Business model

Let me start by thanking Lee, Laura, and Tiffany for outstanding work in 2011! We completed many more high quality projects in 2011 and 2012 is off to a great start. I am excited to see our staff excel at customer service with the 4 projects we have to start 2012.

I also wanted to take this opportunity to explain how the typical home buying process works when you hire Top Choice Homes, Inc. Typically we are contacted by new customers asking for preliminary data on the home building process. This can go in several directions depending on the background of the buyer. Many buyers that have owned homes in the past know the details they are looking for in a new home. This allows the process to move a little more quickly. First time home buyers are typically looking for more advice from our tried and tested methods to suggest how a new home design can provide for their current and future needs. Regardless of the buyer's level of expertise we are willing to provide customer service that is second to none even before a contract is proposed. We typically suggest a meeting, with no strings attached, to go over a preliminary description of materials.

Once we understand the preliminary materials requested by the customer, we move to researching land to match the price point of the completed project. Some customers come to us with land they own or land they are targeting and we are willing to make a site visit to discuss their options and the details (water, sewer, grading, clearing etc), again with no strings attached. We also own various lots in the region that could be an option for customers at this point in the discussions. Finally we can work with our trusted agent Joe Sansone to research and find land that will meet the needs of the customer in an area where they want to live.

Depending on the timing of the customer we can enter into a land study period to gather all necessary details on the feasibility of building and costs of site work. Sometimes we have not finalized floor plans and this can also be done during the land feasibility study period. If the land research, floor plans, and pricing come together during the study period, we will present the contract for the new home. Once the new home contract is signed and a deposit is made we are able to purchase the land normally without a construction to perm loan. Alternatively and based on the customer's timing we will start with floor plan finalization before pursuing land. We do this on a case by case basis depending on the needs of the customer.

In fact our business model does not require the customer to have construction financing. We handle the cost of construction and deliver the home to the customer at the end much like the loan process of buying an existing home. This saves the customer interest payments on the construction loan during the building process! Payments only start when the home is completed and sold.

At this point we have the land, we have the floor plans, and we have the new home contract signed. We then re-visit the description of materials to allow the customer to propose any changes they see fit. We introduce our change order process which works like this: We do not charge an administrative fee for change orders. If the change saves us money, the customer receives a credit. If the change increases our costs, we collect the additional expense at or before settlement. It is not unusual to receive credits since our standard materials used are higher quality than every builder we have researched. Many of our customers have upgraded materials in some areas and selected more economical materials in other areas to result in no net price increases.

At this time we submit the permit application to the County/City building department. This does not halt the customer's option to propose additional change orders. We have the expertise to make changes and if necessary submit permit amendments to the building department.

Once the building department issues the building permit we begin construction. Prior to beginning construction we have discussed details with the customer and gathered information on so many items it is impossible to list them all here. Depending on the customer's availability we can complete electrical plans, lighting layouts, and many other items during a meeting in our office. Sometimes we wait until the home is framed to mark the locations of electrical fixtures and light fixtures during a walk through with the customer. Each customer desires a different level of involvement during the process and we are happy to accommodate many differing levels of involvement.

The building process and selections process is normally very enjoyable for the customer. We have depth of expertise to make suggestions from experience or accommodate your custom requests without unreasonable delay. While this is far from an exhaustive procedure, we hope it serves as a valuable overview of the process so you can understand and trust Top Choice Homes, Inc with your project!

Attacking Conventional Wisdom

The truth is that few people make wise financial decisions consistently. The reason is conventional wisdom, that is popular at the time, is usually wrong. Here is a housing market example based on our advice over the past 8 years.

Time period: 2003-2007

Conventional wisdom: Buy a home now because if you wait until tomorrow you will not be able to afford it. Prices will always go up.

Our advice to customers in 2003-2007: If you have to purchase now you must buy less than your lender says you "qualify" for. This seems counterintuitive for a builder to advise, since it reduces our revenues, but we understood the dangers to the the large scale economy as well as to the individual's financial situation. Our track record is spotless. Not one of our customers has lost their home to foreclosure!

Time period: 2010-2011

Conventional wisdom: Wait to buy a home since prices are still falling. We have also seen articles that say "Rent for life rather than buy" gaining favor among so called financial experts. This is pure silliness. Advice to rent was good in 2003-2007. It is rotten advice now.

