Constructive Thoughts

It’s amazing to me to see how things can progress along when it really matters.  Typically, it takes a few weeks to get from contract to a hole in the ground when it comes to new construction.  There are a number of things that keep that schedule timeline:

• Plans are drawn/reviewed/re-drawn
• Loan settlement has to occur (for which, appraisals, credit checks, approvals, etc. have to happen)
• Insurance has to be lined up
• Building Permits need to be secured
• Lot Reviews completed
• Pre-building meetings have to happen to remove assumptions, etc.

All of that takes time.  Often, one of the items above needs to be completed before you move on to the next step.  There are a number of builders who let the Owners figure out a lot of those items.  We’re one of the few who take care of the details.  Even though we do this every day, there is rarely a way to speed this process up.  Yeah!  It’s frustrating to professional builders.

Then, something happens that makes you scratch your head.  

We’ve been fortunate enough to be a company that many turn to (or get referred to) when tragedy strikes.  A fire destroys their home, and the owners suddenly find themselves homeless.  These folks really don’t need any more things to worry about.

The same players above (builder, bank, insurance company, municipal officers, etc.) suddenly move mountains to help out people who are down on their luck.  Common sense takes over and everyone realizes the right thing to do is to move things along as quickly as possible to help another human being!

The most current situation really hit home with me yesterday morning.  I was driving to work and looked over and saw the garage
trusses on a truck – being delivered to the fire victims with whom we are currently working.  We signed a contract with the Messingers on January 31.  Here we are – a little over a month later and we’re already preparing to put the roof on the house.

In a matter of days we were able to get plans drawn, permits secured, financing set up and a house dug.  Everything happened so quickly that I actually met with them to do their Pre-building Meeting AFTER their house was already started.  They didn’t even have all of their color selections done (which are typically required before we can start).

It really makes me feel good to see this sort of thing happen – especially when working with people who have been through an experience as terrible as a fire.  It’s too bad that things can’t always go this quickly.  Red tape typically prevails – causing unnecessary delays and expenses to everyone involved.

We’ll continue pushing the construction on the Messingers’ home so that we can get them in as soon as possible.  Here’s to many happy years to them in their new home!

If you’ve never built a new home before, you may be confused with how a construction loan works.  Hopefully, this blog entry will help ease your mind and make the whole process easier to understand.

Essentially, the construction loan is a loan for both the land and the house, but broken up into “draws” – which are just portions of the entire loan that get sent to the builder at different points of construction.

Most construction loans today are known as “one-close” loans – meaning that you have one closing on the loan up front (when you’re taking ownership of the lot).  During construction, you’ll pay interest only on the amount that has been paid to the builder.  At the end of construction, when you’re ready to move in (and all the draws have been paid to the builder), the loan automatically turns into a permanent mortgage (15-year, 30-year, etc. – depending on what you selected).

If you’re dealing with a lender who has two closings (one up front at time as described above and a second closing when it’s time to convert over to your permanent mortgage), I strongly suggest you look around to find one who has only one closing.  The second closing typically costs you more in the long run.

To make an easy example, let’s say you have a loan in the amount of $100,000 to build a new home.  Included in this $100,000 is a $20,000 lot.  (OK – admittedly, these are not realistic numbers – but – I’m trying to make a point, so stick with me!).   Let’s say, again to keep this easy, you have an interest rate of 5%.

In a one-time close loan, your lender will advance $20,000 (the 1st draw) to the lot owner.  This may be the builder if you’re purchasing everything from him/her.  You now own the lot – and have borrowed $20,000 of the entire $100,000.  The lender starts calculating interest on that $20,000 only.  Assuming that you have not advanced any more draws by the time the lender is ready to bill for interest (typically, the end of the month), you will receive an invoice to pay 1/12 of 5% annual percentage rate for the $20,000.

If I’m doing my math right, it should be as follows:  $20,000 x 5% = $1,000/year.  Divide the $1,000 by 12 (for the months of the year) = $83.33.  Now, I’ve over-simplified this – because there are a few more calculations (such as the amount of days between the time the draw was released and the time the interest billing goes out).  Hopefully, you get the idea, though.

