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ABC Special Report
Investigation: New Home Heartbreak
Trump - NAHB Homebuilders Shoddy Construction and Forced Arbitration
Negative Web postings depict builders as unscrupulous businesspeople
Monday, 24 January 2005

The Magazine of the National Association of Home Builders
Parallel Universe

The worldview of Home Builders versus that of the people who post negative web sites about them is so different that some might wonder whether the two groups live on the same planet.
The negative Web postings depict builders as unscrupulous businesspeople who market shoddy, hastily built products and force people into binding arbitration agreements that forfeit the legal rights of home buyers.

The Magazine of the National Association of Home Builders
Parallel Universe
The worldview of Home Builders versus that of the people who post negative web sites about them is so different that some might wonder whether the two groups live on the same planet.
BUILDER Magazine
Publication date: 2005-01-01
By Steve Zurier

HOME BUILDERS HAVE BEEN SO BUSY IN recent years that building homes has taken precedence over the relatively small number of complaints they've received. Moreover, journalists, economists, and even the president credit the home building industry with carrying the economy through these difficult times of war and recession.

In the wake of such praise and good tidings, builders are feeling pretty good about themselves and their industry. That's why home builders and the people who post anti-builder Web sites seem to exist in parallel universes.

Builders see themselves as champions of free enterprise delivering the American Dream of homeownership to millions of Americans. The negative Web postings depict builders as unscrupulous businesspeople who market shoddy, hastily built products and force people into binding arbitration agreements that forfeit the legal rights of home buyers.

While the vast majority of new-home buyers are satisfied customers, the reality is that even some of the most prestigious names in home building have had unhappy customers as well as consumer advocates create negative Web sites about them.

A short list of builders that have experienced negative postings reads like a who's who of home building: American Heritage Homes, Beazer Homes, Centex Corp., David Weekley Homes, D.R. Horton, Henry Company Homes, Huntington Homes, John Wieland Homes, KB Home, Pulte Homes, Royce Builders, Ryland Homes, Shea Homes, Woodhaven Homes, etc. Just about any builder would admit privately that his company has been hit.

Short of spending several full days on Google or Yahoo! hunting the sites down, it's hard to know how many anti-builder Web sites are posted on the Internet. Most are active for just a few months or a year before the angry home buyers either lose interest or settle their case and agree to take the site off the Web. It's also difficult to know how much money builders pay Web advocates to shut these Web sites down, since almost all settlements require that the Web advocates sign a nondisclosure agreement. But there have been cases in which homeowners have gotten builders to repair their homes and received perks such as new carpeting, swimming pools, and other household items worth well in excess of $25,000 if they agreed to take their site down.

Based on the research we did for this story, the Web sites with the most impact on the broader industry are the advocacy Web sites run by Missouri-based Homeowners Against Deficient Dwellings (HADD), www.hadd.com, and www.hobb.org, the Web site run by San Antonio–based HomeOwners for Better Building (HOBB).

The two groups have set their Web sites up as clearinghouses for new-home buyers, offering up industry news, tips for filing a claim against a builder, links and advice for finding trial lawyers, and lurid horror stories/testimonials from disgruntled new-home buyers. Both Nancy Seats, president of HADD, and Janet Ahmad, HOBB's president, are frequently quoted in local and national media.

Seats and Ahmad believe that builders must respond to consumer complaints the way automakers responded when consumers of automobiles voted with their pocketbooks in the 1970s and 1980s by buying Japanese and European cars. The problem is, American home builders don't face foreign competition the way U.S. automakers do, so the home buyer advocates feel they have to take a different tack.

“Thank God for the Internet; it's our only hope,” says Seats, who started HADD in 1993 after having problems with her builder that included missing rebar, poor grading, and cracks in the foundation. It took her five years and several attorneys before she won a $60,000 jury award from a Clay County, Mo., Circuit Court. Seats launched the organization's first Web site in 1998. Today, HADD has 22 representatives in 20 states around the country, all of whom Seats says are “unpaid victim volunteers.”

page 2 of 6
“I'm going to continue the work, and I'm not shutting down the Web site, oh no,” says Ahmad, who started fighting home builders in the late 1970s when she, too, had problems with her builder. Although she never owned a KB Home, she is sharply critical of KB and has led demonstrations against the Los Angeles–based home builder.

