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By Katherine Salant
Inman News Features
If you’re looking at new houses in master planned communities, keep the inside/outside distinction in mind. Everything inside the house is the builder’s call. Everything outside is the developer’s. His decisions affect the entire landscape, from what the exterior of every house will look like, to the type and size of houses sold, the size and shape of the lots, the layout of the streets, the size and kind of trees planted in your yard, the number of tennis courts, the presence of biking and jogging trails, and if the project is big enough, the mix in the local shopping center.
In the excitement of buying a new house, many buyers give the developer’s input short shrift, but this is a mistake. The amenities he includes and the neighborhood character he creates will have a pronounced effect on the future value of their purchase.
Buyers’ underestimation of the developer’s role is not surprising—their dealings are with the builder. Moreover, most of the developer’s work is behind the scenes, setting the stage so that the builder can come in and build houses.
The developer for his part, however, is keenly aware of buyers and their preferences. All his decisions about where to purchase land and how to subdivide it are predicated on the type of houses he thinks buyers will want. Moreover, the developer has to predict housing trends at the time he purchases raw land, which can be five to ten years before he can sell lots. Though home builders are the ones most often asked to predict housing trends, the real visionaries of the future, by necessity, are developers.
In the years spent bringing a project to market, a developer is faced with many critical decisions, but the one most directly affecting buyers is his choice of builders. A bad choice here becomes a nightmare for everyone involved, and a developer’s years of effort can go for naught. Not only does a bad builder anger buyers, give a project a bad name and drive away future buyers. If a builder doesn’t perform, the developer’s only recourse is to refuse to sell him any more lots, while prodding him to bring the houses already under construction up to par.
With so much at stake, how do developers choose builders? Reputation and previous experience are paramount, especially in areas of the country such as suburban Houston, where there is no building code and no municipal building inspectors to act as an outside check.
A developer also wants to be sure that the builder is a man of his word. "A developer is concerned that a builder will build what he says he will, X and not Y, " said Maryland developer Michael Rose. Not only will building Y instead of X anger the purchasers who expected X, it will can also devalue the other lots in the project that a developer is trying to sell, Rose added.
Candor is important, said Virginia developer John Cowles. "You want a builder who will truthfully convey to purchasers the facts and truths about a community and not misrepresent it. You don’t want buyers to come back and say ‘I was told this and that.’" To insure that there are no misunderstandings in his developments, Cowles requires "every builder to have purchasers sign a disclosure statement [informing them] that, for example, the project is across the street from a Metro station or the recreation facility will be built at the midpoint of the community, not when it opens."
As a developer checks out a builder’s bona fides how can buyers check up on a developer?
First, visit the site. If the project has been up and running for several years, the quality and character of the completed neighborhoods will be evident, but you need to ask the residents if the developer delivered on the amenities as promised in the sales pitch. Also ask about the level and quality of services provided through the Home Owners Association (HOA), which the developer organizes.
Depending on where you are looking, the HOA may have greater or lesser responsibilities. In some places, HOA responsibilities are limited to enforcing deed restrictions, arranging for garbage pickup, snow removal, and maintenance and operation of the recreational facilities and neighborhood parks. But in others, such as unincorporated areas of Texas, the HOA may also be providing full time firemen, emergency response, police and street lighting, Texas developer Tim Welbes said.
If the project is just starting and you see piles of dirt everywhere, that’s already a sign that the developer is not well organized. There definitely will be dirt somewhere, but it should be piled in areas where buyers will not encounter it, Cowles said.
Check on the developer’s track record. How many years has he been in business? Some developers are very experienced home builders, but success as a developer requires different skills and business experience, Cowles said. To be really thorough, he urged prospective buyers to visit some of the developer’s completed projects and talk with buyers there. Ask the local municipality, "what do you know about this developer? They can say he defaulted on a loan or things are going well and he is well respected. If you ask the local magisterial elected official, they should also be forthcoming about their experiences."
It’s also a good idea to talk with the developer’s banker, several developers said. If you check with the major lenders in the area where you plan to buy, you’ll soon learn the developer’s reputation in the financial because if he flounders and another firm takes over the project, the character may change substantially.
You should also ask how the developer tracks his builders and gets buyer feedback, said Florida developer Jim Doyle. Does the developer have field inspectors who monitor construction progress? Does the developer periodically contact buyers to see how their new home buying experience is going?
Finally, you want a developer who will stand behind you in a crisis, as Maryland developer Mark Montgomery did for his buyers. When one of Montgomery’s builders declared bankruptcy with 10 houses under construction and buyers out $50,000 to $150,000, he stepped in. Promising premium lots at his golf course community to another builder if he would finish the houses at cost, Montgomery got the houses completed and the buyers lost nothing.
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Copyright Katherine Salant
Distributed by Inman News Features
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