Now remember that you have $80,000 remaining for construction of the house itself.  A Draw Schedule for the house construction will be generated.  A Draw Schedule is simply a list of what needs to be complete on the house before a pre-set amount of money is released.  This will vary by lender – and by builder.  We break our Draw Schedule down into 5 equal draws as follows:

• Construction Draw #1          Foundation Complete
• Construction Draw #2          Framing Complete
• Construction Draw #3          Plumbing, Heating & Electric Roughed-in
• Construction Draw #4          Drywall Complete
• Construction Draw #5          Entire House Complete – Ready to Move in!

So, for our example, we’d ask for $16,000 for each construction draw ($80,000/5 Draws = $16,000).  If only the foundation is complete by the time of your next interest billing, you would be billed for 1/12 of 5% of $36,000 ($20,000 lot draw + $16,000 Construction Draw #1).  This follows suit as construction continues and more draws are paid to the builder.  You only pay interest on the amount that has been paid as of the date of the interest billing.

At the end of construction, all of the money from the lender has been sent to the builder (and/or lot owner).  If there is any additional money due to the builder (due to Changes requested, etc.), you would pay that to the builder at the time of Final Settlement.  Conversely, if there is money due back to you, it would be paid at that time.

Hopefully this made sense!  I welcome any questions you may have.  If you are a lender, and my information is incorrect, kindly let me know!

I suppose it’s easy to get upset in the home building business.  Consistently, I’m fighting stereotypes that people have in their mind about home builders.

“Crooks!  Cheats!  Pain inflicters!”  Heck!  Even films portray those in the building business as evil.  For a good example, check out the Naked Gun movie.  When asked how he became so evil, Ricardo Montalban reminds the inquisitor that he spent a number of years as a building contractor.

After 18 years in the business, I’ve grown quite immune to it.  As in any business, there are those select few that give the rest of us a bad name.

While I’m immune to it, I’ve learned that it isn’t always the case with my wife.  We live in a community where our company built all of the homes.  Yes.  You read that correctly.  All of my neighbors were my customers at one time (at least, until the homes were re-sold).  I didn’t hesitate doing this – as I’m that confident in our homes and our service.

Occasionally, in situations where there are several neighbors at one spot, my wife will hear comments from homeowners (some 2nd or 3rd time owners – for whom we did not build) who say they have a contractor coming in to look at something at their house.  Often, she’ll hear these people say:  “The contractor says it was done wrong from the beginning….”  She’s never sure how to respond – and, when she lets me know about these statements (and how those comments frustrate her), she wonders why I don’t get excited about it.

Quite simply, it’s because I’ve been in the business long enough to know a few things:

1. Remember that it’s easy to be a “Monday Morning Quarterback” and look back and assess what was done – and how it could have been done better.  I like to think of this in terms of the phone companies who call you and are certain – if they look at your phone bill – they’ll design a plan to save you money in the long run.  I never do this – as I’m convinced that if my own phone company called me (without knowing they were my phone company) and did the same thing – they would be able to find a way to save money from the company we’re currently using.
2. Products, procedures and codes change over time.  What may have been acceptable at one time is now replaced by something better and/or safer – or, in today’s age, cheaper.  I have had customers from 14 years ago call and wonder why we used wood railing at the front porch – because it rotted over time.  We no longer use it, because vinyl railing/posts have come along and are a superior product that wasn’t as readily available at that time.
3. Sometimes, people will say this because they are looking for someone else to pay a bill for them.  We’ve had times when we were told that “a roofer looked at our house and said that the shingles were installed wrong from the beginning.”  When we found out what roofer they were talking about, it turns out they were the same company who installed it the first time around – and, as we talked to them, we found out they never said such a thing.
4. I’m always aware of the “A plumber told me…..” line.  Nine times out of ten, the “plumber” is their (insert relation and/or friend here) who worked for a commercial contractor 15 years ago and did things differently at that time (see number 2 above).
5. Most importantly, remember that the current contractor is in business to make money!  The worse they make something sound, the more they can charge you for it.  It’s a true fact that this happens – more times than not.

Now I don’t want to come across too cynical and/or lily-white.  Certainly, we’re not perfect and I’ve had a number of times where we were in the wrong.  A discussion and/or on-site meeting is usually best if an issue arises.  That doesn’t mean there was a problem from the beginning – but it doesn’t make sense for either me nor for the homeowner to just assume it’s an error.

