Inside Beazer Homes' Mortgage Choice program with CEO Allan Merrill

HousingWire

On today’s episode of Power House, Diego sits down with Allan Merrill, the CEO of Beazer Homes, for an inside look at how they are rethinking mortgage lending and energy-efficient living. Beazer is a NYSE-listed builder that operates in 16 markets across the U.S. and aims to blend traditional homebuilding with innovative ideas.   Alan explains their Mortgage Choice program and how this model empowers buyers with real choice and transparency when choosing a lender. He also talks about building with energy efficiency in mind, their commitment to smart customization, and their focus on making homes more attainable in today’s market.   Here’s what you’ll learn:   Beazer’s Mortgage Choice program lets buyers choose from multiple competing lenders for better service and rates.   The company leads in energy-efficient homebuilding and offers customizable options at no extra cost.   Beazer takes no marketing fees from lenders, ensuring unbiased competition.   Its growth strategy is focused and cautious, targeting specific geographic markets.   Real estate agents are key partners in guiding the homebuying journey.   Beazer is committed to improving housing affordability through smart design and financing solutions.   Related to this episode:⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠   ⁠Beazer Homes⁠  https://www.beazer.com/  ⁠Allan Merrill | LinkedIn  https://www.linkedin.com/in/allan-merrill/⁠Homebuilders Archives | HousingWire  https://www.housingwire.com/tag/homebuilders/  ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q   The Power House podcast brings the biggest names in housing to answer hard-hitting questions about industry trends, operational and growth strategy, and leadership. Join HousingWire president Diego Sanchez every Thursday morning for candid conversations with industry leaders to learn how they’re differentiating them

Transcript

00:00Everything in our strategy is about getting to the attainment of sustainable home ownership

00:07to the best of our ability, as you said, within the constraints that we operate in.

00:19Welcome to Powerhouse, where we interview the biggest names in housing and ask them about their

00:25strategy for growth. I'm Diego Sanchez, president of HousingWire, and my guest today is Alan Merrill,

00:32CEO of Beezer Homes. Alan, it's so great to have you on the show.

00:38Diego, thank you. Thank you for having me.

00:40So could you take a few moments to introduce yourself and Beezer Homes to my audience of real

00:46estate and mortgage executives? Sure. I'm Alan Merrill, CEO and chairman of Beezer Homes. We're

00:53a New York Stock Exchange listed national builder. We sell and close around 5,000 homes

01:01in 16 markets. And the company has a cool history that actually dates back to stone masonry in the

01:091600s in England. Wow. So long history. A very long history. So a lot of the big home builders

01:18like Beezer have captive mortgage lenders, but Beezer seems to do things a little bit differently.

01:25Could you describe mortgage choice? I'd be happy to. Yeah, it's a fundamental difference in how we

01:31approach the business. In our view is we're really proud of the homes that we build being an energy

01:37efficiency leader. But candidly, we're not mortgage lenders. We know that's not our core business.

01:45And given the variety of buyers that we have, and frankly, the complexity and the variety of

01:51loan programs and overlays and just the complexity on the back end of the mortgage origination

01:58side of the business, we realized we would be putting our customers in a much better position

02:04if we expose them to a very curated group of lenders who competed for their business.

02:09So we've kind of drawn a line in the sand. We don't take marketing fees. We don't take

02:14promotion fees. We don't take slotting fees, nothing. You can't pay to be in our program. The

02:21only way to be in our program is to deliver fabulous service for our customers, and you've got to win.

02:27So we survey our customers multiple times during their home buying experience and, of course,

02:34at the end. And we look at the winning rate. So our philosophy is let's be great at what we're great

02:42at and let's let lenders be great at what they're great at. And just another nuance, every community

02:48and frankly, every division has its own curated group of lenders. I don't know how often it would

02:55be the case that a given lender would have the same interest, proclivity to lend in a different

03:00geography, do a different buyer profile, different credit characteristics. We're trying to find the

03:06lenders in the program for every buyer in every market. So when you're working on a new development,

03:14are you, is this program Mortgage Choice developing a group of lenders that are going to be a good fit

03:21for that geography and that home type? Yes. I mean, let's take a city like Atlanta. So we've got

03:29communities all over Atlanta. When we do our next new community, the starting point will be it's

03:36likely that the Atlanta lender lineup that we have, three, four or five lenders, matches up well.

