Development 101 Template+2

Housing Opportunities for New Construction
Introduction_____________________________________
This manual will investigate options for creating a new construction program or streamlining an existing one. The manual will walk you through the steps and possible pitfalls of the design and development of singlefamily new construction projects. The key to new construction is: Knowing how to Match 1. Land, 2. Builder, 3. Design, and 4. Qualified buyer With 1. Acquisition, 2. Construction financing, and 3. Permanent financing, 4. Approval process Sounds simple right? Well, each project has its own personality and may exist in an environment that supports one project delivery method over another. For this manual we will use a traditional Design/Bid/Build method, but we will discuss other methods along the way. Begin now to think about your budget. How much can your clients afford and how much building can they get for that price. To do this you must first analyze the numbers, target your clients, and base all your decisions on facts not perception. Your intentions are good ----but are they well founded! This workbook is designed to help you think through the development process. It contains numerous worksheets and sample forms that you may want to reference and amend to fit your needs while working through a real project in your community. This manual will also look closely at different strategies to make housing more affordable. Creative acquisition techniques, homebuilding
_____________________________________________________________________ Diversity Developer Incubator 1
technology, design, and development can help reduce the cost of housing construction and lower the cost of homeownership with out sacrificing the desired results of neighborhood revitalization. Sometimes certain costs simply cannot be avoided. Therefore, we will also consider ways to shift expenses to other sources of support and consider ways to supplement your budget and financing strategies to ultimately deliver a lower cost home to your buyer. Sometimes your dreams of rejuvenating a neighborhood and providing affordable housing seem to fight against each other. After all, there has to be a reason that the for-profit developers have not scarfed up the available lots. So, all things being equal, your house has to be more equal. You have to deliver a few more bells and whistles to attract qualified buyers. But at the same time, you have to watch your budget and deliver a product for less than the private sector.
What a dilemma-Lets take a look at how we can begin to bring these contradictions into balance.
The Development Steps___________________________
Program Planning and Feasibility
Community Barriers The notion of affordable housing can dredge up significant emotional issues in any community. Before any project can undertake the bricks and sticks of development, the political and community attitudes towards the proposed plan must be addressed. You must understand what the real political and community barriers to affordable housing are in your community and find ways to remove those barriers and build support. Everyone has heard of the NIMBY syndrome, havent we? What are some of the other syndromes you might encounter? NIMBYOh, our community needs affordably housing. Just dont build any near menot in my back yard. NIMTOOWhen I was elected I had a mandate to preserve the quality of our neighborhoods, so I wont support any of that low cost housingnot in my term of office. BANANA We moved out here to get away from problems in the city. There used to be a farm across the street and now its a subdivision. We dont need any more housing here build almost nothing anywhere near anything. And finally, no matter how you plan, no matter how many community meetings you have, no matter how you amend or modify your project, you will encounter the CAVE syndrome-Citizens against virtually everything. From the very beginning of the project you must seek support and listen to the community. Some locations may be more suitable than
others. Certain densities may be preferred. Certain types of designs may be desirable. Certain property values may be demanded. You must be prepared to respond to these very real issues. And without adequate support regarding community concerns your project could be doomed from the start. Developing the Project ConceptFeasibility Analysis What are the general components of the project that you have in mind? What are the who, what, when, where, how, and why of the project? Will this be a scattered site project with multiple lots that are not contiguous? Will this be a single site with multiple units? Will the site contain 4 units, 12 units, or 50 units? Will the project be geared toward elderly homebuyers, family homebuyers, or persons with special needs? Will the project require a subsidy for construction or sale? These are just a few of the questions that Board and staff will have to evaluate when considering the neighborhood, the available financing, the expected demand for homes, and the skills of the organization and its partners to actually carry out the project. Conducting an effective affordable housing feasibility study includes a though investigation into the site, neighborhood, and regional conditions, plus an analysis of the housing supply and local market conditions. The four keys to a successful feasibility analysis are: 1. Determining the need for affordable housing in the market area, 2. Determining the suitability of the proposed site and program for the local market, 3. Determining the availability of project financing, and 4. Evaluating the effect the development will have on the project area and neighborhood.
