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| Purchase Agreements: Read the Fine Print |
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| By Jim Cooper |
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After spending hours, weeks, months or years choosing a log home
company, many log home buyers seem to view the sales contract almost
as an afterthought. A friend of mine, now a log home dealer, once
confessed to me that she and her husband really had no idea of what
they were getting when they signed their kit contract. They weren't
misled, she said; they simply didn't know enough about the
intricacies of log homes or construction in general to know what
questions to ask. Like many others, they signed their names to a
binding commitment to trade a substantial amount of their
hard-earned income for a dream, relying on the reputability of their
log dealer and manufacturer to make their dream real.
This is not to imply that my friends were ignorant. They were very
familiar with the material list of their log kit. They knew the kind
and grade of every material they were purchasing They knew, for
example, that interior doors and jambs were included with their
package. Bur they didn't know whether the doors were supplied
pre-hung or as door slabs and jamb material. They also didn't know
whether the door materials were paint-grade or stain-grade.
No big deal? Not unless the carpenter based his bid on installing
pre-hung doors and then discovered that he would have to construct
jambs, route hinges and mortise lock sets on each door in the house.
In such a case, the extra charge could range from several hundred to
over a thousand dollars. When you hear of houses costing thousands
of dollars over budget, this is one of the reasons.
While my friends knew that interior trim for doors and windows was
included, they didn't know that the trim was dimensional lumber, not
pre-shaped. Fortunately, the builder was experienced with their log
package and knew what to expect. His contract included shaping and
finishing trim.
There are many ways to trim a log home and many kinds of trim
material. Log home kits often include trim for doors and windows,
either exterior, interior or both. But what about baseboards? Trim
to cover settlement spaces? Trim for joints between log walls and
interior partitions Closet rods and shelves?
And don't forget hardware! Doors need hinges and lock sets.
Handrails, closet shelves and rods need brackets. Walls will be much
happier if doors have doorstops. If the sales rep says all trim and
hardware is included, ask what "all" means. Their
"all" may be very different from yours.
Stairs can also lead customers astray. The material list may say
"includes complete stair materials," but does this mean a
pre-assembled set of stairs or stair materials that are pre-cut and
ready to assemble Or does it mean dimensional lumber in standard
lengths that must be cut, sanded, shaped and finished at the job
site? In my area, the cost of having trim carpenter build a good set
of stair from scratch is two to three times that of a set of
installed, manufactured oak stairs.
Any log home contract should include a complete material list,
specifying not only each item, but also its quantity, grade and
condition. The material list usually will not be completed until the
customer has approved final blueprints, so it's a good idea to ask
to see a sample material list before signing a contract. If it seems
vague, beware! Also realize that a building contract based on
preliminary blueprints without a material list may mean arguments
with the builder about who pays for materials the home buyer thought
were included. Only with a complete and accurate material list of
what is included in the log kit can a builder prepare a firm price
for building the house.
Buyers often overlook other factors-like from whom they are
purchasing their package. There are several ways that log home
manufacturers work with sales representatives. The rep is rarely an
employee of the manufacturer. All of the log home companies that I
am familiar with use independent sales representatives. Usually
these are not franchises but businesses that have purchased the
right to market a particular manufacturer's home. If you don't think
this distinction is that important, pay special attention to the
next few paragraphs.
Some time ago, I received a complaint from a lady who had a very
bitter experience. The reasons for her discontent weren't clear from
her letter, so I called her. It seems she had purchased a log home
through one of the larger log home companies. When she had to delay
delivery on her home, she asked about holding the price. Her rep
told her that if she made additional payments, her contract price
would remain valid.
She signed the contract and wrote checks over a two-year period
totaling $25,000. The checks were made out to the manufacturer and
were given to the dealer, who was also a builder. When it came time
for the final payment, her rep handed her a bill for $10,000 for
"price increases." She refused to pay, citing the contract
with the manufacturer and her rep's promise to hold the price.
Upon her refusal to pay the additional money, the builder/dealer
refused to proceed or to refund her money. She contacted the
manufacturer, who said that her agreement was with her
builder/dealer and that, while it would honor the price freeze, it
could not make the dealer do so. If she wanted her money back, she
would have to get it from her rep.