Seats and Ahmad, both retirees in their 60s, fill an advocacy void in the absence of any sustained prosecutions by federal or state government agencies or consistent oversight by other advocacy groups like the Better Business Bureau or the Consumers Union. The Better Business Bureau tracks complaints and does help consumers and builders resolve disputes, but it cannot force a company to make repairs. The Consumers Union made a big splash with its January 2004 Consumer Reports article “Housewrecked,” which was sharply critical of home builders, but by and large, home builder quality and customer service are not a focus for the Consumers Union the way the quality of cars or consumer electronics is. However, Consumer Reports does regularly test household products such as appliances, siding, and paints.

Builders' View
Let's be clear: Builders detest these sites and the people who run them. Most companies feel unfairly singled out and view the anti-builder Web advocates as a vocal minority who spread misinformation about the frequency of defects complaints in the industry and feed cases to trial lawyers, most of whom are reviled by home builders.
“We're going to build 34,000 homes this year, and we haven't seen any trend that indicates that defects claims are on the rise,” says Neil Devroy, vice president of communications and public affairs at Centex Homes.

“No trial lawyer will fix a home, and I haven't seen any trial lawyer use a hammer and saw, but I have seen them take 30 percent of any settlement and walk away,” says Devroy, who adds that his advice to builders is to be proactive.

“Builders need to talk to their customers and make sure their customers understand that they don't have to go to a public Web site or a lawyer [to get their complaint handled],” Devroy says. “If all our customers understood this, there wouldn't be a need for advocates,” he says, pointing out that early last year Centex expanded its Fit and Finish warranty from one year to two years for routine items like leaks in a bathroom sink or problems with trim, wall-board, or paint.

The other builders that were asked to talk about the anti-builder Web sites feel the same way.
“We know these Web sites exist, and we monitor a few,” says Mark Marymee, director of corporate communications at Pulte Homes.

“But we don't spend a lot of time and energy worrying about them,” Marymee continues. “If you read comments posted on the sites, there are a few people who really lay into us, but there are a few who step up on Pulte's behalf and say they haven't had the same experience. Then, those people who try to add balance to the conversation are usually laid into by the negative Web posters and called ‘shills' for Pulte. Most of these sites don't offer anything close to open and free dialogue. They tend to be sites where the disenchanted go to commiserate with others who are disenchanted.”

KB Home spokesperson Kate Mulhearn echoes these sentiments.

page 3 of 6
“In today's technology-savvy environment, it is not unusual to see companies questioned in online postings,” says Mulhearn. “Unfortunately, these postings can broadly disseminate unverified, incomplete, and even inaccurate information from a vocal few,” she says, pointing out that KB was rated No. 1 in Austin, Texas, last year by J.D. Power and Associates and among the top three builders in Las Vegas, Houston, and Raleigh, N.C.

KB is clearly proud of its recent high customer service ratings and resents the negative publicity of the anti-KB Web site. Because of some earlier incidents, KB still operates under a Federal Trade Commission (FTC) consent decree that bans the home builder from using binding arbitration clauses that waive the right of homeowners to file lawsuits. The original consent decree, from 1979, was renegotiated in 1991 when the company paid a $595,000 fine.

Last year, after homeowner advocates sued KB in federal court to take the binding arbitration clause out of KB's warranty contract, the company sent a letter to its customers stating that it would not enforce binding arbitration. But the consumer advocates kept pressing hard, claiming that KB was still putting binding arbitration into its contracts by offering a 10-year warranty without binding arbitration and a 12-year warranty with binding arbitration.

A federal judge dismissed the case but agreed with an FTC brief that said individuals could seek relief from KB's binding arbitration clause in state courts. This paved the way for the case to be tried at the state level in Texas, where at press time it was still pending. Alice Oliver-Parrott, the Houston-based attorney representing the homeowners, says the case could apply to up to 20,000 KB homeowners in Texas.

The Truth Hurts
So what's really happening? Builders point to Web advocates as minor distractions blowing the quality issue out of proportion. Some of these Web sites portray a long trail of victims living with cracked walls, flooded basements, and faulty foundations.

