Demand for New Warranty Service Programs Continues

Bonded Builders Warranty Group (BBWG) is celebrating the first anniversary of its highly successful warranty service programs, the Performance and Performance Plus Plans.  An increasing number of builders are recognizing the value of outsourcing their warranty service work to an experienced warranty partner while transferring their risk at the same time.

From California and Colorado across the country to Georgia, the Carolinas and Florida, builders are taking advantage of the BBWG programs that free them to concentrate on selling and building.  By choosing BBWG as their warranty service provider, these builders are secure in knowing that their homeowners are in good hands.  We already understand the need to provide good customer service to homeowners. Our Performance Plan builders expect it, and we recognize that we are providing service to their referrals as well.

One of the many appealing features of the Performance Plans is the ability to pay for warranty service and structural coverage in one premium at closing.  Warranty is the great unknown part of homebuilding, but these plans allow our builders to budget their warranty costs and then pay for it once.  And, a CPA who works with builders in North Carolina has told us that there could be tax benefits to the programs as well.

Let us show you how these programs can work for your business.  Contact Sheila Morgan, (800) 749-0381, ext. 3801, or smorgan@bondedbuilders.com for more information.

History of the Texas Residential Construction Commission

By Charles J. Pignuolo, Devlin & Pignuolo, P.C.

Editors Note: The following article outlines regulations in Texas which have been considered by many other states across the country. What happened in Texas is a good example of why such regulations are not necessary and only added additional cost to homeowners unnecessarily. Bonded Builders Warranty Group has always provided liability coverage and outstanding conciliation services for the builder and performance standards and guidelines that should provide peace of mind for every homebuyer, making TRCC basically a duplicate of the free enterprise system.

The Texas Residential Construction Commission (TRCC) came into being in September 2003 and will cease to be on August 31, 2010.  The Texas Residential Construction Commission Act (TRCCA) will largely become ineffective after August 31, 2009. The TRCCA not only established specific state wide performance standards for the first time in the history of Texas, but the Act also put in place a dispute resolution procedure for construction defect claims.  The State Sponsored Inspection and Resolution Procedure (SSIRP) assigned an inspector or engineer to analyze a complaint of construction defect.  A SSIRP could be filed by either a homeowner or a builder or a warranty company and resulted in a written report being issued by the inspector or engineer.  The TRCC required that all builders be registered with the commission and that all new homes built and sold in Texas be registered with the Commission. As part of its functions the TRCC required that specific language advising them how to contact the TRCC be included in sale agreements and custom building contracts.  This language will no longer be necessary after September 1, 2009.

Prior to the enactment of the TRCCA, there was no state-wide building code or set of performance standards against which the work of the builder could be tested in order to determine whether it was in compliance with those standards or whether the work was defective.  Shortly after it came into existence, the TRCC adopted performance standards that went beyond the usual scope of the average builder’s contract or the ten-year warranties then available in Texas.  For example, items such as fences, flat work and non-air conditioned portions of garages had routinely not been the subject of warranty coverage.  The TRCC performance standards became the default warranty standards in the state meaning that, if a builder decided to not offer any specific warranty, that builder’s work would be judged against the TRCC performance standards.

Bonded Builders Warranty Group (BBWG) applied for TRCC approval of its warranty shortly after the TRCC came into being and such approval was readily given by the TRCC.  The Bonded warranty performance standards were in concert with the TRCC and Bonded’s dispute resolution mechanisms were strikingly similar to those adopted by the TRCC. 

At the time the TRCC came into being, it was hoped by the building community that the performance standards and dispute resolution mechanisms afforded by the Act would greatly decrease the amount of litigation and arbitration involving construction defects.  Yet, this law did not result in all homeowners and builders being happy.  Consumers were not content with the TRCC and the TRCCA since they believed that the dispute resolution, procedure which ultimately lead to arbitration in most instances, deprived them of their rights to a jury trial and, in the estimation of homeowner claimants and their attorneys, larger damage awards.  Over time, many builders also became dissatisfied with the SIRRP procedure and by the time the Texas legislature met in 2009, there was insufficient political support to sustain the TRCCA beyond August 31, 2009 and to sustain the TRCC beyond August 31, 2010.   

On June 11 the TRCC met to establish a timeline and action plan to implement the State’s Sunset Law provisions.  The TRCC stopped accepting new business after August 31, 2009, meaning that no new builder registration or home registration or submission of disputes will take place.  In order to establish clear cutoff dates for builder registration, home enrollment and submission of disputes, and to allow enough time to administer claims through the end of its mandate, the agency implemented the following:

• All new homes and projects completed by August 31, 2009 had to be registered;
• Inspection requests (SSIRPs) were accepted through August 31, 2009;
  • Inspection requests received by August 31, 2009 will be scheduled for inspection as soon as possible;
  • Ombudsmen will process complaints and conduct post inspection business through August 31, 2010.