03:43There could be a circumstance, though, where a different lender makes sense. And a good example,

03:48I was in Orlando earlier this week. There are a couple of credit unions associated with a very famous

03:53entertainment company that is active in Orlando. And there are participants in our choice program for

04:00those communities that really have a high likelihood of appealing to their employees.

04:08It's a really interesting and customized program. Many home builders that have captive lenders have been

04:18buying down rates in this higher for longer rates environment that we've been in for, I think, longer than

04:24anyone of us would like. Is that an option or rate buy downs an option for Beezer with Mortgage Choice?

04:34Yeah. In fact, I mean, I think it's with almost 60 lenders in our program, I think we have a wider variety of

04:41opportunities than those builders who have an in-house lender. And so, of course, short-term buy downs,

04:49permanent buy downs, forward rate commitments. The only thing that I kind of drive our team a little

04:55crazy with is choice. Anything that we do, we always have at least two lenders competing. I never want to put

05:05a customer in a position where there's only one solution. So we'll have, for example, I know we're running

05:10rate promotion marketing right now in Texas. We have multiple lenders that are competing

05:15that have both forward and buy down elements to their program. So we're doing more than one lender in that

05:22market because, again, as they're competing, rate's a big part of the buyer's decision, but the service or the

05:27program or the overlays that that lender is using for qualification purposes might be

05:32slightly different. So, yeah, we have, I think, the entire toolkit available across all loan programs

05:41for our buyers.

05:43Yeah. I mean, rate's important, but really the differentiators are service and speed to close.

05:49So it makes a lot of sense that you're offering your homebuyers choice.

05:53Yes. We think so. You know, and it's interesting. You know, it's funny. We never, I never use the word

06:02captive or capture. You know, our view is participation and winning. I don't want our

06:10homebuyers to feel like they were obliged to do business with an affiliate and felt entitled

06:16to the business. We want them to feel like we have set them up for success and there are lenders,

06:24professional, who are competing to win to prove that they deserve the business. And that's, I think,

06:31it's been very well received. Do you track metrics around homebuyers that go with a lender in

06:39mortgage choice versus, you know, a lender that's not in that program?

06:43Yes. So it's funny. Our closing cost contributions, many of our peers will link

06:51things that they're willing to do from an incentive standpoint to a requirement

06:56that you use their lender. Now, it shouldn't come as a giant shock that that may not be the absolute

07:04lowest available rate in the market, but it's tied to the incentive. In our case, we tie our closing

07:12cost contribution to the receipt of at least two loan estimates. Don't care who you use.

07:19If you've got a brother-in-law who's a loan officer, a lender that's not in our program,

07:25and that's your best rate, and you've compared that in our compare tool with one of our choice

07:30lenders and you picked, we'll pay. What's interesting is our lenders almost always win

07:38because of the competition, that they're not paying origination fees. So it's super efficient

07:46channel for them from an origination standpoint. We tend, our lenders almost always win. So the

07:54participation rate for us is higher than the capture rates that peers talk about. Our participation

08:02rates extraordinarily high because we've got the right lenders in the right place for our buyers.

