News & Notes Archive - March 2007
Faced with a flurry of complaints over home defects in a new AZ retirement community, Palm Harbor apologizes, promises repairs. Incident illustrates importance of pre-closing walk-through.
Palm Harbor Homes, headquartered in Dallas, TX, widely promotes its Gold Key Care program in which every home, once installed, is trimmed out and finished by a factory-trained field technician who follows a 145 item list, then personally accompanies the home’s new owner in a walk-through inspection, taking notes of any defect that need repair. The amount of the tech’s annual bonus is pegged to the customer satisfaction rating after move in.
The program has received high marks from consumers but a recent failure to follow the process in one Arizona land-lease community left Palm Harbor with egg on its face, and provides an object lesson to home buyers about the importance of a careful home inspection as part of the closing process.
Last month the East Valley Tribune, which serves the metro area east of Phoenix, reported that a group of unhappy residents of McGavin Ranch, a new 55-plus retirement community of 179 lots, complained that homes they had purchased from Palm Harbor (many in the $140,000-$150,000 range) had numerous defects and that the manufacturer had been unconscionably slow in responding.
Of the community’s 179 lots, about 50 contain Palm Harbor homes. The great majority of the remaining sites are occupied by Cavco Homes. Problems reported in many Palm Harbor homes included chipped wall corners, dry wall cracks, tub cracks, missing shower handles, crooked railings, broken blinds and dented floor registers.
In early February a group of more than 50 disgruntled owners met with Palm Harbor’s Tempe, AZ-based VP of field operations who publicly apologized for the delay, describing delivery and distribution issues that Palm Harbor was facing regionally had resulted in a waiting period of six-weeks instead of the normal two weeks. Currently, he claimed the wait for repairs was down to an average of 23 days. He took responsibility and pledged to start anew with a walk-through of every home, promising fixes at Palm Harbor’s expense of any problem within reason, even on homes with expired warranties.
Many of the frustrated residents also complained that MGN Homes, the retail dealership owned by McGavin Ranch that sold them the homes, had never given them a walk-through inspection (promised in writing in their purchase contracts) to identify defects before the sale of their home closed.
“Our installation and finish process works very well when we’re able to perform it,” said Richard Boles, division president of Palm Harbor. “A walk-through is a requirement of our techs. But I’ve been told that McGavin Ranch allowed the new owners to move in before our people were able to complete going through their 145 item check list. That is never a good thing.”
Boles added that these were not 40 Palm Harbor homes riddled with problems. “Not at all. This is a home with tape-and-textured dry walls that moved down the road. There are always things that need to be taken care of before move-in.” He also provided copies of faxed letters received from two owners of Palm Harbor homes in the community saying they and the majority of the other owners of Palm Harbor homes loved their homes and saw no reason to attend the meeting.
The Tribune reported that at least eight McGavin Ranch residents have filed complaints with the state, one less than the total complaints filed with the state against Palm Harbor for all of 2006, a total that State regulators told the Tribune was “very good.”
As for MGN Homes’ failure to perform a pre-closure walk-through as its sales paperwork stipulates, the company’s comptroller told the Tribune’s reporter the timing of the walk-through doesn’t matter since the moment the homebuyers make their first payment, the home is theirs. She said the company has since removed its walk-through pledge from its purchase agreement. In addition, MGN Homes said it will no longer deal with Palm Harbor Homes.
My comment: Palm Harbor deserved to be taken to task for the long delays on warranty service but, to its credit, the company did the right thing by sending a senior exec out to the community to personally talk to the frustrated homeowners and to pledge fixes, even to homes with expired warranties. I agree with PH’s Boles, the great majority of problems were the minor kind that are addressed in the pre-move-in final trim-out phase.
Much of the blame belongs to MGN Homes for apparently allowing new homeowners to move in before PH’s field techs were able to finish (or perhaps, in some cases) start their work. In fairness, if PH was slow to dispatch field techs to perform the finish and trim-out, MGN Homes may have felt pressure from its customers to allow a move-in. Asked if PH was slow dispatching Gold Care techs, PH’s Boles said he “can’t find any particular breakdown that caused the problem.” Whatever the cause and whomever is to blame, the homeowners suffered.