So, to my wife, Pam, I say – don’t fret when you hear comments like this.  No need to respond at all.  If anyone has an issue that they want to discuss, they can contact me at the office.  I’ll be happy to look into the situation and make the appropriate response.

Because I had a vacancy in representation in my one community, I had the responsibility of interviewing several Real Estate Agents to fill that vacancy.  After discussions with the Broker, it was determined that we should embrace the “team” concept that is popular today. 

It makes sense to do this.  As a Builder, we get increased exposure to more than just one Agent.  As an Agent, you don’t get bogged down at one location at the expense of your other listings.  While I’ve never been a Realtor, I can sympathize with their plight.  Living on commissions only is tough (especially in this market) – and I don’t need to make it more difficult for them.

Anyway, I had to narrow the selection down to three Agents.  I was able to do that through interviews with each one.  Each one brings something different to the table, and I thought it might be interesting to let you know why I selected each one.  As the title of this blog says, it’s a look into one Homebuilder’s mind.  If you’re a Realtor looking to represent a Builder, this may be of interest.

Agent #1:  I chose this first Agent because, over the past few years, she consistently went out of her way to seek us out as a Builder.  One time, she was trying to land the marketing of a new home community.  She contacted me and asked me to be the Builder of choice for that community.  Another time, she was looking to have a house built for one of her relatives.  Again, she came to me.  In a highly competitive industry, where there are many choices of Builders, I was impressed that she thought of our company.  That confidence and support means a lot!  If the Agent doesn’t have enough confidence in me as a Builder, then she wouldn’t represent me fully.

Agent #2:  The second Agent has been in the industry for a number of years, but hasn’t done much with marketing new homes.  It’s an entirely different approach to marketing (how do you market “a dream” instead of a physical house?).  She took the time before the interview to put together a very comprehensive market study and report of the area of this community.  I could tell it wasn’t a canned report – and she must have spent some time on it.  In addition, during the interview she told me she’d follow up with references.  Sure enough, later that day an email arrived with four or five references.  I liked her attention to detail – and the fact that she followed up exactly as she told me she would.  In this industry, that is key!

One of the main reasons I selected her, though - I think she’ll tell me what I NEED to hear (not what I WANT to hear).  It’s too easy to surround yourself with folks who tell you what you want to hear – especially when they are looking to secure a position and/or represent you.  A lot of others are afraid to tell you the truth for fear that you’ll replace them.   I’d rather work with folks who are honest and real.

Agent #3:  My final selection ended with an Agent fairly new to the industry.  Some may question the choice of someone with little experience overall – but I find it quite refreshing.  There are no bad habits to break – and I can mold her into the representation that I truly want.  In addition, she had called me to meet with clients of hers looking at purchasing an existing house that required some remodeling.  In that short time, I was able to observe how she interacted effortlessly with those clients.  I could tell the clients felt truly at ease with her – and that’s also very important when folks are making one of the largest investment choices of their lives.

Will my choices be good ones?  Only time will tell.  This is the first weekend that the new team will be open.  I think my reasons will prove to be wise.

If you’ve read my last blog post, you know that I lost a trusted Realtor and advocate of our Haubert Homes company last week.  It’s difficult to lose a professional that knows your product, procedures and – yes – even your weird quirks.

Tomorrow, I’m meeting with the Real Estate Broker to interview and select a new team of Agents to represent this community where my former Realtor served as representation.  It really got me thinking about what I expect from my representation. 

I’ve always tried to remain pretty loyal to the Agents and their respective Brokers.  The same Realtors have been representing us for years!  As a result, admittedly, I may have become lax on what I think are good expectations.

At one point, I had asked my Realtors to start giving me traffic reports from each weekend.  They started to send me traffic counts – but that’s just about it.  I can tell you whether I had 10 people or 2 after the weekend.  Occasionally, I get some notes about the visitors – but it’s very scant.  Maybe I didn’t specify what information I wanted.

I had discussed asking for names and contact information of all visitors to our Open House with one of my Realtors.  Quite honestly, I think he was offended that I asked him for this information.  He balked and wondered if I was insinuating he wasn’t doing his job (yes – this is the same person with whom we’ve been loyal for years).  My intent was simply to have more than one person follow up with potential customers to make sure they were receiving the information they wanted.