08:09And you touched on this a little bit, but what is the best way for a lender to get into or to get

08:16their LOs into Mortgage Choice? Well, Michael Timpson is the gentleman who runs our Mortgage Choice

08:23program. First thing I would say is don't just send him an email. Find him on LinkedIn, call him. We have

08:29we have a lot of lenders and there is a modest amount of turnover, but we're not just going to

08:34plug you into the program. We need to understand what's your basis for winning. Do you understand

08:38what makes Beezer different? Do you understand our energy footprint? Do you understand what we do

08:43with Choice Plans and some of the other things that differentiate our home buyer experience? If you've

08:49done that and you're in a market and you can demonstrate that that's your wheelhouse,

08:54Mike will try and get you into the program. But I think the thing to realize is staying in

09:02the program is actually harder than getting into the program because if the customer experience

09:06scores aren't spectacular and you're not winning with some regularity, this is not the program for

09:12you. And I like to joke that I'm not a huge baseball guy, but I think a 300 batting average would be

09:19pretty great. I think if a lender in our program is winning 25, 30, 35 percent of the time, they should

09:27feel spectacular. They're not going to win more than that because we have other great lenders who are

09:32competing for that business. So Beezer is a national home builder, but I would imagine you have some

09:41geographic pockets of strength across the country. What are those geographic focuses for your company?

09:47Well, we're largely a Sunbelt builder. I mean, you would see us across the Southeast, the Southwest,

09:53California, and up the East Coast into Maryland and Virginia. We've got really strong businesses in

09:57Tennessee and in Indiana as well. So a couple of, I never really know what to call Nashville. Is it

10:04Southeast? Is it Mid-Atlantic? Is it Midwest? That's what I call it. It's a cool city. Yeah, it's a cool city.

10:10But in terms of pockets of strength, I mean, we've been super intentional about not just trying to

10:16plant flags in new markets because it looks good on a graphic. We are in places where we've got legacy,

10:23we've got experience, we've got an experience management team. And I always say that the next

10:28dollar we invest is a lot less risky in our existing footprint than the first dollar we would

10:33potentially put someplace else. So we've been intentional about our markets and even more so

10:39about our sub-markets. We're not trying to be the builder for everybody in the markets that we're

10:42in. Lots of growth for us in the footprint that we have, and that's really where our focus is.

10:49Mortgage Choice is a pretty significant differentiator and a really interesting program,

10:54and kudos to the team that built it there. Are there other differentiating points that Beezer has

11:02versus the other national home builders? Yeah, there are a couple. Probably the one that

11:09we may be even better known for than Mortgage Choice is our energy efficiency

11:13differentiation. And we refer to it as surprising performance because I think a lot of people,

11:21they don't come in wondering about ACH and HER scores and those kinds of things. But as they learn

11:26about the choices we've made, the home that we're building, they're almost always surprised. And then we can

11:31demonstrate it in terms of verifiable performance information. But we are the country's energy

11:39efficiency leader in new construction. We're the only national builder that's committed to the Zero

11:43Energy Ready program, which is just a way of keeping score. Our homes perform incredibly differently.

11:52I don't know how interested your listeners would be. I could geek out on building science a little bit,

11:57but that is one of the things that we are orders of magnitude different from what others are doing.

12:04We also have a program within our company that we call Choice Plans where we have configured all of our

12:11plans to allow a customer to make structural options at no additional cost. We'll have Choice Kitchens and

12:18Choice primary baths in every home. A simple example is, you know, I don't know about at your home if the sink in your

12:29kitchen is in a center island, or maybe it's on a wall under a window where you can see into a backyard or

12:34something. All of our kitchens are going to have both options and at no additional cost. So what's the lifestyle you want to

12:42have? We wouldn't be great at doing non-standard options or semi-customization, but what we are pretty great at is

12:50figuring out what are the preferences of buyers. Let's template both of those into the home. Let's figure out how to make that

12:56an indistinguishable cost so that the buyer has the privilege of picking whichever best meets their choice at no cost.

13:04So that's another significant point of differentiation for us.

13:10So a major part of the audience for this program, mortgage lenders, we talked about mortgage choice, also real estate

13:17brokerage leaders tune in. And real estate agents have had tricky relationships with home builders over the years,

13:27especially if a new community is in a seller's market. How does Beezer partner with real estate agents?

