be the ones who vehemently complain about the buying process (the Starbucks' line). "If they liked their home, they won't complain," concludes Moore.

Create Incentives for Buyers, Sales Staff

KB Home is one builder embracing the retailing concept. Back in 2004, the company decided to do something about lackluster sales of amenities. Those sales are made doubly important by the fact that KB Home uses an "everything is an option" strategy. Using in-depth surveys of local communities where it is building, KB Home only transfers an amenity to a "standard" when 80 percent of the local population is demanding that particular item. For example, structured wiring is still an option at KB.

Back in 2004, the company started placing a renewed emphasis on selling amenities when it constructed 25 new 9,000- to 15,000-square-foot design studios across the country. The stores themselves are manned by KB personnel, with help from specialists in particular fields in some cases. The formula seemed to work. According to Lisa Kalmbach, senior vice president at KB, in regions where the integration company effectively used the design studio as a showroom to upsell buyers, the average technology sale was $1,300 per home, compared to just $50 in tech upgrades in other locales.

Today, KB has full-sized studios in Jacksonville, Fla., and California, with mini-studios in garages or trailers at other locations. The company is one of a handful of large builders using the Envision online options selection system. Envision is a product offered by Builder Homesite, a five-year-old consortium made up of some of the largest builders and manufacturers in the new-home construction space. Besides KB Home, members that soon hope to adopt and implement Envision include Beazer Homes, Capital Pacific Homes, Centex Homes, David Weekley Homes and Lennar. Other builders involved in the consortium but not yet on the verge of implementation include K Hovnanian Homes, Shea Homes, Ryland Homes, Pulte Homes, Kimball Hill Homes, Toll Brothers, Village Homes, Standard Pacific and more. In all, these builders represented more than 350,000 home starts in 2004.

The implementation at KB is part of a larger design center marketing strategy that includes email and postcard reminders to homebuyers about their design center appointment, along with a vocal recommendation when they leave the design center to log onto the KB Web site and use the Envision system to select amenities, according to Kalmbach. Internally, Kalmbach says she is offering incentives to the design center staff such as Starbucks gift cards and other items. Homebuyers who use the online system will be eligible for a $1,000 Pottery Barn gift certificate.

Creating an Online 'Retail' System

Online design centers can work wonders. That is evidenced by the results experienced by Chateau Interiors & Design, an Irvine, Calif.-based full-service interior design firm that works for Warmington Homes and other builders. According to the firm's president Nancy Giangeruso, one of her top designers has nearly tripled the amount of amenities she has sold since the company adopted the Options Online system. Just a few years ago, that particular designer sold $3 million in amenities to about 150 buyers. After the online change, she sold $8 million in options to 110 buyers, a 266 percent increase.

According to Moore, builders can expect up to a 50 percent savings in time, a 60 percent increase in sales and the elimination of up to 10 days from the build cycle when they have a honed options selection software system in place.

But deciding to embark on an online options management system is not as easy as it sounds -- just ask Greg Witherow, project manager for Lennar in the U.S. Home Sacramento division. The division had grown very quickly from producing 200 homes per year to 1,200 and was in dire need of a way to handle options; thus, it became the guinea pig for Lennar's launch of Envision.

"First, you need three people dedicated to an online options system," says Witherow. "A dedicated corporate project manager, a dedicated divisional project manager and a dedicated divisional purchasing person."

Before any builder can leap into an options management system, the total number and types of options you are offering needs thorough examination. At Lennar's Sacramento division, Witherow recalls the company had 3,257 separate option codes. He says they even had a "balcony option" for a one-story home design. Before a homeowner can use Lennar's online options system, every one of those option codes must be automatically linked to the proper building partner, manufacturer and particular product. Months after starting on the process, Lennar still had 1,064 unlinked option codes.

How much time does it take to link every product properly? Lots. Witherow says it took 18 minutes to link 132 option codes for just four cabinetry products. It took 30 minutes to link 71 option codes for 66 different tile products. It took three minutes to link 46 option codes to five separate flooring products. And so on and so on.

At Lennar, the process helped the company recognize the fact that it offered way too many options, some of which had been selected only once by a homebuyer during the past year.

At Capital Pacific Holdings in Newport Beach, Calif., chief information officer Sean Ryan was concerned about the bad ratings buyers were giving to the company's online ordering system for windows. "We only had a 72 percent approval rating. Why? Because we weren't providing tips to buyers on things like how to make their windows go up and down easier." As a result, Capital Pacific has added a "Tips" section to its site, directly linking to manufacturers' Web sites. The company is launching the Envision system in one project in Santa Barbara. Post-launch, Ryan says he will be examining buyer and employee feedback.

14 Online 'Home Retailing' Tips

• Use a good/better/best approach to your options. Offer no more than five options per product. Seven options is too many.
• To avoid price shopping by homebuyers, sell each item as a system that finishes the room, making each option connected to other options. This will make it more difficult for buyers to price shop.
• Reality visualization software is probably not necessary when first starting out with your online options system. It doesn't help sell more options ... yet.
• Make sure the online system can be activated from the jobsite trailer, not just the design center. This gives the project manager and construction crew the ability to access the options selections and print them out if necessary.
• Don't expect homebuyers to select "finishes" online such as paint, wood, flooring and tile. These options often need to be seen in person. However, everything else is a likely candidate.
• Prepare your homebuyers mentally for the online selection process. Let the buyer know that they will be responsible for knowing their home plan and talk about the consequences of their selections.
• Get your online back-office systems in order. Remember that options selection needs to link to vendors, customer relationship management, inventory and accounting software.
• Track the number of times each homebuyer visits your online system. According to research of 35,000 homebuyers by Options Online, the average buyer visits his Wish List and options selection choices more than 12 times. One buyer reportedly visited 105 times.
• Start the options buying process earlier. Remember that most homebuyers still want to make changes the night before they move in, so address amenity selection earlier.
• Decide whether you want to take photos of your amenities yourself or outsource it. Taking them yourself can slow down the process.
• Consider these basic elements for your online options system: photos, enhanced descriptions, a mortgage calculator, placement diagrams, a custom request manager and design tips.
• 15 percent of your total home sales price should be devoted to amenities.
• 2.5 percent to 5 percent of your total home sale should be devoted to electronic amenities.
• Decide whether or not you want the options selection system open for all Web surfers or reserved only for registrants who are already involved in the buying process.