The Realtor, I suspect, was also worried that I may talk to the visitor and find that they may be a good fit for another one of our communities (in which this Realtor was NOT the Representative).  I’ll admit – that just might happen!  The bottom line is that we exist to find the perfect home at the perfect location for our clients. 

Some in the Real Estate Community may shout “That’s not fair!” – but turn the tables for a moment.  If that client took the time to consider a brand new home only to find that the community wasn’t right for them, that Realtor could very easily direct them to a resale home (or, worse yet for me, the home of a competitor – dual respresentation will need to be the topic for a future blog entry).

It really comes down to:  WHO “owns” the lead that walks in the door at an Open House?

I once heard another home builder best describe why this is such an important thing to consider.  Retailers may have $75,000 worth of material to sell on-hand and they’re open most every day of the week.  By contrast, a home builder has a $200,000+/- home on a lot.  In addition to the hard costs of the house itself, there are additional costs:  interest, maintenance, utilities, taxes, etc.  That’s a heck of a lot of money to have “on the books” (in only one community) to have it open for only 4-8 hours a week!

So, knowing the investment in a model/spec home, does a home builder have the right to own the lead information from visitors each weekend?  Do the Realtor’s time and marketing efforts trump the overall investment?

I think, at the very least, the lead information should be shared between the two entities.  There’s always a chance that the visitor/client ends up favoring one or the other – and their happiness is the result that should be important.

I’m curious if other Builders and/or Realtors reading this have any lead relationship reporting standards or agreements that they’ve found successful.

I just received news that was hard to hear.  A local Realtor with whom I’ve worked for my entire career is suddenly leaving the real estate business.  She held on to her position for as long as she could – but the time came when she couldn’t afford to continue on in a commission-only business.

It truly is a shame to lose her as our representative in the community.  She was one of those rare individuals who always advocated for our company and never got us in trouble with promises made to customers. 

What’s even sadder is that the market really is starting to show signs of life in the area.  Professional Builder magazine reported in its December issue that the Harrisburg/Carlisle market is poised to be one of the top housing markets in the nation in 2012 (#4 out of the top 5 – just ahead of Pittsburgh).

Requests for information from customers are starting to build – and visitors to the weekend Open Houses are starting to grow again.  The holidays are past and people are ready to start thinking about their new home purchase.

Now, I have the task of picking some new representation for that community.  While doing so, I plan on creating an entirely new requirement of information and representation as I interview for the position.  Of course, I’ll need to apply it to my other communities’ representatives, too.  I must treat all of our Listing Agents equally.

I’m curious to see how others have used similar situations to reinvent their processes and representation requirements.  Feel free to share.

In the boom years of home building construction, builders hoarded land and tied up new home communities for their own use.  It was the best way to protect their turf and keep direct competition at bay.  If someone wanted in a particular community, they had to use the builder that was there.

Oh how the times have changed!  When sales slowed in this area, communities that have long been associated with one builder have become available to any builder.  The hoarding of lots to maintain market dominance quickly became the albatross of today!

A week no longer goes by where I don’t get communication from a Realtor, developer or another builder who announces that lots are now available to any builder.  What does this mean, though, for the new home buyer?

As with all change, there are both positive and negative aspects.

POSITIVE ASPECTS

•      The transfer tax on the entire purchase package MAY go away (if you’re in the construction law field, feel free to correct me).  When a builder is exclusive to a community, transfer tax was applied to the entire transaction (house and lot).  In the past, when we built on a lot other than one of our exclusive communities, the transfer tax associated with the house could be waived.  Now, this was IF the lot was purchased separately from the house (separate transactions). 
•    More choice.   Not satisfied with the offerings of the original builder?  This is your prime time to use the builder of your choice to get the home you want (with the options, etc. you want) in the location you want.
•    Better pricing.  Yeah!  I said it!  As much as I hate to adjust pricing with a client, competition does keep pricing in check.  When the home builder is exclusive (especially in a popular zip code, etc.), the buyer essentially has a choice:  accept the pricing to get the location OR find another place to live.  It’s a tough choice that’s not always easy to swallow.  Now, the Buyer has a little more control.  Depending on the situation, the builder may be able to bend on price – but only to a certain extent.  HOWEVER, note the Negative Aspect of this below!

These positive aspects certainly have merit; however, not all is great with the opening of communities due to economic conditions.