13:35Well, I'm happy to say, you know, maybe one of your listeners would disagree. I don't know that I would

13:41describe our relationships as tricky. We've been very consistent. We have cooperated with realtors in all

13:48of our communities my entire tenure. I think like a lot of builders, one area that can be complicated is

13:56if a buyer tries to add a real estate professional to a transaction weeks, months after we have

14:07reported a sale, like that tends to be problematic. We are disciplined about the fact that we need the

14:14realtor to be present at the time that we're meeting the buyer and we will always protect that

14:19realtor. But other than that, which, you know, those issues can arise, I would say our relations have

14:27been good. You know, if I may, I would say if I could ask the realtor community for one thing,

14:35it would be to spend as much time differentiating new homes as they do differentiating used homes.

14:44Now I've bought used homes in my life. I'm sure you have. And one of the things I valued from my

14:48realtor was explaining whether by school district or amenity or recent modifications or improvements,

14:56the differential between two different homes. You know, they both may look similarly great from

15:00the street, but hey, this one's got new windows. This one, they redid the HVAC equipment. Knowing

15:05those kinds of things is a really core part of a realtor adding value for a buyer in a transaction.

15:12And frankly, if the realtors really dig in, they'll see there are huge differences in new homes.

15:18I think they tend to think of new homes often as being easy substitutes for one another. Well,

15:25you know, we're respectfully from a building science perspective, there is nothing similar

15:31in our home to the homes that any of our competitors build. Not the two by fours, because

15:37we use two by sixes, not the insulation, not the HVAC equipment, not the fact that our homes

15:42are achieving air efficiency standards that are unprecedented. I mean, like this is, I get it,

15:47it's a little nerdy. Yeah. But our homes are different. So if I have a request, and it's not a

15:52frustration, but I think an opportunity, frankly, for realtors to differentiate themselves with their

15:57buyers, doing a little bit of homework and knowing good, better, and best, and who's building the

16:02best homes, I think would be a huge benefit. I don't think it's nerdy at all. And if you think

16:07about it, you know, it's a half million to $2 million purchase decision. Let's nerd out. Let's

16:14make sure it's a good house. These choices make a difference. You know, again, we can, and we show

16:21this in every home. Your home is going to have an energy cost of $30, $40 a month. A comparable home

16:28code builds $200. Right. And what would you do with $150 every month? And by the way, you think

16:34utility costs go up or down over time? Right. If they're going up over time, that wedge, that gap

16:38gets bigger. I mean, we're talking about things that add up to tens of thousands of dollars. Boy,

16:44the realtors that I've worked with in resale transactions would make a big deal out of distinctions

16:49that frankly had a much smaller impact on the buyer experience. So I'm not referring to this

16:57as tricky, but I would say, I think for realtors, the opportunity to differentiate with buyers is to

17:03realize that all the builders aren't the same. Yeah, that's really interesting. So in Beezer's

17:09Q2 earnings release, you talked about weak demand and valuation dynamics. Yep.

17:17Like leading you to shift focus at the company in terms of the financial strategy to share

17:24repercussions. Could you tell me a little bit more about what that means? Does that mean

17:29that Beezer will be cautious about growth over the rest of this year and into 2026?

17:36Sure. So what we said is we're going to grow a little bit more slowly so that we can allocate

17:42some capital to buying our own shares back. But we said we're going to stay in a growth footprint.

17:50We are absolutely confident in the markets that we're in are undersupplied for housing now and well

17:57into the future. But share prices in the sector are down between 50 and 70 percent over the last year.

18:05We and other builders have the opportunity when we buy our stock to buy the assets we already own

18:11at a discount. Like it just as a fiduciary responsibility, our shareholders expect us to

18:19allocate capital in ways that we earn good risk adjusted returns. There's very little risk buying

18:25a thing we already own. We already own the risk. I can buy it again at half price. That's a thing we

18:31should probably do. But investors also want growth. It's and not or. So all we said is we had set a

18:40target that we'd have 200 actively selling communities by the end of our fiscal year 2026,

18:46which is next September. We said we're going to push that out to fiscal year 27. We'll still have

18:53more communities next year than we have this year and more in 27 than in 26. But the attainment of that

18:59200 number we pushed out a year so that we could free up some capital to in this environment buy back

19:06some stock. When we look at our proprietary data at Housing Wire, we also see weak demand on the

19:15existing home sale side and for new home sales. If you had a magic wand and you could wave it and

19:24increase demand, what would you change about government policy or the economy to boost demand?