Here are some numbers: Total single-family housing sales increased from 973,000 units in 2002 to 1.086 million in 2003, a jump of 11.6 percent. But the Better Business Bureau reports that complaints by new-home buyers about home builders jumped from 4,871 in 2002 to 6,132 in 2003, an increase of 26 percent. Reported complaints jumped a sizable 51 percent from the year 2000, according to the Bureau.

Many builders would take heart in simply doing the math. Divide the number of 2003 complaints (6,132) into the number of 2003 single-family sales (1.086 million), and the percentage of home buyers reporting complaints is a minuscule .6 percent. That's a number that would lend credence to builders' claim that the vast majority of their customers are satisfied. That's actually true.

But keep in mind that the Better Business Bureau only tracks reported complaints. Alan Mooney, president of Criterium Engineers, says the Bureau numbers are only the tip of the iceberg.

“It's a much bigger number,” states Mooney, who says his company conducts 30,000 inspections a year, roughly 65 percent of which are residential. “About 14 percent of all new homes have at least two significant defects,” says Mooney, who defines a defect as something that needs immediate attention or that if it is not attended to would lead to a worse condition in the immediate future.

“There's no question that the home building industry has a quality problem,” says Mooney. “Historically, the trades would police themselves, but with today's trades being less skilled, there's more pressure on the super to keep an eye on the trades,” he says. “Too often the builders put young people out there as supers who want to do a good job, but the turnover rate remains high because they get overwhelmed by the details and aren't given the proper tools and training—it's really an impossible job.”

page 4 of 6
Bad To Worse
One of the most extreme cases between a disgruntled home buyer and a builder is the situation between KB Home and Brian Zaltsberg in the Dallas area. Zaltsberg posted and manages www.kbhomesucks.com, arguably one of the most controversial anti-builder Web sites. It was launched in early 2003 after Zaltsberg and his wife, Stephanie, lived in a new KB house about six months, where they claim to have found the following defects:
•  Lack of flashing on the roof, causing flooding to the interior of the home.
•  Holes in the roof, which permitted rainwater to damage the interior of the home.
•  Split rafters.
•  Sheetrock not firmly attached to the studs.
•  A substantial gap around the back door, which was sufficiently large enough to allow daylight to pierce the doorway and the free exchange of cooled air on either side of the door.
•  The front door frame was not square.
Zaltsberg and KB were in negotiations for several months, but evidently both sides could not agree on a settlement for damages and shutting the site down, so Zaltsberg finally filed a lawsuit against KB Home in late September 2004 in Dallas County, Texas.

The lawsuit says that after the Zaltsbergs made numerous requests to have KB Home correct the defects, KB either failed to correct the defect or simply ignored the requests. The Zaltsbergs eventually moved out of their house, and the bank foreclosed on the home. The couple is suing KB for negligent misrepresentation, fraud, breach of contract, as well as libel, intentional infliction of emotional distress, and invasion of privacy. The libel refers to alleged defamatory e-mails presumably sent by KB employees that disparaged the character of Stephanie Zaltsberg. The lawsuit claims the e-mails were libelous and also threatened the life of Mr. Zaltsberg, acts that the Zaltsbergs' attorney, John Meazell, says “crossed the line.”

How could the situation get so far out of hand? Brian Zaltsberg says he was initially ready to settle with KB for about $3,500, but KB wouldn't pay him the money until the home builder sold Zaltsberg's house. Zaltsberg refused to shut down his Web site until he received the money, and in the interim, Web site traffic exploded. Zaltsberg was featured on local TV news programs and negotiations broke down.

Zaltsberg claims the site now receives 1,000 to 1,200 unique visitors per day who generate 8,000 to 10,000 page views. (Unique visitors are viewed as a more precise way to track Web traffic, because it refers to one specific individual using the site. Hits refer to the total number of times individuals visit a site.)

“The reason I [let the bank] foreclose is because I'd rather have bad credit for seven years than have to pay for something that will go down in value,” says Zaltsberg, who says his advice to builders is, “Don't underestimate people.

“They laughed at me and mocked me and said, ‘Go ahead, put up your consumer Web site; it isn't going to hurt us,'” says Zaltsberg. “But I bet now they wish they paid the $3,500,” he says. “Look what the site's become.”

Changes In Attitude
Mooney says builders have really changed their tune about quality over the past 18 months. Sure, the Web sites have turned a few heads, and so have negative articles in Consumer Reports, the Orlando Sentinel, and The Wall Street Journal. But Mooney says the real driving factor is that builders finally realize that they have to respond to the increased sophistication of the buying public.

“Home builders face a much more demanding buyer today,” says Mooney. “We've come to realize we can expect defect-free cars and electronics, and people expect that level of quality with new homes,” he says.

“The manufacturers finally got quality under control in this country by taking the W. Edwards Deming concepts of continuous improvement seriously,” says Mooney, referring to the process advocated by the late quality-improvement guru. Mooney adds that his company is doing quality inspections on 1,000 projects for about 150 builders, including Centex and Lennar.

page 5 of 6
Mooney says continuous improvement efforts like the Certified Trades and Certified Builder programs launched by the NAHB Research Center as part of its National Housing Quality program are steps in the right direction. But he says it's still largely the industry operating under an internal quality management system. Mooney says what's needed are third-party quality inspections, a requirement that Mooney says insurance companies will increasingly demand.

“There are still builders with their heads in the sand, but when they don't get their insurance renewed, that tends to get their attention,” Mooney says.

By and large, builders face the fact that anti-builder Web sites are simply part of doing business in the Internet era. Many builders ignore the sites and point to quality programs and positive J.D. Power numbers. Most try to settle if they can so they can shut the sites down.

The reality is that builders have many advantages. Many sell their homes with binding arbitration clauses that require home buyers to waive their right to sue in court. Only about 2 percent of the cases that attorneys handle for home buyers ever actually go to trial—most are settled by mediators within two years. Plus, taking a builder to court can cost well in excess of $20,000, a price tag that's out of reach for many buyers.

A case involving Sandra Bullock was big news because it underscored that it took a Hollywood personality with big bucks to sue and win a $7 million jury award against a Texas builder for shoddy workmanship. Bullock was quoted in the press saying she pursued the case for all the consumers who could not afford to sue their builder.

Builders are also very well organized compared with new-home buyers. Working with the NAHB, the state builder associations have pushed for 23 of the state legislators to pass notice-of-repair laws, statutes that require homeowners to notify a builder of a defect before taking the matter to court.

The industry can ignore HADD, HOBB, and company-specific sites like the one launched by Zaltsberg. But it can't ignore the increasing demand for quality construction and customer service.

KB Home points to its high J.D. Power ratings and the fact that the home builder is one of the first builders certified by the NAHB Research Center. That's great, as is KB's positive article last September in Business Week. But it can't be good for KB to have Zaltsberg's Web site viewed by more than 1,000 new potential buyers a day.
People around the industry want to know if the advocates running the anti-builder Web sites are legitimate. “Are they for real?” people ask, seeming to want to hear that the advocates are somehow corrupt. While it's true that some may never be able to be appeased, most of the home buyers simply want the industry to get it right the first time.

page 6 of 6
Negative Into Positive
Numerous home builders have been the subject of negative Web sites, especially the big builders. Here are some tips for how to handle these sites:
•  Keep Communication Open. Build steps into the buying process that keep the lines of communication open between your salespeople and supers and customers so you can fix routine mistakes early. Remember that most warranty calls are fit-and-finish issues. Customers become irate when builders don't respond or offer to make the repairs at inconvenient hours for the homeowners.
•  Don't Underestimate People. Better to settle for the extra $1,000 with a problem home buyer than to wind up in costly litigation, or worse yet, have an angry customer post a Web site that is highly trafficked and then gets picked up by local newspapers and TV stations.
•  Design A Clear Policy That Your Employees Are Familiar With And Understand. If your company is the target of an anti-builder Web site, hold meetings with your employees to discuss how they should handle the situation. The best policy is to be sure your rank-and-file employees are not in contact with the person posting the site. Refer the situation to a manager and have him or her work through the situation with corporate.
•  Get Your House In Order. Create a climate that's serious about continuous improvement, employee training, and the deployment of technology to streamline your processes.

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