Much of the information you will need may already be available. You should communicate with the local Community Development Office to see if any studies of the area have been completed. There also may be information available from the Citys Planning Department or from the local University. You may be able to recruit students to assist you in the development of the analysis. You may be closer than you think to having the feasibility study completed. Depth and Durability of Market The study must determine what the overall demand for the product is and where the majority of homebuyers for the project are most likely to come from. To accomplish this one should complete an inspection of the community. Who already lives in the community? Who else could be attracted to move into the community? How easy is access to the community? What are the conditions of adjacent areas? What about neighborhood amenities such as parks, schools and shopping? How will employment centers and transportation systems affect the marketability of the proposed housing? What is the perception about safety in the community? REMEMBER: The two biggest sellers for a neighborhood are GOOD SCHOOLS & SAFETY! You must make a determination concerning the primary market area for your project. Are there institutions such as schools, hospitals, or universities nearby that would be a potential source of homebuyers? Are there apartments in the surrounding area where buyers could be recruited? What would draw a buyer to your homes? Are there other properties that will be competitive with the proposed property? Demographic Analysis
All feasibility/market studies include an analysis of the households already living in the primary market area. Understanding this will allow you to estimate the depth of the market for specific proposed housing types. How many households fall within the appropriate income brackets? What age groups exist and are they potential homebuyers? What are the most common household sizes and will your proposed development meet their needs? The analysis should examine the lifestyle characteristics of the population to be served. Will there be families with children? Will there be empty nesters without children? Is there an immigrant population with extended families and other particular needs? The analysis must examine household income. What is the minimum income necessary to qualify for one of your units? Are there governmental restrictions that will dictate the maximum income level of buyers? Will you be able to promote a mixed income community? What subsidy may be required to bridge any gap between the anticipated income of buyers and the actual cost of the housing? Supply-Side Analysis The analysis must recognize and evaluate the other housing choices of the target market. What has been the performance of competitive producers in the area? Are there Barriers to new construction in the area? Is land available at a reasonable cost? Are there regulatory requirements that will support or conflict with the proposed project? What is the nature of the local housing stock in the community?
In very low-income areas, homeownership may not be the best housing choice. Should consideration be given to ownership alternatives? Should the overall design include both homeowner and rental units? Marketability The proposed housing project must be evaluated for its suitability for the target market. What do they need? What are the most desirable unit compositions, physical characteristics and mix of housing types for your target market? Are there amenities, such as parks, schools, or businesses in the community that can enhance the marketability of the project? Design features should excite potential buyers with The lure of the new. Many homebuyers have an overwhelming preference for new housing. Customers are frequently willing to make significant tradeoffs for a new home. How will the development take advantage of the new? The design should respect the neighborhood. Does there need to be a new product or do you need to expand on an existing product? Are there day-care centers and essential services nearby? Outcome The study should consider what the impact of the development would be on the neighborhood over time. Will the development support the long-term viability of the neighborhood? Is the neighborhood stable now? If not, will this development promote stability and represent an improvement? Will this project promote improvement, and cause a change for the better?
Are there complementary projects or are there competitive projects in the surrounding area? Will the project increase the strength of the sponsoring organization? How will the project address social issues and impact prospects for the future of the community? What will be the overall impact on the demographics in the community? Will there be winners and losers? What about issues such as immigration, age, and housing characteristics? Is there political will to support the effort? Will a miniprecinct, a new school, or road improvements be made to support the project? How is local government addressing other social issues important to the community? What needs to be done to support the long-term stability of the community? How will the neighborhood hold up over time? Financing Availability The study should consider the type of financing that would be needed by the organization to complete the project, as well as the type of financing that customers would use to purchase each unit. Will the proposed units appraise for a reasonable amount or will a construction subsidy be needed? If so where will that subsidy come from? Can the organization obtain funding to support development of the project? Are there alternate sources for funding portions of the project, such as local government completing demolition or infrastructure work?
