Friday, October 2, 2020

Explaining COVID-19 Related Price Increases to Your New Home Buyer

2020 has been quite the ride for modular housing factories, modular home builders and modular home buyers. It seems like every single day prices have gone up on at least one of the commodities that go into producing a new home, both modular and stick.


So how do you go about telling your customer about the price increases you just received on the home you quoted them yesterday?

It doesn’t matter if you have given them a quote for their new modular home or simply an estimate, informing them of a price increase from your modular home factory will always come as a shock to them.

To make matters worse, most modular housing factories are busy and projected delivery can run as long as 5 months in some regions. 

In the past modular home factories have almost always had yearly price increases but it typically only happens once a year. This year COVID-19 restrictions on imports and closing lumber mills are forcing factories to raise their basic home costs several times within a short period of time. Some products including lumber have nearly doubled in cost since the pandemic started.

If you haven’t been telling your prospective new home buyers about these rising costs which may exceed 20% this year you may have some very bitter customers when it comes time to build with you and they learn their “new” price. Many builders will look at their profit going out the window if they choose to absorb all the rising costs just to build another house.

To make matters worse, mortgage lenders may not give home loans to previously approved buyers because the new pricing has created a home that can’t be justified by an appraisal making the buyer responsible for coming with more down payment.

As a builder, you must use be upfront with your customer

Be Honest. Don't try to hide it. Explain to your customers upfront that your factory is being forced to raise prices. Tell them that the market has increased since they first talked with you about building a modular home. Explain it’s not just modular homes that are climbing in price….it’s all housing.

Some of your new home buyers are able to absorb the price increases with little or no problem. Others will find they might have to give up some of the higher priced options they want in order to keep their anticipated mortgage while some will find it no longer makes sense to build with you or in fact to build a new home.

Letters and emails have been going out from the modular home factories to builders and developers for the past 6 months with the latest round of increases and some GM’s have told me it’s not over yet.

If you have quotes from your factory over 30 days old you may want them updated. When you get the new price immediately calculate your customer’s new home price and contact them. Head off problems at the beginning.

But what happens when you have a house under contract to build with a deposit?

These are just two of the most likely scenarios that could happen when you inform them the price is going up:

They want their money back. This could be a tough situation for many small builders. Some builders, both modular and on-site, need to dip into their customer’s deposit to make ends meet. If your contract has an escape clause in it for the customer if the price rises above a certain amount or percentage (and it really should), then you must return it.

If you’ve already paid most of their deposit to the factory you will need to review your contract with your factory to make sure if it is possible to get back all, some or none of it. Factories may have already ordered special materials your customer wanted for their home. Every factory is different and the devil is in the factory’s details.

Word of Warning: If your customer wants their deposit back because you breached the contract by raising the selling price without any clause in the contract that you could, you may end up in court.

The customer may want to change the specs or the entire house to stay within the dollar amount their lender has given them for a mortgage. This is not the worst situation. It may mean a lot of extra work for builders but it will still provide a house to the customer, work for the factory and hopefully an almost normal profit range for the builder.

This is the scenario you should try to reach with your customer. Both sides give a little and both win.

In today’s market a modular home builder must be transparent with their customer not only about price increases but about everything that will affect their house being built to their specifications. Not only do you need to send them emails, actively encourage email replies. Back up your promises by responding to queries quickly to make sure that everything is squared away.

These emails should not be sent out under the “info@company.com” as many people will view it as a junk email even though they gave you thousands of dollars. You need to send them personal emails from a real person. Get their attention with a good subject line.

The worst scenario is not informing your customer in a timely manner or simply not telling them at all. As I said in the beginning, “Telling your customers about a price increase in the home they want to buy from you is one of the toughest emails that you’ll send.”

Gary Fleisher, the "Original" Modcoach, publishes Modcoach News, Modular Home Coach and the recently launched offsite consultant website, Modcoach Connects.

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