19:33That's an interesting question. Can I reframe the question just a little bit?

19:40Sure.

19:41When you said government policy, there is something that I think is obvious. And when I describe it,

19:48I'm guessing you'll agree with me, but it's almost never talked about. And it's, I think,

19:53one of the core contributors to the housing affordability crisis in this country. And it's

19:59a choice that is a set of policies that we've made that I don't think we've necessarily fully

20:06realized. And let me describe what I'm talking about. Probably the easiest way to leg into this is

20:13if you and I were having a conversation about the federal budget, you know, I know that we run a

20:20deficit. And it's kind of astonishing the level of deficits that we're running during the non-recessionary

20:25period. But we have a long history. Most of my lifetime, the U.S. government has run a fiscal

20:31deficit. To me, a way of thinking about that is we want things now that we're going to let somebody

20:38pay for in the future. Right. And does that make sense? Yeah, totally. So take that idea and overlay

20:46it on the infrastructure for the communities that we all live in. Have we invested in the maintenance

20:54of our electric utilities, of our gas, our water, our schools, our roads, our bridges? And the simple

21:05answer is we haven't. So what we do instead is we put impact fees on new construction to get the next

21:15buyer to foot the bill for the deferred maintenance that we weren't willing to pay along the way.

21:21It is a huge, huge part of why housing is so unattainable. I mean, in Sacramento, just as an

21:30example, our permit fees get to nearly $100,000 per home before we buy land, pay for labor or pay for

21:41materials. And it's a place that is desperate for affordable, attainable housing, but it's $100,000.

21:48Now, why is it $100,000? Because they've been operating on a kind of a pay-as-you-go method. They

21:54haven't invested in the infrastructure. They don't want to tell gas utility or electric utility or

22:01sewer utility customers that they need to pay more to maintain the physical plant. They're going to

22:07get Mikey to pay it, you know, the old life cereal. You know, Mikey will do it. Well, who's Mikey?

22:11Mikey's the next home buyer. So we've shifted to this next generation of home buyers,

22:17the infrastructure investments that we haven't been willing to make. And then we complain about why

22:21housing's so expensive. So back in the magic wand category, you're framing, if I had a magic wand,

22:29it would be a realization so that we stop being mad at the wrong people about why housing costs what it

22:35costs. And we really understand the consequences of the choices that we've made. Really interesting

22:41response. And so we don't have the magic wand, but I would imagine, and it seems like you are

22:48interested in the topic of affordable home supply. Within the current constraints,

22:55what is Beezer doing about affordable home supply? So, I mean, literally all three of our biggest

23:04differentiators are about attainment and affordability. Mortgage choice. When we get banks

23:10competing on programs, down payments, MI, interest rates, like that directly affects the attainment

23:19and the affordability of a home. I mean, we study this a lot. We look at rates and we see from our

23:24buyers where they've got proposals from other builders, lenders. When we can get a quarter, three

23:29eighths, a half a point inside. I mean, the present value of that spread is 10, $15,000. That's

23:36affordability. When we get utility bills, a hundred or $200 lower every month, that's affordability.

23:43When we have customers making structural changes to their floorplanes at no additional cost,

23:48but it lives the way they want, that's affordability. So everything in our strategy is about

23:56getting to the attainment of sustainable home ownership to the best of our ability, as you said,

24:03within the constraints that we operate in. Well, Alan, this has been a fascinating

24:09conversation. Really enjoyed talking about home building with you and the ways that Beezer

24:16differentiates from your competitors. Thank you so much for joining me today.

24:21Thank you very much for having me and great questions. I appreciated it.

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