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Arm yourself with information before buying house

By PAUL WENSKE - The Kansas City Star
Date: 02/03/01 22:15

Homebuyer beware
Tammy Ljungblad/The Star
Don and Karen Groceman found the new home they bought in 1994 had several problems.
Karen Groceman first discovered the rain seeping through the windows of her new Lee's Summit home when she saw her cats licking at window joints. Only later did she learn workers put the windows in backward.

A crew sent to fix the windows showed up without tools and asked to borrow her husband Don's hammers and screwdrivers. The crew then commenced to beat on the windows, damaging them even more.

But that wasn't the worst. The wall joints cracked, the floors weren't nailed down and the roof sagged more than 3 inches because of insufficient bracing.

Last year, Jackson County Arbitrator Donald Mason awarded the Grocemans $100,000 in damages. He said Pulte Homes of Greater Kansas City, which asked for arbitration, poorly supervised a subcontractor who tried to boost profits with cheap materials and shoddy workmanship.

Pulte has appealed the case to the Missouri Court of Appeals. The builder said the Grocemans refused his offers to repair the house. Mason said the Grocemans' refusal "is perfectly understandable" in light of their bad experience.

"The house was beautiful. We walked in and said, `Wow!' " Karen Groceman said. "It just wasn't built very well."

They paid $107,000 for the house in 1994. Now they can't sell it. "You think you're getting your dream house and you get your worst nightmare," she said.

Certainly, most buyers are pleased with their new homes. But complaints like those of the Grocemans are not uncommon. More than a dozen Missouri homeowners went to Jefferson City recently to urge legislators to pass laws to make builders more accountable.

And a growing number of veteran builders agree the 1990s housing boom and soaring prices have forced the issue of professional standards to the forefront of consumer issues.

"Unfortunately, you do hear horror stories," said Greg Prieb, owner of Prieb Homes Inc. and president of the Home Builders Association of Greater Kansas City. "Licensing would create minimum standards, including financial accountability and insurance."

Many innovations have added to the quality of modern homes. But the spurt of building, a shortage of craftsmen and more financially stretched builders have added new risks.

Still, experts say consumers can manage those risks and spend wisely by doing their homework, reading the fine print, being assertive and leading with their minds as well as their hearts.

Too often, people mistakenly approach buying a house like buying a car off an assembly line, said Max Gordon, a Leawood real estate broker and lawyer.

"But unlike a car, a house is made one-of-a-kind. It's only as good as the builder who made it."

And forget sentiment. "You shouldn't spend $250,000 on a home just because you really like the wallpaper," said Darrel Hunter, a project manager for Acuff & Rhodes Realtors.

"If it makes your heart sing, and there are problems, your heart won't sing for long."

Choosing your builder

Whether you are starting a new home from scratch or buying one already built, experts agree that quality depends a lot on the builder. They advise moving quickly beyond the "wow" factor.

Quality is in the details, said Bill Harrington, president of Harrington Homes Inc. He advised making sure the trim is sanded, the joints are caulked and the walls are free of cracks.

Harrington said consumers should request "detailed specifications up front so there are no surprises."

Check the builder's reputation, experts say. Ask for the names of at least four customers. But also talk with other residents in the subdivision where the builder is selling homes. These homeowners may end up being more open about what they like, or don't like.

Also seek out real estate agents, bankers and friends you might have in the construction industry. Check at the county courthouse to see whether your builder has ever been sued, either by a consumer or by a subcontractor who wasn't paid, an indication the builder might be working on a thin margin.

Experts further encourage consumers to push their builders to explain the materials they use and why. If they can't, or won't, experts say, find another builder.

"If I'm going to spend $200,000, I want to interview my builder," Prieb said. "I want to see how our two personalities match. Will my builder call me back when I call him?"

Get it in writing

Home buyers should be aware that most promises to fix a defect are not enforceable unless they are in writing.

"Get everything in writing," said Hunter, the Acuff & Rhodes project manager. "Unrealized expectations on either side of the agreement are what cause unhappiness."

Make sure your builder has a warranty that covers every eventuality and is backed by insurance. All houses are warranted for defects in materials and workmanship for at least a year. But warranties can differ in how they cover specific defects and for how long.

Contracts also are more detailed and complex. Many now stipulate not only the price of the house but the responsibilities each party assumes and the method for upgrading amenities. Some experts also advise consumers to ask for proof the builder is solvent.

Does the contract allow you to sue your builder if things fall apart? Or are you required, as the Grocemans were, to submit complaints to arbitration, which can save costs but denies you access to a jury. Increasingly, builders include provisions that limit complaints to arbitration.

A failure to nail down expectations can be heartbreaking.

Mary and Randy Pittman said they became impatient waiting for specifics from the builder of their $285,000 home in Excelsior Springs. "So I went to an Office Max and got what I thought was a standard legal contract," Mary Pittman said, although she didn't run it past a lawyer.

Within weeks of moving into the house in 1997, the Pittmans said, they noticed floorboards separating. Two months later, they said, a support beam began pushing up into the middle of the second floor, and the opposing sides of the house began pulling away.