With these changes now in effect, construction defect claims will again be judged by:

• The contract of the parties;
• The warranty provided by the builder;
  • Municipal building codes in the city or county where a given house is located; and
  • The Texas Residential Construction Liability Act.

More than ever, a good contract and warranty with clear performance standards and dispute resolution mechanisms is important to any builder faced with a construction defect claim.

Devlin & Pignuolo, P.C.specializes in construction law matters. Charles can be reached at cjp@daplaw.com or (713) 840-9414.

The Appraisal Debacle: An Example of How Not to Regulate

By Jack Guttentag

Enacting rules to curb abuses arising during a housing bubble, which don’t take effect until the succeeding financial crisis, can easily do more harm than good. This is the case with new rules requiring that property appraisals be insulated from pressures exerted by any of the parties with a financial interest in an appraised value: primarily lenders, mortgage brokers and Realtors.

Appraisals are informed judgments regarding the value of specific properties. They are not perfect because appraisers must work with incomplete information. Further, appraisers are subject to bias, the more so the less complete the information available to them.

During periods of rising house prices, such as 2000-2006, many appraisers erred on the upside, because they were part of a community that expected further price increases. This tendency was sometimes reinforced by pressures exerted by lenders, Realtors and mortgage brokers. None of them wanted to see deals torpedoed by appraisals below the prices buyers had agreed to pay. 

In late 2007, the attorney general of New York State, Andrew Cuomo, sued the appraisal subsidiary of title insurer First American for allegedly conspiring with WAMU, a major mortgage lender at the time, to inflate appraisals. Because WAMU sold a large portion of its mortgages to Fannie Mae and Freddie Mac, Coumo embarrassed the agencies into issuing a Home Valuation Code of Conduct (HVCC). The code declared that the agencies thenceforth would only purchase mortgages that were supported by an “independent” appraisal.

The objective of HVCC was to insulate the appraisal process from influence by any of the parties with an interest in the outcome. Mortgage brokers and Realtors could no longer have any contact with appraisers, and lenders had to obtain appraisals in some manner that prevented them from exercising any control.

The problem with this well-intentioned rule is that it was issued in December 2008 to become effective May 1 of this year, or squarely in the middle of the worst housing market since the 1930s. With house prices declining, the upward bias in appraisals that had prevailed during the bubble had morphed into a downward bias. Many deals are not getting done because appraisals are coming in too low, and HVCC is seriously aggravating the problem.

To protect themselves from liability, most lenders are ordering appraisals from appraisal management companies (AMCs), which intermediate between the lender and the appraiser. The AMC selects and pays the appraiser, receives and evaluates the appraisal, and passes it to the lender, who has no direct contact with the appraiser.

Because AMCs operate nationally but do not have appraisers everywhere, more appraisals are being done by appraisers who are not familiar with the local market. Appraisers working for AMCs are also paid less per appraisal than independents, which may induce them to invest less time. Less knowledge by appraisers means more scope for bias, and in a declining price market, the prevailing bias is toward lower values.

Intermediation by AMCs also lengthens the period required to complete purchase transactions. People involved in the process tell me that it can add an extra week. In an increasing number of cases, the paperwork doesn’t get done by the contracted due date, or the buyer’s mortgage lock expires, either of which can derail the transaction.

The objective of HVCC was to prevent pressures being imposed on appraisers to raise values. But HVCC also prevents the loan officers, mortgage brokers and Realtors who work with borrowers from pressuring appraisers to get a deal done in time to meet a deadline. Further, they can no longer keep their clients informed about the status of an appraisal because they are no longer in the loop.

In addition, the loan officers, brokers and Realtors who fashion deals for consumers used to have access to informal value opinions from the appraisers with whom they worked. Such opinions allowed them to abort  house purchases and refinances that clearly would not fly because of inadequate property value. This source of information is now closed to them, with the result that deals that previously would have been screened out are now going through the system to be rejected, imposing needless costs on everyone involved.

HVCC has also pretty much eliminated the ability of a borrower to use the same appraisal with multiple loan providers. Before HVCC, mortgage brokers could use one appraisal with any of the wholesale lenders with which they dealt, and lenders sometimes accepted appraisals ordered by others. Today, brokers are out of it and lenders using AMCs will not accept appraisals ordered by other lenders because they cannot be sure that the other lenders are following the HPCC rules. The upshot is that borrowers often have to pay for more than one appraisal.