Will the target market be able to afford not only the purchase but also upkeep of the properties? Are there certain market characteristics such as poor credit ratings that will inhibit sales? Feasibility and Market Study Conclusions What will you do with all of the answers to the questions listed above? After considering all of the information obtained in the process it will probably be necessary to amend and modify your original proposal. You may even decide the project cannot be accomplished and another approach would make more sense. That is a valid conclusion, and in the long run, one that might save your organization a lot of money and heartache! If you decide to move forward, the feasibility and market study will provide you with a tool to generate support from your board, from local government, lenders and from the community. You will have answered the hard questions that they will surely ask. The information you have collected and evaluated will form the basis for powerful presentations and financing proposals that will help your project become reality. Secure Project Financing: Once you have completed the feasibility analysis and you have formulated a clear idea of the scope of your project, you should consider your financing needs. First you will need predevelopment financing. Second you will need site development financing. Third, you will need construction financing. And finally, your buyers will need first mortgage financing. Pre-Development Financing: You will need to identify funding to support the prep work for the project including architectural and engineering work. This stage will
also include fees and other charges associated with working the plans through the land use control process. This may be something you can handle in house but you may need additional resources. The Federal Home Loan Bank has a 0% Pre-Development loan fund that is very attractive. You can access these funds through a member bank. The down side is that the loan must be paid back even if the project doesnt get off the ground. You may find that your local United Way or Community Foundation may be willing to invest in the early stages of the project. Your local CDBG office may be interested in this phase as well, and HOME funds allow for pre-development loans to CHDOs that are using the CHDO set-aside funds. Site Development Financing: In this phase you will need to finance the site and infrastructure costs of the project. Conventional private sector financing will be available for this part of the project. However, this is still pretty risky business and you may find securing this funding difficult and expensive. Again, Federal Home Loan Bank funding may be available, CDBG and HOME funds can be used for this and Neighborhood Housing Services of America-CDFI has an interim Development Loan product for up to $750,000 for 24 months. Construction Financing: Once the site is developed, funding to develop the houses is needed. Private lenders are more comfortable with this phase because the lot and the house under construction will serve as collateral for the loan. You can set up a construction loan and release each home as it is sold. Home funding is also a good source for this phase. Loans are typically available for 80% of the completed value of the house, so you will need to cover the 20% equity. This is probably covered in your ownership of the lot. If not, you will have to cover the balance out of pocket. Sales Financing: The lender that has worked with you on the development and construction financing will probably want to work with you on the
permanent financing. You should work out this scenario early in the process. Confirm the appraised values. Clarify that any subsidy funding to be included in the sale will be acceptable to the lender. Be sure you understand the criteria for the loans so that you can properly pre-screen customers. Consider your financing needs early and get banks involved. Give yourself enough time to catch any application and funding cycles well in advance of your project timeline. Give yourself time to shop around for development, construction and permanent financing. You will be surprised at the range of responses you will receive!
Cutting Cost During Program Design & Feasibility Understanding your market is essential A market study does not have to be a glossy, 30-page document prepared by an outside expert, even though in terms of presentation such a document can be a useful tool when you are pursuing lenders and investors. The fact is if your organization has been operating in a specific geographic area for a while you should have been accumulating market data to back up your project. The task is to organize the data and interpret it in such a way that allows you to make projections about sales prices and typical buyers. Types of data used for these projections are: Population Who lives in the neighborhood? What are their occupations? Are people moving in or out of the neighborhood? What are the average ages and family sizes? 1. Homeownership Percentages What percentage of the housing do homeowners as opposed to investors own? Is this percentage increasing, decreasing, or stable?
2. Vacancy rates: Does code enforcement keep this information? How many vacant buildings are in the area? What degree are people doubling up and sharing units? 3. Sales data: Have you talked to your real estate agent lately? What are the average sale prices? How long do units stay on the market before they are sold? 4. Completion: It doesnt hurt to drive around! Have you checked with land use control? Do you have competition for your venture? What is their product? Who is their market? 5. Amenities: Does the school board or park commission have anything on the drawing board? What is available in or close to the area for services? Are there any historical or architectural features? 6. Purchasing Power: Who are your buyers and where do they work? What is the income population you want to attract? Will you need governmental subsidies? 7. Light Commercial: Where are your customers going to shop? Sometimes you can get lucky and find that all of this information is readily available from your city or county Community Development or Planning Department. HUD or your state housing agency may have conducted studies on the area. Neighborhood Reinvestment may have access to data and mapping capabilities. People love maps! You may be able to identify an intern from the university, or even work with a class for a project in city planning, marketing, public administration or even anthropology.