Through her lawyer, she tried to reach the builder/dealer, only to
find that his phone had been disconnected. It was then that she
found out the checks she thought she was writing to the manufacturer
were actually going into an account held by the rep under the same
name as the manufacturer. So far she has been unsuccessful in
recovering her money.
Although this kind of experience is rare, it resulted partially from
not understanding the manufacturer-representative relationship. In
this case, the rep was legally independent of the manufacturer. By
using the manufacturer's name, he actually gave the impression that
the buyer was doing business directly with the manufacturer. In
fact, the rep was depositing her check in his own account and
supposedly using that money to purchase her package from the
manufacturer. (In most states, there is nothing to prevent someone
from opening an account with the same name as a manufacturer located
in another state.)
In this type of relationship, the manufacturer wholesales the kit to
a representative, who then marks it up and retails it to his
customers. Under this arrangement, the builder/dealer actually sets
the final sale price of the kit and determines price increases. Many
businesses, not just log home companies, operate this way. In other
cases, the rep acts as an independent agent for the manufacturer and
handles money and contracts on behalf of the manufacturer. The
manufacturer in return pays a commission to the rep.
Although both methods are legal and common, it's a good idea to know
which type of arrangement is used by any company you intend to do
business with. It should be as simple as asking your representative
or calling the manufacturer. To verify, find out who signs the log
package contract as "seller."
For example, I act as an independent agent for the company I
represent. I do not sign the contract as seller. Instead, I collect
the deposit check, made out to the manufacturer, then forward it
with the contract. The manufacturer signs the contract as seller and
returns a copy to the purchaser. You can further verify a dealer's
or manufacturer's legitimacy through business licenses and by
contacting the local Better Business Bureau. Almost every area
requires some sort of licensing a through the city, county or state
government. In most areas, such licensing must be displayed to the
public. While a business license does not guarantee integrity, it
indicates that the holder has filed the proper legal forms with the
proper authorities to operate as a business.
The BBB is a valuable source of information concerning reliability,
but you have to know what to ask for. My local BBB will respond to
requests for information about two names, be they individuals or
businesses. They report whether there have been complaints and how
those complaints were resolved. If there is action pending on a
problem, they will simply say so without going into the nature of
the action. A complaint to the BBB does not itself indicate that a
business is unscrupulous, but several complaints about the same
thing should serve as a warning.
One of my customers called me while his house was under construction
to say that he had been approached by the president of a new log
home company in the area. The president offered him an opportunity
to get in on the ground floor as a dealer for the modest sum of
$2,000. My customer wanted to know if I knew anything about the
company. I told him I had seen its ads but knew nothing beyond that.
My only caution was that the president's eagerness to collect the
dealer's fee on the first meeting seemed over-ambitious.
A week later, another prospective home buyer asked me about the same
company, saying it had approached him repeatedly to buy a home. He
contacted the BBB and found that, while the new company had no
record of problems, the president had operated another log home
company against which several actions were pending. When my customer
received another call from the company president, he asked for an
explanation of the president's previous problems. That was the end
of their conversation.
There are other details to look for in the fine print of any
agreement with a log home sales rep or manufacturer. These include
delivery costs and procedures, procedures for making and paying for
changes, method of payment for kit, warranties and penalties for
delayed delivery or cancellation of contract.
I never cease to be amazed at the stories I hear of people making 10
to 20 percent deposits without even having financing or firm
information--a construction contract or independent estimate, for
instance--on the final cost of their home. Most contracts clearly
state refund terms on initial deposits; quite often the entire
deposit is non-refundable.
What I've written is intended to make buyers better aware of the
importance of paying attention to their contract, not to frighten
anyone about the log home industry. The vast majority of the
industry follows high standards of integrity and honesty. But the
building of any custom home (not just log homes) is a complex
process with many opportunities for expensive misunderstandings.
Sales representatives are not mind-readers; they can answer only
those questions that they are asked. Manufacturers can write
contracts that cover most (but not all) circumstances.
No matter how clearly they state contract terms, they cannot know
whether the buyer has read or understands the terms of the sale.
Only by asking questions and demanding firm answers can log home
buyers minimize the financial risk to their log home dream. |
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