In sum, the HVCC “cure” for the appraisal problem of over-valuation has been implemented in a market where the problem has become under-valuation, and HVCC is making that problem much worse. It should be scrapped. When normal markets re-emerge will be time enough to reconsider how appraisals can be made independent without disrupting business relationships that have served borrowers well.

NOTE: I am grateful to Kevin Iverson for insightful comments. 

The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania.  Comments and questions can be left at http://www.mtgprofessor.com

Selling Is A Lot Like Football

By Steve Hoffacker, CAASH, CAPS, CGP, CMP, CSP, MCSP, MIRM

Hoffacker Associates, West Palm Beach, FL

 

With football season getting underway, we can find many similarities between football and selling. Beginning with the obvious one, they both involve competition.

There are no guaranteed outcomes in either. In football, the better-prepared team usually prevails in the contest. In sales, preparation goes a long way to predicting success, but there are no absolutes.

It’s exciting to watch a football contest or a sales encounter unfold because no one knows what exactly is going to happen. There are objectives in both and a general set of rules, but quite a bit is dictated by the unfolding conditions and responses of the opposing team or customer.

It isn’t always sunny in either endeavor. It’s been known to rain, snow, and blow during a football game. Fog is possible as well. In a sales presentation, there also may be some stormy conditions or periods of fog.

Before a football team steps onto the field during game conditions, there will have been so many hours of practice, drills, and conditioning. The coaches have prepared various plays and scenarios to accent the abilities of their team and capitalize on the weaknesses of their upcoming opponents.

Before we walk into a builder’s office, we have spent many hours getting to know our product, practicing our presentations, rehearsing possible objections, and learning how to submit an order. In a word, we also have been going through conditioning.

Both football and sales involves stamina and the ability to overlook minor injuries or setbacks – and to keep going.

In both, the side with the most determination and desire often comes out with the “W.”

—-

Steve Hoffacker, CAASH, CAPS, CGP, CMP, CSP, MCSP, MIRM, is principal of Hoffacker Associates LLC, a West Palm Beach, Florida based real estate sales and marketing consultancy and commercial real estate brokerage. Steve is a sales and marketing coach, consultant, business strategist, salesman, real estate broker, podcaster, blogger, teacher, and motivator.

He writes and publishes three blogs each day: Steve Hoffacker’s Home Sales Insights” (http://homesalesinsights.com),  “Steve Hoffacker’s Sales Quips” (http://salesquips.com), and “Florida SMC Blog.” (http://floridasmc.com) and produces podcasts at least twice a week on “Steve Hoffacker’s happenings” (http://stevehoffacker.podcastpeople.com). His website is Hoffacker Associates (http://stevehoffacker.com).

Steve Steele Custom Homes

“I started building in 1976,” says Steve Steele. “Then I worked for a company my father started building starter-type homes and some condos. I started my own business in 1982, and in a normal year I will build 30 new homes. I grew up in a family where my father was not only in real estate but also developed property and built as well.

“My first job in construction was when I was 9 years old. I carried bricks four at a time, or five-gallon buckets of mortar for them to build the fireplaces. Then I could go to the store and buy cakes, Vienna Sausages and sodas for lunch. That was my pay. I felt that I was the most important kid in the neighborhood.”

Born in Florence, Alabama, Steve grew up in Huntsville. He is married to Mariam Steel, and they have two children, Joshua and Lauren – both college students in Huntsville.

Mariam is an interior decorator with a BA degree in Interior Design from the University of Alabama, Huntsville, and a published author on the subject. Mariam works her decorating magic on all the homes Steve builds.

Mariam takes their clients to pick out carpet, light fixtures, etc., while the house in under construction. If they are new to the area she takes them around in her car to the numerous suppliers. It is a service for which Steve says they get great compliments. “I feel it is important to my clients, and also to me,” he says.

Communication with the client and with subcontractors is essential to every quality builder, and Steve is no exception. He spends many hours with his clients explaining and achieving an understanding before construction starts. Steve says changes are accepted as part of the normal building process and he welcomes them. To have a satisfied client means everything, he explains.

Steve is a life member of the Huntsville-Madison County Builders Association and has been a Parade of Homes winner numerous times. He serves on the Board of Directors for the National Association of Home Builders and is the Second Vice President for the Home Builders Association of Alabama. Steve feels that the Home Builders Association has helped him and his business, and he willingly gives back in any way he can.

Steve also is a partner in Garber and Steele, another building company started with friend Harry Garber.  Harry and his wife, Cheryl, are also very active in the Home Builders Associations.

 Bonded Builders is proud to have men and women like Steve, Mariam, Harry and Cheryl as part of the Bonded Builders Warranty Group, and we are even more proud of all of the good work they do for their industry and their communities.