Your local United Way, Community Foundation, or Home Builders association may have completed a needs analysis of the area. There is plenty of free data out there. Take advantage of it. Use any or all of the above strategies and you have just saved valuable time and money!
COST SAVINGS
1. Compile the study yourself. 2. Use the neighborhood study from local government. 3. Work with the university/interns 4. Contact United Way. 5. What can NRC do for you? 6. State Housing Agency?
2. Your thoughts? What are the pros and cons here? What other resources are available in your community? 1. _____________________________________________________ 2. _____________________________________________________ _ 3. _____________________________________________________ _ 4. _____________________________________________________ _
5. _____________________________________________________ _ What about Supplemental Funding? If you cant cut your costs sufficiently, you may need to identify supplemental funding. The Federal Home loan Bank may have funding for pre-development expenses such as these. Your Community Foundations or United Way may have small grants to support theses efforts. There also may be direct funding or discounts from the utility company that encourage reuse of existing lots. It is certainly cheaper for the utility company to hook up a house on an existing street than it is to run new service! What have you used? Or what are other options? 1. ________________________________________________ 2. _________________________________________________ 3. _________________________________________________ 4. _________________________________________________ 5. __________________________________________________ 6. __________________________________________________
Project Development Recap

Form partnerships to develop and carry out the project. Clearly define the project goals write them down. Share the goals with the key stakeholders and get buy-in from them. Clearly define roles and responsibility of those involved in the project. Define and maintain clear communications between key stakeholders. Review local codes, zoning laws, and other regulations that may affect the project (such as density limits, energy efficiency requirements, etc.). Conduct frequent marketing and outreach efforts during the project. Secure project financing as soon as possible.
Take advantage of federal, state, and local programs that could be combined to achieve a better project.
Choosing and Obtaining Your Property
Whether you are building houses in a development or a house on an in-fill lot, you need to choose the land before you decide on floor plans or other details. Your decisions will not only reflect on the size of your development, but the financial feasibility. Location and the surrounding neighborhood will play a large role in the marketability of the project. Matching your proposed use with an appropriate site can be a challenging process. In order to make a good decision, you will need to investigate factors such as: a. Soil condition- are there conditions in the soil that will impact the cost of the foundation or infrastructure? b. Drainage- does the site have drainage problems that could require a detention systemthus increasing cost and decreasing land available for development? c. Zoning- is the site appropriately zoned or will it need to be re-zoned? What is the cost of the process in terms of money and time? d. Building codes in the region- are there code requirements in the community that will drive up the cost of the project beyond the financial ability of the homebuyer? e. Environmental- are there environmental concerns about the site that need to be addressed? Has there ever been any dumping on the site? What was the previous use of the site? Could there be any wetlands issues? Is the site in a floodplain? In many cases, environmental liability
flows to the current owner. Can you afford a site clean up? f. Easements and restrictions - are there any easements that run with the land such as power transmission, or utility easements that will restrict land use?
Legal Tip: Do not ASSUME! Assume makes: an ASS of U and ME! There are numerous sources of property. Each comes with benefits and problems. When evaluating a site in addition to financial or feasibility considerations- there may be legal issues to consider. a. Tax or Foreclosure Properties Tax foreclosure procedures vary from state to state. You should determine if the complete process was followed for judicial foreclosures check local statutes and complete a title search to determine if title insurance can be obtained. Without title insurance you cannot move forward. Understand that until the very last day for redemption has passed, there is always a way for an owner to stall for time through bankruptcy or even redeem the property. While many communities have a considerable volume of tax-foreclosed property, it is not always in the best location and can have clouded title that will make it almost impossible to develop. b. Eminent DomainIn some cases a locality may be willing to use eminent domain to take a property for redevelopment purposes, or even to clear a title. This is generally risky business and can raise serious political questions. This process should be used as a last resort.