Our advice to customers in 2010-2011: If you can qualify to buy now do not wait. Prices may fall further but they may not. No one can time the market exactly. It is certain you will buy closer to, if not at, the bottom now rather than a few years ago. The advice to rent is incredibly poor advice. It does help individuals, that listened to conventional wisdom in 2003-2007, feel better about their situation since they cannot qualify to buy at this time. If more potential buyers choose to rent, investors will move in even faster to buy real estate and rent it out. Rents will increase as demand increases. This will make investors willing to pay more for the homes they buy in order to rent out and home prices will increase as rents increase. So either way home prices will increase in most areas....more renters will bring more investors into real estate and/or the cyclical nature of home demand will return.

Our advice at all times: Buy new for energy efficiency and minimal operating costs. I built my home in 2003 and have not spent a penny 0n maintenance. The exterior of my home is maintenance free and we use tried and tested materials and appliances on the interior. I installed the materials from our basic package including carpet, vinyl, and laminate countertops. My kids love carpet and we have always been able to prepare food, just as well as on granite, on our laminate countertops. My friends who bought existing homes or foreclosures have spent a small fortune on repairs and maintenance but at least they are on target to have no mortgage payments in 15-30 years or less.

A New Financial Foundation

We are nearing the end of another outstanding year! We built strong relationships with many more customers this year and our staff continues to impress our clients and trade partners. This post is about industry financial trends and I am very glad we do not judge our success on profit alone. If we did we would miss the value of the relationships we are building since appraisals continue to come in lower than most contract prices.

We have spent the last few weeks updating and preparing a new description of materials to simplify selections for our customers. We are doing exhaustive research to make the best material recommendations that create beautiful homes and solid budgets. I can see the industry transitions clearly over the past decade. I believe we are entering into a more sustainable period between lenders, borrowers, and builders. Blame can be shared among many parties for the destruction our industry caused to the National economy. Credit can also be shared if we can learn from mistakes and benefit the National economy.

Our track record is still spotless. None of our many customers have fallen victim to foreclosure. This is not an attempt to give ourselves glory but to point out there is a different approach that is mutually beneficial to customers, builders, lenders, the National economy, et al. We continue to believe the core value of a home is in the shelter it provides. From my experience lenders and many builders were out to maximize the purchase price of all homes. It is obvious why builders took this approach. It is less obvious with lenders. The reason is the lender did not intend to "hold" the mortgage on their books. They sold many mortgages to other "investors" and maximized their revenues by maximizing the amount of the mortgage.

This attempt to maximize the amount of a mortgage led to many unsustainable impacts on our industry. I will spare the details but this year brought us several customers that purchased homes from us at a value below what they "qualified" for. We believe this practice leads to sustainability. We do not believe customers can make payments with front end ratios approaching 40%. Even if they can this concept destroys disposable income and negatively effects our National economy that is led by the consumer. Furthermore we believe it will benefit our company if first time buyers can build a solid financial foundation and in turn can possibly purchase multiple homes from us as they build equity on each purchase.

Part of our approach is to advise customers to select functional materials over excess in an attempt to out-do the neighbors. This is not sustainable. Contact us now to get a full picture of our advice on materials, budgets, and ways to make your purchase a true investment that will build equity and financial strength for your family!

Finally I would like to personally thank Lee Verhine, Laura Wright, Craig Lilly, and Ruthi McNerlin for putting our customers first. Our staff is outstanding and you will enjoy every step of the home building process including the equity you can build in the coming years.

Foreclosures?

We have been extremely busy with 14 new projects over the summer and fall of 2010. I believe this volume is due to our increased expertise and customer service. It has been a while since my last post as we are focused on excellence with our current projects.

The news about foreclosure problems has created an even larger benefit to buying a new home. Right now nobody knows if foreclosure purchases will be overturned. Due to improper paperwork during the foreclosure process some homes bought in foreclosure may be taken from the current owners. Contact us today to avoid this potential problem and protect your peace of mind by buying a new sustainable and economically viable new home!

My response to NAHB bankruptcy article

As a member of the NAHB and as a home builder in Fredericksburg, VA, I am deeply disappointed and discouraged by the article titled Second Acts in the March Builder Magazine. The disclaimer on page 7 states "opinions expressed are those of the authors" but the message has clearly been endorsed by the NAHB since the article has run with its clear message. Please view my comments below. It is my belief that this message could be the last straw for builders like myself that have made proper decisions based on economic conditions and outlook.

Clearly the NAHB represents members in and after bankruptcy. However, bankruptcy should not be glorified in any way. It is certainly failure and/or default and should be properly characterized with no uncertainty. Although the NAHB represents builders, we have a fiduciary responsibility to benefit our home buyers. Bankrupted builders have an undue competitive advantage versus builders that do not file although each of us is struggling through uncertain times. The article starts by giving an example of Anderson Homes lowering their debt from $14 million to $9 million. In competition with similar builders, their operating costs are certainly lower by comparison. Bankruptcy is a tool and is by no means illegal. More importantly, it is failure in every sense of the word. We should be supporting with much more effort, our builders that choose not to file. Builders that do not file are far more trustworthy and dependable in most cases to deliver benefits to our purchasers. Perception of our industry, brand identity, and customer service are negatively affected by bankrupted builders. From my experience, bankrupted builders are exactly the ones that made poor decisions and unfortunately have been given a fresh competitive advantage to continue poor decision making. The article mentions lenders in a negative light several times. This should not be the case. Lenders have full rights when a builder defaults. If we believe homeowners should honor their mortgage commitments we should clearly support lenders, through our message, when builders default. We cannot harm our already shaky relationship with lenders and teach them our commitments are only good in the best of times.

I have overcome lower property values, fewer buyers, and deflation of our gross margins. Recently I have lost in competition to bankrupted builders. This may be the last straw I cannot overcome. Lenders are more inclined to have their defaulting partners build out subdivisions rather than bring in a trustworthy builder to partner with. Operating costs of bankrupted builders are lower than typical. It is a clear moral hazard if bankruptcy is the only option to compete on price and to create a negotiating advantage with lenders. My lenders will not budge on my debts because they know I will honor my commitments. Builders like myself should carry the positive image of our industry forward. It is my perception that the bankrupted builders are winning the war. According to Hede (labeled as a bankruptcy expert) "the biggest challenge facing builders emerging from bankruptcy might be letting their optimism about the future get the better of them again." It is a sad day when NAHB's bankrupted companies meet more optimism than their honorable NAHB members.

Price Alone

It has become clear that we have transitioned to a nation of price alone buyers. The lowest price is winning while service and choice is being pushed aside. Our economy is built upon consumer's choices. I say "is" rather than "was" built because our choice will return in the future.

Here is what I mean in the present: A family owned regional grocery store failed in our area. Their business model was choice, service, then price. The prices were fair, the service and choices were outstanding. When you give choices to customers, prices cannot be held as low because you cannot operate or buy in volume. Volume and standardization is winning while choice is losing.

In the near future we will see less choices from many businesses. Businesses will only be able to keep their highest margin options available to the consumer. All other options will be shelved. Once this transition has fully developed, the consumer will see where we are and start demanding the return of service and choice. I am excited about our economy's future since I believe many new businesses will be born to fill the void in customer choice and service.

I also have good news for the present. Top Choice Homes Inc. was built on service and choice. We are also one of the few businesses to combine that with the best prices. We do that with exceptionally gifted staff, low overhead, and exhaustive training. Large companies rely on standardizations and systems that anyone can follow. This does not allow customer choice. Many builders do not allow changes or customer interaction. You get what they say you get. Each employee of Top Choice Homes, Inc. is trained in all facets of business. We can listen to your needs and adapt to meet them. I believe this is the future of business as it was in the past. Customers are the focus and each customer has different desires and needs. If you would like to have peace of mind hiring a professional and experienced builder, please contact us today.

2009

We are nearing the end of 2009. Our industry has suffered through one of the toughest years in recent history but Top Choice Homes, Inc. has continued to improve our quality and workmanship. We completed several interesting projects and our many thanks go out to our customers. Some of our most interesting projects include a 3 story home on a fire restoration job in Lee's Hill, a 1920's era farm house renovation in Spotsylvania, a circa 1900 restoration of a historic home in downtown Fredericksburg, and a near complete fire restoration job in Crystal Lakes subdivision. We are currently breaking ground on an 8000sf mansion in Madison county that has additional buildings on the property dating back to 1840. While we like to focus on new construction, our expertise has allowed us to excel on these projects and I believe 2009 has been a strong year to increase the capacity of our company. Additional thanks are due to Lee Verhine, Veronica Lansden, Cindy Rothell, and Josh Peters. Our staff is outstanding and we look forward to an exceptional year in 2010.

To future customers: There is still a window open for contracts signed by April 30, 2010 and settled before June 30, 2010 to take advantage of an $8000 first time buyers tax credit and $6500 transition for those with existing homes. Please contact us soon to lock in these credits before they expire.