As for MGN Homes’ insistence that the timing of a walk-through doesn’t matter because the moment the first payment is made, the money is nonrefundable–this policy is outrageous, especially when the paperwork promised a pre-closure walk-through. From the look of it, especially allowing move-ins before completion of field trim-out, MGN Homes showed no interest in going the distance to ensure customer satisfaction. Their subsequently removing the clause promising a pre-closure walk-through is both self-serving and an insult to home buyers. This type of behavior is a blight on the industry.
The lesson for home buyers is clear: read and understand the fine print, especially the closing process, and take measures to protect yourself. I recommend homebuyers put in writing as a part of the purchase agreement a condition stipulating that a meaningful amount of money ($2,000-$3000 at least) be withheld until the completion of a walk-through and any noted defects fixed (or at least a signed statement acknowledging the defects and a commitment from the retailer to fix them). The Grissim Buyer’s Guide contains detailed recommendation on the details of a purchase agreement.
Another major home insurer stops writing homeowner policies along the Mississippi coast. What this means for manufactured home buyers.
State Farm, the largest home insurer in the U.S., announced it will no longer be writing new policies for homeowners and commercial businesses in Mississippi. The insurer joins Allstate Insurance Company which stopped writing new policies last year. Together the two insurers have about 40% of the MS market. As a result, homeowners, whether their abodes be HUD-code (i.e., manufactured home) or site-built, will have fewer insurance carriers to choose from and will likely pay higher premiums.
An editorial in the Wall Street Journal blamed Mississippi’s Attorney General for causing State Farm’s departure, citing the AG’s aggressive (and successful) court challenge to insurers who, following Hurricane Katrina, evoked the flood exclusion clauses in their premiums to deny paying claims for any damages not caused by wind.
At issue was whether damage caused by flood waters generated by hurricane-force winds qualified as wind-caused damage. The courts sided with the AG and insurers subsequently paid many millions to affected homeowners. The WSJ editorial decried the court’s ruling as unfair and predicted if the rest of the insurance industry follows State Farm and Allstate, homeowners in MS, not to mention other coastal states such as Florida may have no choice at all.
Actually, Florida has already created a government-backed insurance pool to provide coverage, albeit at high premiums. But these developments mean home buyers in the region should not take for granted that homeowners insurance will be easily available to them at reasonable rates. Be sure to shop early for coverage, before you order your home. Some carriers may require the manufactured home you purchase have certain construction features before they will write you a policy.
Interview: 15 minutes with...Jeff Wick
Note: In my role as an industry observer and consumer advocate I speak with people at all levels of the manufactured home industry (MH) to gain insights I share with my readers to help them be better informed. Some I have interviewed for a one-page column that runs in an industry trade publication. In return the magazine runs an ad for the Grissim Guides. No money changes hands. I insist on this. Aside from book sales, I neither solicit nor accept a dime from the industry, and my readers have my assurance I intend to keep it that way. Here’s this month’s interview:
Jeff Wick, CEO of Wick Building Systems, Mazomanie, WI
Who: CEO, Wick Building Systems, Inc. of Mazomanie, WI
Background: Age, 58. Born in 1948 in Madison, WI where his father John was attending U. of Wisconsin earning an MBA in finance (“I’m a Badger baby”). Five years later family moved to a farm near Superior, WI, then again in ’55, this time to Mazomanie, WI where John Wick founded Wick Building Systems (WBS) to produce pole buildings, mostly for agriculture. In ’59, John teamed with mobile home pioneer Elmer Frey whose Marshfield Homes had introduced the first ten-wide models. Together the two introduced the first 14-wide MH models, ushering in the true MH era. In the mid-60s Marshfield Homes became a division of WBS. A third division, John Wick Homes, was launched in ’66 to offer panelized homes. Jeff attended UW, earning a BA in economics in ’70 (“I had a very low GPA but got a decent education, it just wasn’t in the classroom.” Married that same year to wife Ann. After an Army Reserve hitch, went to work for WBS in ’71 (market research, credit management), in his spare time pursuing a passion for marathon running.
