Mercedes Moves To Higher Price Point

Melbourne, Fla.-based Mercedes Homes, a leading builder of starter and first move-up homes in many Florida markets and in Dallas, Texas, is moving into higher-priced product. In most of the firm’s markets, that means as high as $300,000. But in Orlando, the firm will even hit $600,000 in three luxury lake-front communities.

The prime forces behind this move are ones builders in many markets can relate to - shortages of lots and land, and the pressure of extreme competition around the market mid-point centered on the $150,000 price point.

"We used to concentrate on first-time and first move-up," says Mercedes vp of operations Scott Buescher, "but now land is getting so tight, and margins so thin, in those segments that we’ve decided to broaden our pricing to hit second and third move-ups in most of our markets.

"We think there are better margins at $200,000 than at $100,000. And above $140,000, we compete mostly against the big public builders. We’re very comfortable competing against them. They don’t slash margins to the bone, because they have to please Wall Street. Below $140,000, the competition is mostly local private builders, and that’s brutal."

Buescher has heard builders of big move-up houses complain about the entry of public builders into their markets, and he discounts it: "If they think that’s tough competition, they ought to try finding margins at $120,000, where you have to scratch for every nickel," he says.

"At the low end, here in Melbourne, there’s just us and a few local guys. That’s where we cut our teeth. You don’t see any nationals below the $140,000 price point. They shoot for the fat part of the market, between $140,000 and $240,000."

Buescher admits, though, that land drives such product decisions as much as the market. "Especially in hot markets like Orlando, you get land wherever you can, and in most cases, the location dictates the product. To be successful today, a company needs to be versatile enough to build at any price point. We’ll hit $300,000 in most of our markets, but the $600,000 product will be unique to Orlando. We just happened to get hold of some lakefront sites that dictated that price point."

At one of those, John’s Cove, Mercedes already has five pre-sales. The project has 63 home sites, each with lake views, half with private boat docks.