Each regional custom home market has local practices that are taken for granted by the professionals who work there. They are so common, nobody even thinks to discuss them. But those unwritten, unspoken practices can cause misunderstandings when not all the players have local knowledge. And in today’s consumer-driven, consumer-rights climate that can cause big trouble, as the parties in the following story discovered.
Bill and Jackie Neal were computer industry executives in California’s Silicon Valley. Life was good and their combined income enabled them to accumulate quite a portfolio of stocks, bonds, real estate, and savings. When their respective companies offered early retirement incentives, the couple found themselves in a favorable financial position. They had several small children, and for quite some time had contemplated relocating to a slower-paced community in order to enhance the quality of their family life. They identified northern Arizona, and Flagstaff in particular, as an area that would provide them with the smog-free, congestion-free, and earthquake-free environment they desired. After traveling to Flagstaff several times, this community became their top choice.
During one of their visits, they met and eventually befriended a local real estate salesperson. This agent showed them lots and homes in both Sedona and Flagstaff. Eventually, after considerable research, the Neals decided to confine their search to lots on which to build a custom home. They soon purchased a multi-acre subdivision site within the city limits.
Both the buyers and their agent were ecstatic. The Neals had taken the first step of their custom home adventure. And the sales agent, Sally Johnson, was excited because she had just consummated a sale that would net her firm, which was both listing and sales agent for the parcel, a 10 percent commission. That sale would catapult her into the top producer category.
From One Pro to Another. Now the owners needed an architect and a builder. They went back to Sally and asked for her advice and recommendations. She had strong opinions about whom they should contact, and soon thereafter the Neals signed a design contract with a local architect she’d recommended. After much interaction between architect and client, the design was completed and ready for estimating.
Both the real estate agent and architect were adamant about which builders the Neals should consider for their project. The selection of a builder was going to be an important decision, in that these custom home clients were still residing in Northern California and would not be present during construction. They needed a builder they could trust, so integrity and honesty were paramount.
Sally had directed the Neals to three competent builders. After interviewing each of them, the owners selected Bob Appleby’s company, Signature Custom Homes. Bob quickly got started working on the cost estimate and soon informed the Neals that he had a contract price. There were a few areas of indecision on the owners’ part that resulted in a number of allowances in the cost-plus contract.
“When can we get together and go over the numbers so we can sign a contract and get started?” Bob asked. “Jackie and I will be traveling to Flagstaff next Monday and we can get together then.” “It’s a date,” beamed Bob. He was ecstatic. This was going to be a terrific project for Signature Custom Homes. The house was well designed, in a subdivision that he was familiar with, and was a $2 million project well within his skills and capabilities.
The Neals arrived at the Signature office and the meeting soon began with Bob presenting the owners with his contract. It was read, reviewed, and explained. They evaluated, debated, and discussed the allowance items to make sure that both the owners’ and builder’s finish expectations were on the same wavelength. Everything was going well until they were 20 minutes into the line item budget review.
Bill Neal pursed his lips and asked a question. “All of this looks OK, Bob, but I don’t understand what this line item listed as Referral Fees is? It’s just over $63,000.”