NEGATIVE ASPECTS

   Design Standards can deteriorate.  Many communities start with a “vision” of how they will end up.  Builders are dreamers (heck!  It’s our business, isn’t it?).  Themes and design standards often are established to protect the buyers who invest their hard earned money in that community.  As other builders enter the community – and compete for price – choices have to be made to save the new buyers’ money.  Unfortunately, some of those choices mean that the original intent and/or character of the neighborhood are compromised.  That’s bad news for those who came before.  In the long run, that’s not good for anyone – as it can affect the appraisals, etc. for future sales.

   You’re only as good as your worst builder.  Every industry has their scale of what’s considered “good.”  Yes – this can be a very subjective matter; however, it can be very real.  Many of the trade contractors who work for us work for other builders in the market.  In daily conversations, I often hear stories about how other builders cut corners and about the quality of the products they use in their homes.  I hear horror stories from people who can’t get their builder to come back to fix issues that have come up after they moved into their new homes.  The more builders you have in the mix, the more opportunity there is for a problem to arise.  Unfortunately, bad news travels fast – so it can quickly harm a community’s reputation.

   Pricing Concessions hurt home values.  Kind of strange, huh?  The nicest benefit to a homeowner (lower price) can actually hurt them and their neighbors!  Now, it may be easy to surmise that I’m just a whiny builder who cries over the need to lower prices to compete; however, there is a real problem for home buyers when prices are cut!  I know a person who purchased a home from a builder – only to have an identical unit (by the same builder) receive a price cut of over $20,000 a week or two after he bought the house.  Imagine being in that situation!  The value of your new home investment just went down by a good proportion so the builder could move product.  I’m often asked how much of a price concession we can give.  I try to price as fairly as possible from the beginning – and explain to the new Buyer that I have a responsibility to protect those who purchased before them – and would do the same for them in the future.

These are just a few of the benefits/drawbacks to opening communities.  I could come up with a few more – but this post is long enough already. 

I am curious, however, if anyone else has additional benefits/drawbacks that they can add.

With the Christmas shopping season in full swing, the thrill of the deal is what drives the majority of buyers.  It’s no different in the home buying process – except that the buying season is (thankfully) more than one month a year.

People want to get the most bang for their buck as they consider building a new home.  The big box stores and other “buyer-direct” entities vie for the homeowners’ dollars as they shop around.  Invariably, I’m asked if we will install items that are purchased and provided by the Buyer.

A lot of builders will not do this.  We are probably more flexible than many other builders in that we will usually agree to install items that we did not provide.  On a side note, this is a bit risky for us – as there is always risk of a “product failure” that allows for discussion on who is responsible (provider OR installer).

The more important thing for the Buyer, though, is the true cost of providing these materials to the Builder that most Buyers don’t consider.  Jane Meagher of Success Strategies has taken the time to outline some very important things that you may not have initially thought about:

• One of our current customers joined a “Buyer-Direct” club that advertises that the Buyer can purchase items for the same prices that Builders can.  Now, I don’t know all of the details – BUT – I am told that the Buyer had to pay a few THOUSAND dollars to join this club.  Then, after a few years, this Buyer gets to pay an annual membership for continued savings in the future.
• When comparing products offered by the Builder vs. what you can purchase yourself – know that there are a lot of factors that need to be considered.  For example, we’ve been told our price for a front door was too high – because the Buyer was able to get the same door at a big box store for reasonably less (based on an initial quote the Buyer received).  When we asked to see the quote, we noted a number of things missing from the quote that would require additional dollars to bring up to the same specifications as our quoted price, namely:  proper jamb depth, boring for doorknobs and deadbolts (not to mention the actual doorknob and deadbolt itself), appropriate sill type, etc.  When we were able to see the quote and add the appropriate options, it was quickly shown that the Buyer-supplied door would ultimately end up costing the Buyer more.
• Laying out ALL of your cash for a product that you provide may not be in your best interest if you plan on staying in your home for only a few years.  For example, if you provide your own hardwood flooring for a few rooms (let’s say at a cost to you of $4,500) – you pay for 100% of that hardwood.   It may even be more if you put that on a credit card and pay the high interest rates associated with that card.  If, instead, you purchase through the Builder and roll it into your mortgage, it would add only a few dollars to your monthly mortgage payment.  Better yet – if you move in 5 years, you’ll only pay for 16% of the hardwood vs. 100%!