Residential Construction News, Trends and Strategies for Success

Small Builders, Big Opportunities

Small Builders, Big Opportunities

For as far back as the numbers have been measured, small builders have constructed the vast majority of homes across our nation. Defined as those companies building 25 or fewer homes each year, these small entrepreneurial players have historically offered a flexibility in design, material choices and product selection, along with a level of personalized service that has appealed to the majority of buyers.

However, following the Great Recession, we find that a dramatic change has occurred. For the first time since records have been kept, more than 50% of homes built in 2012 were sold by one of the nation’s largest 100 builders. Even more striking is the fact that almost 30% of all new homes that year were the work of the top ten U.S. builders! Further, current studies show that even on a regional basis, it’s a handful of the largest builders in each market that produce an unusually high percentage of housing.

The reasons behind this shift are obvious – smaller builders have not had the financial resources to acquire developed building lots, and most have also found it impossible to secure financing to support their building activities. Larger builders, some active in public trading and others with sophisticated financial resources, have enjoyed an opportunity to purchase most of the available developed and entitled lots at fire sale prices over the last several years. At the same time, they’ve also begun to bring new developments to the market as they gear up for the increased housing demand over this next decade. As a result, most small building companies cannot participate in subdivisions as they have in the past.

The great news is that not only are the small builders eager to get back in the game, more of them are finding financial partners to help them do so. As banks continue to loosen their purse strings, more investors who were focused on REO opportunities are now turning to building and development projects for healthy returns. And where these new partnerships are finding excellent opportunities is in the world of infill construction – the teardown of older properties in urban centers -- and the rebuilding of new single family homes, multifamily properties, mixed use developments, and light commercial buildings in some areas as well. The other advantage is that, for the most part, these infill properties will typically result in projects with anywhere from one to 30 or 40 units – projects that are typically too small to be taken on by larger scale builders.

This presents great new opportunities for brokers and agents nationwide. They can use your help in finding these properties and helping them identify what the market needs today. And of course, they’ll need your skills in the marketing and sale of the new homes they build on these sites.

There’s no shortage of opportunity here. In markets large and small, thousands of lots and potential teardown properties are waiting for a new lease on life. In more than 150 markets across the nation, local governments have established Land Banks to take ownership and find new owners for unused or rundown properties. Developing the skills to locate these properties, identify their new ‘highest and best use’, and bring the players together to bring these projects to life puts real estate professionals in a unique position to grow tremendous long term business success.

Another growing area of opportunity for small builders is found in contracting pre-sold custom homes on home buyer’s lots. Due to the limited availability of construction financing, more small builders today are working as ‘hired guns’ for customers who purchase the building site and secure the construction loans in their name. Again, they can use your help in marketing their custom building services and pre-selling these deals. Your skills in reaching potential buyers and supporting them through the process can earn you excellent commissions and drive more resale business at the same time.

Rather than waiting for the phone to ring, or for more inventory to show up, your ability to locate and package these kinds of deals gives you a competitive edge that offers you opportunities others simply don’t recognize at all. That’s the kind of differentiator that not only sets you apart – but sets you up for new levels of success for many years to come!



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