The Pittmans have since filed a lawsuit. An attorney for the builder said the builder followed the architectural specifications in the Pittmans' contract to the letter.

Now, the Pittmans believe a failing of their contract was that it didn't make final payment contingent on periodic walk-throughs to identify defects the builder had to fix.

Insisting on a walk-through before closing is crucial, Prieb said.

"It's important to make a written list of everything you agree needs to be fixed, before you move in," he said. "Have both parties sign it. Then, there is nothing left in doubt."

Still, some problems, notes Mary Pittman, don't show up until much later.

Hire your own inspector

Increasingly, homebuyers are hiring their own inspectors, a trend endorsed by veteran builders, lawyers and real estate agents.

It's a mistake to assume that city code inspections ensure quality.

Take the Grocemans' Lee's Summit house, for example:

Inspectors approved the house in 1994 because it "was satisfactory in the 12 categories" required by the city, city attorney Joanne Graham wrote Karen Groceman last August, explaining why the city couldn't help her, even though the house failed a second code inspection last June.

The Grocemans aren't alone. After Morris and Michealenne Lewis moved into their $220,000 Fairway Estates home in Lansing, Kan., in 1999, sewage backed up into their basement.

Although the city issued a certificate of occupancy, the Lewises discovered too late that the sewer line going out from the house lacked adequate fall. Now they're stuck with the $7,000 bill to fix the mess because neither the homebuilder nor the developer took responsibility.

The developer said it subjugated the land to the builder. The builder said the city approved the work of a plumbing subcontractor. "Someone should have known about this," said Michealenne Lewis.

The only independent way to check on the quality of your new home is "to hire your own inspector," Gordon said. Inspectors charge about $300. But get their references, experts say.

Mark Schulte, owner of A-1 Professional Engineering Inspections, said: "People think, `Why should I inspect a new house when it already has a 12-month warranty?' " The reason, of course, is to identify defects before they pose costly conflicts.

Hire a buyer's agent

Increasingly, homebuyers are hiring an exclusive real estate agent to represent their interests.

Most real estate agents represent the seller, who pays the agent's commission. While the arrangement normally works well, there is a natural conflict of interest, experts say, which can interfere when you want to negotiate the best deal or get work done.

Having a buyer's agent "gives you someone with a fiduciary duty to you," said Gordon, who represents buyers' interests. The buyer's agent still gets a cut of the commission, but the agent signs an exclusive agreement to be loyal to you.

A good buyer's agent will help sift through the jargon of the contract, set up a walk-through of the house and help clients with things they may never have thought about, such as checking out what their neighborhood might look like a few years after they move in.

Although most areas around subdivisions are zoned residential, they may not stay that way. Zoning laws can change.

One way to see what the future of your area might be like is to study the city's master plan. Overland Park builders, for example, are now required to tell buyers they can get a copy of the city's master plan.

Taking care of business

Falling in love with a house is one thing. Paying for it is something else.

Most experts recommend that even before you decide on the house of your dreams, check with a bank or mortgage company to see whether you qualify for a loan, and for how much.

They also recommend that you hire a lawyer to go over the contract and mortgage papers before closing.

As a rule of thumb, consumers should not spend more than 28 percent of their gross income (before taxes) on housing expenses, including principal and interest, property taxes and insurance, said Randy Gardner, a Lawrence financial planner.

Another way to figure out what you can afford is to add the projected house payment to your monthly debt. If your total debt each month exceeds 36 percent of your monthly income, you're probably in over your head.

Consumer advocates also tell consumers to avoid taking out second mortgages just to get into a dream house.

Last year, Kansas and Missouri officials investigated complaints by some credit-challenged homebuyers, who charged that Leawood developer Jeff Miller Enterprises increased their costs with high-interest second mortgages that boosted their monthly payments more than they could pay.

Sheila and John Smith bought a $191,000 Miller home; their combined income was less than $50,000 a year. Sheila Smith contends a salesman convinced them they could move in and pay no more than $1,600 a month.

The Smiths, who put $10,000 down, said they already had moved in when they learned they had to sign two loans: one for $143,250 at 13.6 percent interest to a California mortgage firm, and a second for $38,000 at 15 percent interest to a finance firm associated with Miller.

Combined, the two mortgages make the Smiths' house payment $2,000 a month, about 40 percent of their monthly income. Their second mortgage also carries a balloon payment of $38,000 in four years. The Smiths, who have eight children, say they face a possible foreclosure.

R. Pete Smith, an attorney for Miller, said the developer properly disclosed all financial documents to his buyers, many of whom would have been unable to buy the homes without second mortgages.

"People make these complaints even though they were fully informed at closing what the payments are," Smith said.

Smith acknowledged Miller is negotiating a possible settlement of the complaints with the U.S. Department of Housing and Urban Development and the Missouri attorney general's office.

Experts say consumers usually are better off dealing with a lender who is separate from their builder. They say the complex arrangements illustrate the need for buyers to arm themselves with information.

A wiser, if sadder, Karen Groceman puts it this way: "You have to rely on yourself."

To reach Paul Wenske, consumer affairs writer, call (816) 234-4454 or send e-mail to pwenske@kcstar.com.