The Do’s and Don’ts of Strategic Planning for Builders and Developers

By Rebecca Staton-Reinstein, Ph.D.

Strategic Planning has made a comeback worldwide. 

Companies, governmental agencies, and nonprofits are all adopting it. Builders and developers, who understand the critical part project management plays in their daily work and success, have been slower to understand the need for a robust strategic plan. But in today’s brutal economy, successful businesses are adopting this proven approach.

The essence of strategic planning is to start with your vision of the business some years from now. This is your North Star. Then develop a more concrete mission of what you want to be and do in the present. This must be clear enough to guide day-to-day decisions. Develop your goals and objectives — measurable statements of results. Finally, create a tactical or project plan to achieve the goals and objectives.

Even the savviest planners can stumble. These basic pairs of “do’s and don’ts” are based on the experiences of a wide range of organizations. They will help you lock in your prospects for success and avoid common pitfalls.

• DO follow the (modified) KISS principle:  Keep it Simple and Sustained.  Create goals and objectives that focus your work for the next year or two. Limit these to one page and manage on the “top page.” Less is more.
• DON’T set too many Goals or Objectives or go into greater detail than necessary.  Too many details, goals or objectives lead to confusion, conflict,  micromanagement, and failure to execute. Four or five goals are enough. A successful plan is not measured by the pound!
• DO stay focused on the Mission. The Mission is central for planning and day-to-day execution. Before you accept any goal, objective or tactic or take action, ask, “How will this help fulfill the Mission?”  If the idea doesn’t fit, don’t do it.
• DON’T do things because “I’ve always done it,” or “I think I should do it anyway.” Without the Mission driving your decisions, you will drift off course, miss innovative solutions or fall into perpetual and reactionary fire fighting.
• DO use a “brain dump” activity to alleviate the urge to begin the Tactical (Project) Plan first.  You are an excellent tactician and project manager. Faced with a problem, you quickly suggest solutions. This is a liability in strategic planning where you have to create high level goals and specific objectives based on the Mission. List every idea you have. Set the “brain dump” aside until you are ready to create the tactical plan. 
• DON’T begin laying out the Tasks before the Mission, Goals, and Objectives are clearly stated.  The Mission sets the context for the Goals, which are the context for Objectives — specific, measurable results. Choose tactics to achieve these higher level results from your brain dump at the END of the process.
• DO Measure, Measure, Measure! Select useful, significant measurements for all goals, objectives, and tactics. What information do you need to make decisions? Revisit KISS: Keep It Simple and Significant.  
• DON’T avoid measurement because it is hard to do. Measurement may be difficult, especially when dealing with customer satisfaction, employee morale or business effectiveness. Measure these intangibles to gauge progress.
• DO measure quality of results, wherever possible. Quality measures how customers judge your products or services — the best information for strategic decision making. Stay focused on the mission and customer. 
• DON’T select productivity measures, just because they are easier to define. Important as it is, productivity does not tell you if you are creating what the customer wants. You can always build junk faster. When you focus on quality, you are more productive, reducing costly rework and wasted effort. 
• DO provide support, resources, training, guidance, direction, and coaching to assure everyone’s success. People cannot perform well unless they have everything they need to do the job. The plan is only as good as its execution, which depends on great people management. 
• DON’T dump people into situations without providing what they need to do the job. Delegation means understanding what the person needs to get the job done and providing it. You can only hold people accountable for what they can actually control. 
• DO Manage by Fact: Good planning sets the stage for good performance. Review results (not activity) regularly to make decisions. Basic dialogue: “Are we on target?”/ “Yes.” “Keep up the good work.”/ “No.” “What is your plan to get back on target?”  Targets are just targets. Investigate the root causes of undesired results and modify your plans or targets appropriately. 
• DON’T manage by intimidation, blaming or gut feel.  These approaches don’t work because people may comply but they won’t engage. Don’t ignore off-target data or make excuses. The opposite of the “blame game” is denial.  Unfounded hope is not a strategy for success.

Strategic Planning works because it disciplines you: (1) harness your intellectual energy and that of all your employees, and (2) guide the organization in a clear direction. The Plan is the Boss. Following these “Do’s and Don’ts” will help you plan and execute successfully and get the bottom- and top-line results you want.

© Rebecca Staton-Reinstein, Ph.D., President of Advantage Leadership, Inc., works with leaders who want to grow their companies strategically, transform results, delight customers, and engage employees. She is author of Conventional Wisdom: How Today’s Leaders Plan, Perform, and Progress Like the Founding Fathers and Success Planning: A ‘How-To’ Guide For Strategic Planning. Learn more at www.AdvantageLeadership.com.