WBS grew steadily, at one point running 16 operations around the U.S., including four plants building travel trailers (until the ’74 oil embargo). In ’77, realizing he needed more education, went back to UW at age 27, vowing “to pay attention this time ” (laughs), earning a second BA in marketing and an MBA in finance. Back at WBS in 1979, partnered with another company exec to open a dealership selling panelized homes “just as the Fed brought housing nationally to a shuddering halt with high interest rates–an impossible situation, our John Wick Homes dealership suffered losses for more than two years.”
In ’82, in a career course change, teamed up with his father and the Wick Homes Division to build a 102 room hotel in Madison, WI, using panelized construction and bathroom cores (complete factory-built bathrooms delivered as finished modules), then took on role as hotel manager, signing a franchise with Quality Inns. A second hotel was built in Indianapolis, IN in ’83, also a Quality Inn. Three times, from ’86 to ’89, Wick-managed hotels were among the three finalists (out of 500 hotels) for Quality Inn of the Year, with the Madison, WI hotel winning the title in ’86.
Elsewhere in ’86, WBS’ operations outside of WI were struggling and in crisis. In a major shift, John Wick conceived a strategic vision called Fortress Wisconsin to shrink the company to its three mature (and profitable) operations in WI and sell off the rest. He tapped his son Jeff to execute the vision, handing him the reins of President. By the end of that year the company was back in the black, current on all accounts payable, and all manufacturer’s rebates paid in full. The company has continued to remain profitable since. In ’93-94 served as chairman of the MHI. The Wicks have a son John, 26 and a daughter Barbara, 20.
- Q: Experts disagree on the number of modular homes built annually (anywhere from 45,000 to 100,000) but there’s no dispute that in the last three years shipments have declined, this despite their many pluses. Any thoughts on why they haven’t taken off?
- A: I spend my life thinking and speaking about these issues (laughs). Looking at factory-built housing in general, I believe a key reason why this housing segment hasn’t broken out is, the site builders have over time developed an approach that now makes them tremendously competitive. I call it the site-builder/marketer business model and it applies to companies building anywhere from 30 homes a year right on up to the very biggest builders. These companies are mostly in urban areas, but not necessarily big cities, and they account for an increasing proportion of American housing.
- Q: How does that model differ from the traditional site-builder?
- A: These companies may not have any construction employees at all, maybe only one coordinator acting as general contractor. Their primary activities are market research, land acquisition, development planning, marketing, selling and financing–with actual construction of the homes a secondary business. To build those homes, they tap into the local network of sub-contractors–framers, roofers, plumbers, electricians, HVAC installers, etcetera–all of whom, like the site-builder/marketer, have almost no overhead and who are ferociously cost-competitive.
- In addition, these site-builder/marketers are not as primitive as we in the factory-built industry like to think they are. In fact, these builders have in many respects moved the factory to the building site, using factory-built components such as roof trusses and pre-assembled walls and floors. And they’re adopting factory techniques to subdivision projects, such as moving construction teams–electricians, for example–from house to house. In contrast, factories have significant overhead and shipping costs, plus there still remain many construction items to be completed in the field. In sum, the site-builder/marketers have been able to significantly offset the traditional advantages of factory-built homes.
- Q: The shortage of chattel financing of HUD-code homes for the affordable housing segment is a major reason for weak sales of these homes. Any solutions?
- A: Successful chattel lending comes down to two key things: First, disciplined, fraud-free transparent lending–we need to build a transaction that works for everyone: the lender, the retailer, the community owner and the customer. With proper documentation and due diligence, this is entirely feasible. And two, the house must stay where it’s placed, even if it’s not tied to the land beneath as real estate, and the lender must agree to be ready to finance the new owner of that home when it’s sold. One of the biggest things that devastates the value of a HUD home is the huge depreciation that occurs if it is moved. The next biggest thing is if the original lender will not finance the home for a subsequent qualified buyer. Such refusals set up the lender’s own collateral for a huge loss of value. So, committing the home to remain on the original site through agreements is essential to protect its value, both for the customer and the lender. And from an individual transaction that works for everyone, I think we can build enough of them to significantly improve the industry environment from where it is today.