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Part 3: First Strategy For Cracking The KC Market
In Keith's mind the quality of housing construction in the Kansas City area is so low that he has a wide open business opportunity. [A future article will examine the alternative view - that the present quality of houses is acceptable and that the housing market defines the right balance between quality and cost].
From having built his own homes and having bought from others, he is convinced that he knows what needs to be done. The question is, how do you break into a market dominated by large building concerns that build lower quality houses at relatively cheap prices - $60 to $70 per square foot.
Keith took the straightforward path - he became a custom home builder:
"My strategy as a builder was to build this all brick home. Get this build job. And maybe get 2 or 3 more the next year and maybe 4 to 6 the next year. I was hoping, my plan was, my business plan was that maybe after 3 years I'd be busy enough that I could really get out and make a dent in the market."
Keith formed his new company, Advantage Homes, with this in mind.
Keith's strategy depended on people recognizing what is meant by quality in home building. Most people are not aware of the differences between a solidly built, high quality construction job and a typical home. The differences are numerous. The attached list points out the features that distinguish his houses from others. The list talks about treating customers well - Keith believes this also separates him from many other builders. To get his message across, he produced and gave seminars about these differences.
Once Keith decided to build a custom house, he had two choices. One was to find a buyer, work with the buyer to design a house, and build the house to the buyer's specifications.
The second, riskier alternative was to build the house without a committed buyer - a "spec" house. Keith's desire to start building immediately drove him to choose this approach. This meant he had to create his own design. Even if the design were not exactly what the ultimate buyer would have chosen, he thought the quality improvements would make up for this and the house would be an easy sell. He was wrong.
Bill Cory is an architect who liked Keith's vision of building a top quality house. Together, they designed an all brick, 1 1/2 story house of about 3400 square feet. It would be built in an upscale development and be priced in the $300,000 to $400,000 range.
Meanwhile, Keith was interviewing developers to find a subdivision where he could build his model home.
"I started asking around just prior to building. I started looking at the different subdivisions. I really thought in building, you know, a three to four hundred thousand dollar house, especially of that quality, I thought it would be just a given that it would sell real fast. I just basically went around and investigated the different sub-divisions in that price range that were available. There were probably a half dozen I looked at: Bridgewood, WhiteHorse, and then a couple others. Then Parkside, which is the one I chose. That's a Rodrock subdivision. I met with the general manager, he did seem like a nice guy. Some of them are closed, in fact, WhiteHorse would not let me build because they are closed. There are half a dozen builders that put in the bids. That's breaking down a little bit, most of them are open at this point. Anyway, I just chose that one. Looking back, I don't think it would have mattered really which one, because every house is just so much the same. The builders just all mimic each other."
Keith built the house just as he and Bill Cory had designed it. The only real concession to Johnson County practices was using shake shingle roofing, which in spite of its many drawbacks, is still considered prestigious in the County. Although this odd viewpoint has already changed among buyers, the builders have yet to recognize the shift (a future installment will provide the result of a survey of home buyer preferences conducted by Keith and his marketers - one finding: 90% of respondents preferred Timberline(tm), asphalt, or tile over wood roofs). Even here, Keith built his roof so it would be relatively easy to switch later to a longer lasting, safer, cheaper, attractive roofing material. Keith's new house was the only house in Johnson County to be awarded a 5 star rating for energy efficiency by a program jointly sponsored by KCPL and Kansas.
Many who were knowledgeable about construction techniques made comments about how well built the house was:
"During the Parade of Homes, what would that have been, the Spring of '96 it must have been, we had - you know the Parade of Homes is like a ten day or two week period there when people just open their houses up - we had hundreds of people coming through there. And I know, I mean I don't have the names of them, but we had dozens of them that would walk through and "ooh" and "ahh" about all the things we had done with the brick, and the flooring, and the floor system and the two by six framing, ...."
Keith thought that he would sell the house before construction was completed. He felt, in fact, the most likely time to sell it was during construction when all the quality going into the house was plainly visible. With the completion date approaching and no contract in hand, he convinced himself it would sell as soon as it was finished, if for no other reason than the all brick construction, which made it stand out. The completion date came and went. All this time, Keith was carrying a large construction loan with interest costs piling up.
In the end, Keith sold the house, but absorbed about a $6,000 loss to do so. He did, however, get another build job, that was reasonably profitable, and several more prospects. He also felt he learned important lessons that were worth the price: