Supplement E. Home Builders

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					                                                    Supplement E. Home Builders             1

                                 Supplement E

                 Home Builders
In modern business it is not the crook who is to be feared most, it is the honest man who
doesn't know what he is doing.
                     Owen D. Young , U.S. lawyer and businessman. (1874–1962)

In this supplement:
The problems builders face.
What consumers can expect from builders - at least most of them.
The problems consumers face because of builders’ ignorance, inept-
ness, resistance to change, and/or stress on the bottom line.
The national builder organization (NAHB) and what it does and
doesn’t do - but could.

        wen Young’s comment is directly applicable to home builders of all sizes.
         While most are “honest”, i.e., law abiding, an unfortunate few choose to
         ignore the impact of their business tactics on the well being of their buyers.
 And there are others who are not very competent at their businesses.
 Here’s our plea to home builders:
              Build better houses and then stand behind them.
 This chapter includes a discussion of why this would be better for builders, buyers
 and society.
 Jim Irvine, a past president of the National Association of Home Builders (NAHB),
 characterized home building as “a cottage industry.” It includes entrepreneurial, small
 and middle-sized companies, on up to the builders who are on the New York Stock
 Exchange and in the Fortune 500/1000 list.
 If you think a home builder is a carpenter who just happens to own a business, it’s
 not so. Yes, it was that way once, it’s not today.
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        These comments will help you understand why the houses you look at are the
      way they are, whether older homes, existing new homes, models in a develop-
      ment, or any other. They should also help you understand the need for caution.

                       HOMEBUILDERS - Some Observations
     Compare these operating philosophies of two successful businessmen:
        Conducting your business in a socially responsible way is good business. It means that
        you can attract better employees and that customers will know what you stand for and
        like you for it.                                            M. Anthony Burns
         Goodwill is the one and only asset that competition cannot undersell or destroy.
         Marshall Field
     with this radically different point of view:
         Corporations cannot commit treason, or be outlawed or excommunicated, for they have
         no souls.                                                  Sir Edward Coke
     We would argue that neither social responsibility nor good will (other than that en-
     gendered by advertising) are needed by today’s home building industry. Nor are
     they a part of it. Further, because builders are responsible solely to their investors,
     the bottom line is all that matters— as Sir Coke implies.
     Homebuilding in the U.S. is characterized by:
     ➪ Its uniqueness as an industry. None other comes close to being the same for
        either the businessman or the consumer.
     ➪ Its unique, direct, joyous, satisfying and, occasionally, disasterous impact on
        peoples’ lives, on their dreams.
     ➪ A very competitive environment.
     ➪ Huge differences in the sizes of companies involved in building homes.
     ➪ End products (homes) which are all different so there is no such thing as a
        true “production” line - regardless of what industry promo tag has been
        placed on it.
     ➪ Prices which are many times higher than any other consumer product.
     ➪ A wider range of prices than any other consumer product.
     ➪ A large number of technologies that require supervision and skill to integrate
        properly. This is frequently coupled with inadequate training in those skills
     ➪ A continually changing material availability together with inadequate testing
        of new materials before they are used in houses and inadquate schooling in
        how to use them.
     ➪ A typical sales contract that effectively relieves the builder of any responsibil-
        ity for his work after the first year of occupancy.
                                                    Supplement E. Home Builders             3

➪ A business where builders often walk away from their mistakes leaving a
   formiddable legal barrier (mandatory arbitration) in place when their
   inadquacies or mistakes are challenged.
➪ Little or no regulation. Statutes intended to control the actions of builders are
   often subverted to the ends of the builders. Home building is the largest indus-
   try in the country with such a lack of regulation.
➪ What building codes are in place are often either not enforced or are done so
➪ No social responsibility for the consumer - although the NAHB does go to battle
   for the consumer when it also benefits the builders. They have expelled members
   because of their business tactics.
➪ Tremendous governmental support in making money available for the purchase
   of homes.
➪ Continuing and effective lobbying at the national and state levels for laws that
   increase the profitability of homebuilders - usually at the expense of the con-
   sumer and/or the taxpayer.
➪ A taking advantage of consumers’ fears and their lack of knowledge, awareness
   and organization.
➪ No significant efforts by the industry to educate the consumer.
➪ No effective large-scale consumer or legislative efforts to rein in builders at
   either state or national levels.
➪ Having a big impact on the national economy with the resulting effort by the
   government to minimize any impacts during a downturn. (Lower interest rates
   benefit this industry tremendously.)
➪ The builder’s pride in a house is in its saleability and profitability, not its quality
   or liveability. This results in the wide ranges of quality found in new homes.
➪ Products (houses) which are not designed or built with the needs of the end-
   user, the homeowner, as an objective. Curb appeal is a far more important
   criterion for builders.
➪ A growing need for the consumer to continually monitor the work as his pur-
   chase is being built caused by the unwillingness of builders to make the com-
   mitments needed to do a good job on their own.
➪ The high desireability for the consumer to learn as much about the process as
   possible before he makes a purchase.
➪ No equivalent of a Consumer’s Reports to help guide consumers toward respon-
   sible builders—J. D. Powers to the contrary.
➪ No other product where the customer may be afraid to make an issue of its
   shortcomings because it can lower its resale value.
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    Today’s Homebuilder
       Builders make what they can produce
       that will sell competitively.
       Today’s homebuilders are business
                                                    I   t is an interesting sidelight
                                                       that a few years ago the Oregon
                                                    Construction Contractors Board, which
       people, pure and simple. It’s a full-        licenses builders, changed their
       time job. Yes, they may have been car-       requirements. Today they test for
       penters at one time but now a                business management skills, not
       homebuilder’s job is management.             building skills.
       The skills to manage the business,           Other states are doing the same thing.
       whatever its size, are paramount to its

     The business
       A key ingredient in home building, as in any other business, is reputation. But how
       important that is is really a question of how much a builder’s sales depend on having
       satisfied customers. Relying on repeat customers as car manufacturers do, for ex-
       ample, is pretty much out of the question—we simply do not buy a new house all
       that often. So the builder must use other ways to get people to buy the product. If he
       relies mostly on people who buy from ads and promotional efforts without checking
       out the builder, he can make junk and come out OK. Conversely, if referrals are an
       important part of getting his customers, he is much more sensitive to doing a good
       job and to warranty requests.
       This is all a form of market nichification. Some builders build as cheaply as they can
       and still sell houses and, if a customer is unhappy along the way, that’s too bad.
       These may be spec builders or production builders. Others take great pride in their
       work and in having things as perfect as they can get them. These are mostly custom
       homebuilders who find customers who are willing to spend the money that this takes.
       They depend, in large part, on referrals from happy customers and recommenda-
       tions from buyers agents for new business.
       But the majority of builders take the middle road. They build houses that, while not
       perfect, satisfy the majority of buyers at a competitive price. You’ll find these build-
       ers making spec, tract and custom houses. Some of them tend toward the cheap-
       house end, others toward the minimum-defect side.
       And, of course, there’s the question of what the builder can get away with legally.
       Because the business is one where anyone can become a builder, there are inevitably
       those who either don’t know what they’re doing and/or who don’t care. So we have
       statutes governing who can be a builder (significantly different in every state), the
       building codes which control what they can build, and a wide range of code and
       statutory enforcement.
       The basic methodolgy of the business of home building is at the root of the problem.
       All of the materials and virtually all of the labor are purchased. So the quality of the
       end product is almost totally in the hands of people who do not work directly for the
                                                   Supplement E. Home Builders               5
    builder. The production builder typically has a construction superintendent who
    oversees the work done by the tradespeople who actually erect the houses. The smaller
    production or the spec builder will have a “lead carpenter” who may be hired on a
    temporary basis for the construction job.
    The quality of the finished product thus depends on five things:
       ➪ The choice of design.
       ➪ The choice of location, first the lot and then the house on the lot.
       ➪ The quality and suitability of the materials.
       ➪ The quality of the work done by the subcontractors.
       ➪ The competency and abilities of the supervision.

 Several subs
often work on
a house at the
   same time,
an even more
  critical job.

    The builder has ultimate responsibility for all of these. His choices are a compromise
    between making a top-notch product and keeping the costs low. The real danger to
    the buyer is when the resulting house has defects that are not evident (like an im-
    properly laid foundation). These may be the kind that do not show up during the 1-
    year warranty period or may be so significant cost-wise that the builder will dig in
    his heels about fixing them.
    And all of this is continually changing, brought on, at least in part, by the Internet
    which is making it easier for buyers to get a better grasp of what’s going on and,
    hence, on which builders to turn to and which to avoid.
    For the person considering a resale home, things are at the same time easier and more
    difficult than for a new house. They are easier because the buyer doesn’t have to
    worry about the business orientation of the builder. They are harder because hidden
    behind those walls can be many things that you only find after you’ve been in the
    house for a while. And there are things that are on the verge of wearing out that you
    have no way of foreseeing.
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        As a business person
        The builder must get financing and see that the money is spent prudently. He must
        hire competent help and must supervise that help. He must set reasonable goals and
        objectives and manage the business to achieve those goals. If it’s a big company, the
        managerial staff is responsible to the stock holders. If it’s a small company, there may
        be no one to report to – except the bank which loaned the money to start and operate
        the business.
        Any builder who doesn’t do these things in a competent and able manner will go out
        of business. In this respect, it’s not different from other businesses that make and sell
        a product.. What is different about home building is the end product and the skills of
        the people who make them. That and the fact that no two houses are the same - if for
        no other reason than the land they’re built on. Larger builders call their products
        “production” houses but the techniques are not remotely related to the manufacture
        of, say, an automobile or to a cannery that puts soup in a can. (Modular homes come
        closer as we’ll see.)

      The critical, on-site crew
        A house is made up of a number of different “systems” and a totally different set of
        skills is needed for each of them. This makes supervision of the construction of the
        house a difficult and crucial skill in itself. The person who is in charge must:
           ➪ know it all himself, or
           ➪ depend on the persons or subcontractors doing the work, and/or
           ➪ use skilled quality-inspectors to check out each system as it’s built.
        And it’s right here where many builders come up short. Their superintendents are
        lacking in knowledge or competency in at least one system area, often several. (We

           This national
         builder is listed
        on the New York
        Stock Exchange
      (CTX) and is well
      up on the Fortune
          500 list of the
       country’s largest
         Management is
          responsible to
       stockholders, not
                                                    Supplement E. Home Builders              7
   use the term “superintendent” to mean the person the builder puts in charge at the
   site. He may also be known as the “site manager” or, if he is or has been a carpenter,
   the “lead carpenter.”)

     T    he Home Building Institute of the NAHB includes a study course leading to the
         “Site Superintendent” designationE-J. A few hours spent in a class at the NAHB
     International Builders Show, however, cannot give anyone the skills and experience
     necessary to supervise such a multi-faceted project as building a home. It takes
     years of experience although the classes can be a start.

A True, Unfortunate, and Oft-Told Story
   In a series of four articles, April 28 to May 2, 2001, the Boston Globe reported on its
   findings when it investigated Toll Brothers, one of the big national builders, and the
   subdivision they built in Hopkinton, MA.

     Y   ou can find the articles plus some followup pieces in the Boston Globe archives -
         but you may have to pay for them. Go to their websiteE-E and click on Globe
     archives, then Search for “Toll Brothers”, 4/29/01 to 5/10/01.
   Here we consider what the Globe’s Spotlight Team found and the lessons for today’s
   homebuyer who is thinking of buying directly from a tract or production builder.
   Note that not all of the “big” builders do things the way that were reported by the
   Globe’s team. But there are enough of them that buyers should understand just what
   they may run into and need to be careful of.
   There are a number of reasons that the Hopkinton scene is probably worse than most-
   --none of which excuses what happened. The Hopkinton subdivision is of upper-end
   homes, up to $800,000. The homes were designed to appeal to buyers who think
   they’re getting an above-average house - which they were in terms of aesthetics and
   But, as is far too common, this subdivision was characterized by:
     ➪ Shoddy workmanship arising from untrained workers and inept subcontrac-
     ➪ Incompetent and/or non-existent supervision.
     ➪ The builder’s unwillingness to stand behind his product.
     ➪ The usual contracts that prevent buyers from bringing lawsuits.
     ➪ Building code officials who did not catch obvious code violations.
   One building code inspector, Joseph Kent of Sharon, MA is quoted by the Globe as
   saying that,
     “Toll homes have not ‘aged well’ because of poor construction made pos-
     sible by lack of quality control.
     “I started just seeing what I thought was sloppy work. I'd mention it to the
     super and it would be fixed on the home I mentioned, but it was a continu-
     ing problem,” he said. “There were just really sloppy, stupid, job-site,
8   Supplements

         pain-in-the-neck contractor issues. I don't know how they get away with
         “As for Toll's subcontractors,” Kent said: “There were some hacks. There's
         no other way to describe it. These people were terrible.... Anybody who's
         a craftsman, in my mind, would have the integrity to do it right.''
       In other words, Toll Brothers simply did not have the managerial skills or compe-
       tence to oversee the construction of the homes they built. Or, if they did, they weren’t
       Again, from the Globe,
         During the nationwide building boom of the 1990s, the growth in housing
         starts has been eclipsed only by greater growth in the rate of complaints
         about builders. Much of the anger is directed at major national companies,
         like Toll and lower-end builders like KB Home and K. Hovnanian Companies,
         which have grabbed an increasing share of the lucrative home building
         For the most part, the victims of substandard home construction nation-
         wide are working-class families buying into huge housing tracts devel-
         oped by other national builders, KB Home among them, in vast open spaces
         in Sunbelt states. In Massachusetts, many working-class buyers are priced
         out of the new housing market altogether.
       And, further,
         Toll has also left a trail of embittered buyers elsewhere, including Con-
         necticut, Virginia, and Illinois, some with homes where the framing is
         rotting under phony stucco coating that Toll advertised to unsuspecting
         buyers as the real thing.
         The Spotlight Team also found that substandard home construction is a
         growing national problem, and that many national home building firms
         have taken advantage of a lack of government oversight.
         Already faced with escalating home prices, unwary buyers are often vic-
         timized by questionable sales practices, slipshod construction, and home
         builders who cannot be found to correct problems once the builder has the
         closing check in hand. And Toll and other major builders often will not sell
         homes to buyers unless they sign away in advance their right to bring
         (This last refers to mandatory arbitration.)
       Toll has bought homes back because that was cheaper for them than to try to fix the
       mistakes that were made during construction. As a result of the Globe story and its
       revelations re what homebuilders are doing, Massachusetts is considering a “lemon”
       law which would force builders to buy back their unfixable homes. Similar legisla-
       tion was also introduced into the Texas legislature in 2001 - unsuccessfully, unfortu-
       nately. But it’ll happen again. As has happened in other arenas such as automobiles,
       when business blatantly takes advanatage of the consumer’s naive trust, govern-
       ment intervention becomes an inevitable necessity.
                                                  Supplement E. Home Builders                9
    As can be gleaned from the Globe story, the problem is not unique to Toll Brothers or
    to Massachusetts. But it’s great on Wall Street. Toll Brothers stock prices have risen
    steadily as a result of their skills at marketing and building a “high margin” house.
     As the Globe points out:
      Yet the robust economic performance masks discontent among many Toll
      customers that goes unheard on Wall Street: disappointment in the qual-
      ity of their homes and Toll's often slow response to complaints, and a
      feeling that the company is more interested in pleasing shareholders than
    Are homebuyers, nationwide, falling prey to this stress on the bottom line and what
    it’ll do for the stock prices? It would seem so.
    But not all builders are this way. Consider Del Webb in the story below. (Del Webb
    has since been bought out by Pulte, which is a mixed story in itself, as we’ll see.)

Problems Builders Face
    Now let’s take a closer look at some of the problems builders, as business people,
    have to deal with.

    A poor product loses sales as the word gets around. But a better product means higher
    prices which can also lose sales. It’s a tough management decision when it comes to
    how much to spend to keep customers happy. Competition and the consumers them-
    selves are crucial factors here.

 Where Del
 what they
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        If a competitive builder does a lousy job and gets
        away with it because of inadequate building           The Del Webb Story
        code enforcement or because the naive consum-
        ers trust him, then other builders will be driven
        to doing the same thing. Either that or see their
                                                               I  met with Judy Bennett, the
                                                                 spokeswoman for Del Webb.
                                                               She told me that the problem
        businesses decline. This may be against their          came when their concrete
        personal ethics and against the “right” way to         subcontractor brought a new
        do things as taught in business schools. But there     plant on line and the mix was
        is no choice—at least that’s the way it seems.         different. The concrete was
        What’s missing here is a different mentality, one      made with too much water
        that sees a home-building business as one in           and, after it hardened, it didn’t
        which a satisfied customer is an important part        have the structural strength
        of its overall success. Here’s an example.             called for by the contract with
        In February 2001 in their Sun City, Lincoln Hills      Del Webb.
        (CA) development, Del Webb, Inc. did destroy
        76 homes under construction! Not that they were threatened with a law suit if they
        didn’t and not that the homes would have probably caused trouble if they hadn’t, but
        because they had their own standards and the houses didn’t live up to them. In an
        area which has neither basements nor crawl spaces, slabs are used and houses are

          January 26, 2001, reprinted with permission from

        Del Webb to tear down 76 partially built
        homes in Lincoln
            Del Webb Corp. says it is bulldozing 76 partially built homes in its Sun City
            Lincoln Hills seniors community because the concrete used to make the slab
            floors wasn't up to the company's standards.
            The company uses a special concrete mix that it orders especially for its slab
            floors and found out too late that the mix delivered wasn't the right one, said
            Judy Bennet, a Webb spokeswoman. She wouldn't name the supplier or the
            subcontractor who did the work.
            Most of the 76 homes have been sold to buyers. The frame walls had been put
            up but hadn't yet been covered in sheetrock.
            The snafu comes at a time when Lincoln Hills is selling a record number of
            Del Webb started building Sun City Lincoln Hills a few years ago as its Sun City
            Roseville began to sell out. Together, the two developments should have more
            than 9,000 homes when Sun City Lincoln Hills is finished.
                                                     Supplement E. Home Builders                   11
   built directly on them. The concrete is a big cost item in a house. And is crucial to a
   well-built home.
   By the time it was definitely determined that the concrete didn’t meet standards,
   many of the houses had reached the stage where roofs were on them. Even though
   the concrete flaw might never have been found by the home owners, Del Webb man-
   agement decided that it was important enough to their customers, to their reputation
   and to the bottom-line in the long run that they not take a chance. The houses were
   These houses had already been sold! The buyers were given several options all designed
   to ease the personal upheaval that the Del Webb decision had caused. It’s easy to see
   why Del Webb has been looked on so favorably by people who buy their homes.
   As this is being written, the question of the fiscal responsibility of the concrete con-
   tractor is in the hands of attorneys.
   Compare this to the Toll Brothers’ story. The things that are related there would lead
   one to believe that they would never have even known that the concrete was not up
   to specifications or, if they did, they sure wouldn’t have done anything about it. And
   homebuyers would have been even further at risk over time.
   An interesting sequel was the announcement, a few months later, of the merger be-
   tween Del Webb and Pulte Homes, another big national builder. Pulte was the sub-
   ject of an NBC-Dateline story in April 2001 that reported the problems a South Caro-
   lina homebuyer had with his Pulte home and Pulte’s unwillingness to fix the prob-
   lems. According to one news story, a factor in the merger was Del Webb’s billion
   dollar debt with the implication that the debt was caused by Del Webb’s more responsible
   attitude toward their customers.

Building Codes & Statutes
   Another factor that builder management has to include is the governmental environment
   in which a house is being built. For example, the Pulte house described in Dateline
   would probably never have been built in either Arizona or Oregon because those
   states have much tighter government oversights of the activities of new home build-
   ers than do most states Management knows this and it is more cost effective in those
   states to not tangle with the state boards by taking the extra time and money to do it right
   the first time. (Only about half of the states require licensing of builders. And there is no
   mechanism for consumer protection in many of these. )

   Tight control and costs
   Tight controls would seem to be a formula for raising the prices of homes but it ap-
   plies equally to all competitors so there is no loss of sales because of it. Further there
   are many fewer lawsuits and threats of lawsuits than exist in other places. This goes
   a long ways toward offsetting any additional costs in doing a good job and standing
   behind it. With this there is a considerably greater consumer confidence that they’ll
   be getting the house they’re paying for. And, of course, the better reputation has to be
   a plus.
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        Code enforcement
        A further weak link in the process is just how well the building codes are enforced.
        They are there to protect the health and safety of the homeowner and his family
        among other things. It is left up to the local jurisdiction to issue building permits and
        see that homes are built to code. But in most states the local jurisdiction is not penal-
        ized if the code enforcement is inadequate or non-existent or if they screw up - you
        simply cannot sue them. The government you trusted to help keep you safe and
        protected may or may not be doing its job—and there’s no one to check if they do
        and no penalty if they don’t do it right.

        Cheap houses, distraught buyers
        When there is inept, corrupt, little or no governmental oversight, the builder’s man-
        agement often makes the decision to build as cheaply as possible, knowing that com-
        plaints, when they are called to task, can often be ignored or made so expensive for
        the buyer to pursue that they are dropped. It is unfortunate that not all builders are
        the old Del Webb type, but that’s the way it is.
        Compare the attitudes of many of these builders with real estate agents who depend
        on referrals from satisfied customers to make their businesses succeed. Real estate
        agents are very sensitive to how their customers feel, many builders couldn’t care

     Corporate Managment
        Corporations which operate in more than one state have different business entities in
        each one. This is necessitated by the differences in laws, statutes and rules. How
        much direction is given from headquarters to the state businesses will differ from
        corporation to corporation. Generally, there are sales and profit goals and each state
        business is reviewed on how well they meet these goals. There are also philosophical
        statements which spell out the operational methodology and the long-term corpo-
        rate goals. Otherwise the state organizations are usually run as self-sufficient busi-
        ness entities.
        When adverse media publicity is aimed at one of these state businesses as with Pulte
        in South Carolina or Toll Brothers in Massachusetts, it may adversely effect sales in
        other states and hence get the attention of corporate headquarters. What action is
        taken is a decision that is made on a case-by-case basis. And some companies are
        much more sensitive to this than others.
        The whole management goal is to optimize the bottom line. That’s what they’re there
        for. A major decision involves a balance between;
          ➪ how much money to put into reducing defects and, in so doing, reducing the
            number of customer complaints and
          ➪ doing a cheap-sloppy job and taking care of the serious complaints via legal
                                                    Supplement E. Home Builders                 13
   When a business makes the decision that the cheap-sloppy approach is OK, they
   must cover their backsides by putting warranty and mandatory arbitration clauses
   in the contracts that, you, the buyer are expected to sign. Mandatory or complulsory
   arbitration is about as anti-consumer as you can get. If you are buying a house from
   builder, reading about what you are committing to is a most important step.

Subcontractors and Tradespeople
   When new home sales are brisk, there is a continous shortage of competent help.
   Good tradespeople get a premium wage, others get jobs even if they don’t know
   their trade. You don’t need the smarts that go with a college degree or a high school
   diploma to do much of the work in building a home the way they have been and are
   being built. You do need training. But when a builder is trying to cut corners or has
   an overly ambitious schedule he/she will hire the newcomers and hope that they get
   the training on-the-job. But then, when the builder’s supervisors are themselves in-
   ept or too stretched to do their jobs, the house gets built poorly, walls won’t be verti-
   cal, floors won’t be level, doors won’t close properly, or worse.
   Another factor is that most of the things that can cause homeowners’ problems after
   a few years are not visible once the walls are in place. Poor, often out-of-code, plumb-
   ing and electrical work goes uncaught until several years later when the homeowner
   finds something has quit or given way that shouldn’t have. The fixes are then almost
   always a matter of significant cost.
   Builders don’t want to be responsible for something that might happen after they’re
   long gone. So they buy an insurance policy in the form of a warranty that extends
   past the initial 1 or 2 years that usually go with the house. Then any dispute that the
   homebuyer has is with the warranty insurance company, not with the builder. Which
   puts the homebuyer/owner in an even more untenable position if there is a problem.
   Those are BIG businesses well experienced in dealing with unhappy homebuyers.
   On the other hand, when sales slacken off, builders can get good subcontractors for
   less money—they’re looking for work. Builders of other than spec houses are com-
   mitted to building a house that has been sold for a fixed price. When material, labor
   and subcontractor costs go up, the builder’s margins go down. When costs go down,
   the builder comes out ahead. It’s all a part of the game. For the buyer it’s clear that he
   is better off to buy when the better help is available - assuming, of course, that the
   builder uses it.

Material Costs
   Besides the varying costs of labor and subcontractors, material costs vary with sup-
   ply and demand and the builder has the same problems with materials as with labor.
   But, unless the builder substitutes lesser quality materials, the buyer is insolated
   from these variations except as they may affect the price of the house.
14   Supplements

     New Technology
        One of the continuing problems builders face is whether to incorporate new materi-
        als and techniques into their homes. Buyers tend to be impressed by hearing that
        their new homes have the “latest” materials. EIFS synthetic stuccoE-G is an example.
        Builders get info on these materials through advertising and through their trade maga-
        zines and associations. Sometimes these give a fair assessment of the pros and cons
        of a new material. Sometimes they do not---which leads to the problems that oc-
        curred with L-P sidingE-H and later with EIFS.
        Another place where the too-early introduction of a new material into a house caused
        later problems was polybutylene pipes in the plumbing of housesE-L. Again, it took a
        few years for the problems to show up, caused by a combination of materials and
        installation techniques.
        Since these problems can appear years after the builders sold the property, they have
        little choice but to protect themselves by limiting the period where they are respon-
        sible. This is usually in the form of a warranty policy as a part of the sales package.
        Like any other insurance contract, these warranties aren’t perfect but they do shield
        the builder from downstream lawsuits whether frivolous or not.

        These cases are handled by the builders’ insurance companies and, being even far-
        ther removed from the scene than the builders’ crews, they are not concerned about
        the impacts on the buyers’ lives and do whatever it takes to reduce the likelihood of
        a buyer getting a penny, even in cases where the builder may be clearly at fault.
        It’s a vicious situation, brought on in large part by the lack of rules and regulations
        and the lack of enforcement of the ones we do have.
        Then into what is already a very complex environment for the builder, you throw in
        a few sleazy buyers who are just as unethical about getting the almighty dollar as
        any builder is. The furor over toxic molds is just such an example. Supplement C
        goes into this in some depth where it is pointed out that buyers are supported in this
        by some attorneys and by those who fix mold problems...that’s their business, with
        ethics be damned.
        It’s all-in-all an integral part of our society with its good and its bad.

     Builder’s Associations
        The national trade association for home builders is the National Association of Home
        Builders (NAHB). The “especially for consumer” pages on their websiteE-A are a help-
        ful introduction to the problems a homebuyer faces.
        Virtually every builder who makes homes for sale belongs to the NAHB. The na-
        tional organization is broken into state associations which may interface with state
        governments to be sure that builders’ needs and wants are known to legislatures.
        Then there are local organizations such as “Home Builders Association of Metro Port-
        land” and “Building Association of Greater Boston.”
                                                  Supplement E. Home Builders                 15
  The NAHB has a membership of over 200,000 about 1/3rd of whom are home build-
  ers or remodelers. The rest are from affiliated trades and associations in closely re-
  lated fields -- such as mortgage finance.
  Its Political Action Committee is among the top 15 in the country. (The NAHB was
  #11 on a recent Fortune Magazine list of the most powerful lobbying groups in the
  country.) It is concerned with matters which impact on home building including,
  among others:
    ➪ land use,
    ➪ energy efficiency,
    ➪ insurance,
    ➪ lending,
    ➪ building codes, and
    ➪ materials.
  Not surprisingly, the NAHB favors those political actions which make housing more
  affordable and often runs athwart of groups and laws that encourage green belts and
  discourage urban sprawl.
  In this regard, take a look at the debate between the NAHB and the Sierra Club in
  March, 2001 if it is still on the NAHB websiteE-B. They are talking, but there is still a
  long ways to go to bridge the gap between the two sides on optimal growth policies.
  The NAHB has two affiliated organizations:
    ➪ NAHB Resear Center, Inc.E-F -- “America’s Housing Technology and
      Information Resource” develops, tests and evaluates new materials, methods,
      standards and equipment to improve technology for America's housing and
      make it more affordable.
    ➪ Home Builders InstituteE-I – “The Workforce Development of the NAHB”, the
      Home Builders Institute develops and administers a wide range of educa-
      tional and job training programs.

What the NAHB Does NOT Do
 The NAHB and consumer education
  Here is a quote from a followup to the Boston Globe’s articles discussed earlier:
    Paul Sullivan, president of the Builders Association of Greater Boston, said,
    “the organization believes providing more education for new home buyers
    and builders would be preferable to the approval of a home lemon law.
    The vast majority of builders are building very high quality homes,” he
  When Mr. Sullivan was called to find out which local associations are offering such a
  program, he said that he didn’t know of any specific ones but understood this is
  being done.
16   Supplements

        An Email to the NAHB on the subject got the following response:
          Each local association creates it own programs, if a local is running a
          consumer education program then they would not report it to us. You may
          contact the individual local associations to find out what services they
          offer to their members. The local associations are listed at
          under State and Local associations.
        In other words, IF there is any such activity it is not being done under NAHB sponsorship
        or guidance or with the NAHB’s knowledge.

      Builder education
        The type of builder education Mr. Sullivan was talking about is teaching builders
        about some of the construction things that aren’t done right, the types of things in the
        Toll Brothers’ story. This is something that the NAHB does do, at least in part, in the
        NAHB Research Center and their Home Builders Institute.
        But there’s another part of builder education that the NAHB doesn’t do. It does not
        teach builders how to run their businesses so as to keep the few bad ones, with their
        profileration of bad houses and unhappy consumers, from degrading the reputa-
        tions of all builders. This is becoming evermore serious as more and more building
        corporations are run by non-builders whose education has been in other businesses
        where anti-consumer activities aren’t so open to public scrutiny and public under-
        standing and with such direct public relations impact.
        There is a problem here because it gets to the heart of the differences in how builders
        run their businesses and of the competition among them. Conservative business man-
        agers decry governmental rules and laws, saying that the marketplace will get rid of
        the bad companies. Which it may. But in the meantime it can leave the landscape
        littered with unlivable homes and devastated families. Whereever this may go, your
        problem as a homebuyer is right now, you must protect yourself. Become an edu-
        cated consumer so you aren’t one of the victims.

      House cleaning
        Perhaps one of the reasons that the NAHB does not want to get involved in con-
        sumer education relates to another facet of the scene. No adequate program could be
        put in place that wouldn’t note that some builders are what we call “bad apples” and
        that many builders have managerial policies that stress cutting costs and quality and
        the use of arbitration instead of making a good product.
        The underlying problem stems from the observation made by Jim Irvine at the start
        of this chapter that home building is “a cottage industry.” Even though it has over
        70,000 builders and remodelers among its members, a disportionate number of new
        homes are being built by relatively few homebuilders, the big national and regional
        builders with their “production” homes.
        There is yet another facet to all of this. One of the major actitivies of the NAHB is
        lobbying Congress for legislation that will benefit home builders. There is no ques-
                                                  Supplement E. Home Builders                 17
  tion that it is big business. Consumer education that would bring the anti-consumer
  tactics of many builders to the public eye could well reduce the lobbying power of the
  association. But leaving it the way it is is an invitation to the Boston Globes and Date-
  lines of the country to go after them

 Conclusion re the NAHB and the consumer
  The NAHB has and, unless there is some self-enlightenment, will maintain a self-
  serving view of the home-building industry’s role in our society. Consumer concerns
  may be given lip service but don’t expect any actions that might help consumers
  which at the same time put any dampers on builders. That’s not how the NAHB
  operates today.
  The NAHB generally does not endorse nor criticize the activities of the big builders
  that get the attention of the media (as in the Boston Globe, NBC’s Dateline and Del
  Webb stories) They also generally ignore consumer groups like Homeowners Against
  Deficient Dwellings (HADD)E-C and HomeOwners for Better Building (HOBB)E-D.
  Which will make the future very interesting as the “green” organizations like the
  Sierra Club and the state statutes like Oregon’s control of urban sprawl make some
  changes in the builders’ approach inevitable.
  Hopefully there will also be changes in the individual states laws that will make them
  more consumer oriented. The enactment of “lemon” laws has been proposed. These
  are a reaction, they do not solve the problem. They come into effect after the houses
  have been built and only catch the worst ones. What’s needed is a way to stop defect-
  laden houses from being built in the first place.
  Which is what we think can be done.

What the NAHB COULD Do
  The NAHB didn’t ask for these suggestions. They are offered here by a consumer-
  oriented outsider who believes they would be for the good of homebuilders,
  homebuyers and society in general.
  As time goes on, more and more lawsuits are being brought by homebuyers against
  builders. In many areas it has become a matter that takes an increasing amount of
  space in the media. The problem will get worse as consumers become aware that they
  can’t sue their builders after they sign contracts with mandatory arbitration clauses
  in place. It’s a situation headed for a crisis.
  When there are claims, the builders turn the matter over to their warranty insurance
  companies. The attorneys thrive and warranty premiums start an upward spiral. This
  cost is passed on to the consumer in the prices they pay for their homes. So the money
  that should have gone into better managed construction businesses goes to law suits
  and attorneys. The consumer pays either way.
  The increasing confrontations between homebuyers on the one hand and builders
  and their insurance carriers on the other do no one any good. And they aren’t neces-
18   Supplements

        Here, again, is a simple, doable solution where everyone wins (except attorneys):

                   Build better houses and then stand behind them.
        The claims and the litigious atmosphere will dwindle to a fraction of what it is now.
        What is needed is both a short-term bandaid and a long-term radical change in the
        way home building is done. See, for example, “Industrializing the Residential Con-
        struction Site”, published in 2000 and 2002 by HUDE-M, E-N.
        It’s up to the NAHB and its members.

        There are two ways the NAHB could help in the short-term:
          ➪ Undertake a strong and continuing campaign to teach builders that cheap,
             corner-cutting, irresponsible construction hurts both the industry and build-
             ers - to say nothing of the consumer.
          ➪ Urge and work with the state associations to have laws put in place that make
             it unprofitable or impossible for builders to build deficient homes and then
             walk away from them.
        When the builders themselves come to realize that their bad eggs hurt everyone, they’ll
        get behind their state associations to work to get better laws enacted at the state lev-
        els. It’s worked in a few states where it’s happened. Another way would be an ag-
        gressive consumer educational program. But it does take an enlightened bunch of
        builders. Better the NAHB work toward cleaning the industry’s house than to have
        its members continue to be the target of crusading media and righteous consumer
        A program like this doesn’t have to hurt builders in any way. There is still room for
        honest differences of position between, say, the anti-sprawl advocates and the build-
        ing associations who want to provide more and lower-cost housing. That kind of
        debate is what made our country great. But having a major industry in which big
        parts thrive on the ability to deliver inferior products and services to an unsuspecting
        public is both disgusting and unacceptable. And “ethics”, what’s that?
        Either the NAHB will take a position that it’s to everyone’s advantage to be respon-
        sible or the crusaders will shove things into place that could make the construction
        industry even more chaotic than it is today.

        A start has been made in bringing home-construction into the 21st century through
        the use of pre-fabricated building modules. Some major builders are seriously con-
        sidering how the concept of building their homes in factories and hauling them to the
        site will reduce both the initial costs and the costs of remedying defects. However, as
                                                  Supplement E. Home Builders                19

  long as home-building remains a cottage industry with the dependence of large num-
  bers of tradespeople, many without the requisite skills, it’ll be difficult to make hap-
  But it must if consumers as well as builders are going to escape the ongoing prolifera-
  tion of substandard construction and devestated homeowners.

Internet References
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