Housing Opportunities for New Construction c. Donated Land This is one case where you should look
a gift horse in the mouth. You must ask yourself why the property is being donated. Complete your due diligence before you accept the land. Is there something wrong with the land? Is it encumbered with debt or back taxes? Are there deed restrictions such as the type, style, or size of the unit that can be built on the land? If there are problems that can be reasonably overcome or if the offer is truly a philanthropic gift, then a donated parcel may be the perfect solution for property acquisition. d. Purchase of Land In most cases, real estate must be purchased. To determine the purchase price, an appraisal should be completed. The site probably will already have a city tax assessment, but an assessment value is rarely equal to the market value. It is certainly worth the expense to pay for an appraisal or at least check the comps (comparable sales) in the area. If there is already an appraisal, have the appraisal reviewed. Are there restrictions on what you can do with your site? Does the land have easements from utility companies or other public or private parties? Does the land description contain conditions, covenants and restrictions? How about environmental issues? Do you want to inherit the stream of responsibility for these issues? The only guarantee as to lot lines is a survey. Tree lines, fence lines, and boundaries of customary may or may not be the real boundaries as set forth in the legal description. Before you make an offer, at least review the existing survey. If there is none, or if it is over 6 months old, make your offer contingent on a satisfactory survey. Other Considerations: Your city or county ordinances have a section that divides your community into specific zoned areas. These zoning districts limit the use of the property as well as set out specific construction controls. Setbacks, allowable building height, minimum and
maximum floor area, covered parking requirements, etc. are all controlled in the zoning regulations. Local jurisdictions are not consistent in any of these regulations and you will need to understand how current or future zoning may impact your site. Also, you should learn what types of projects are excluded from HUDs requirement for Environmental Reviews and the need for Phase I Environmental Assessments. What if the site needs a review because of funding that is to be used? Will this create conditions that will increase the cost of the project? Buying the Land: Once you are convinced that acquisition of the property is the right thing to do, how do you determine an offer price? Generally, the lot price should be no more than 20% of the completed unit sales price. So $20,000 per lot for a proposed $100,000 unit would be appropriate in the private sector. However, this formula might not work in a community with depressed real estate values. Another way to determine the value of the land is as follows: Sales price minus total development cost equals land price. For example, if your sales price will be $100,000, and your total development cost is $90,000, then the maximum price for the lot will be $10,000. When considering the offer/purchase price, there may need to be a subsidy based on the factors listed above. If you have already obtained the subsidy, great. If not, you may need to make your offer contingent on obtaining the subsidy within a specified time frame. If your ability to close on the property will be delayed for any length of time, you may want to consider an option. This could reserve the property for purchase, and buy time before the closing is required to take place. When using the option approach, you pay the owner a fee to take the property off the market for a period of time, say six months to a year, while you line up the financing. The owner agrees that during the option period you can purchase the property for an agreed-upon price. The option also stipulates your right to withdraw your offer if you cannot secure financing, necessary zoning variances, satisfactory soil tests, or other contingencies. Consult local brokers or lenders about what to pay for an option.
Later in the process, when the funds become available for you to purchase the property, you need to exercise care. The owner must not sense that a big project is being planned or their prices may go up. Many organizations solve this problem by having a third party act as their agent and purchase the property for them. In general, it is best to work with a real estate agent in preparing a sales contract. You should review the sales contract for clauses as to the responsibility for testing and clean up as well as the cancellation of the sale. Regardless of who has to pay for the testing, reserve the right to cancel the contract if any environmental test is unsatisfactory. Even if all the applicable requirements are met, there is still the GOLDEN RULE TEST: Will the guy with the gold lend on it? Financing Acquisition Phase: You will need to arrange for financing to acquire the site. If it is a gift, you will still have closing costs, taxes, and fees. If it is a tax sale, there will also be fees and expenses. If you are purchasing the property, you must be able to deliver the funds to the table at closing. You may do this as an all cash transaction if your organization has adequate funds on hand to cover the expense. If you are working in partnership with local government, they may purchase the land on behalf of the project and quit claim the site to you after closing. In the event that you need to borrow funds to close, you will need to work with the lender to set up the loan transaction. Your board will need to consider the terms and conditions of the loan and ultimately approve the transaction.
Legal Tip: A quit claim deed has no warranty of title. Do not invest anything of substance without title insurance.
Note: A good follow-up course for this phase is Bank Financing: How to Discuss Your Deal and Assemble Your Loan Package #AH224 Costs to Anticipate After Closing: Within a short time after closing you will incur expenses for the basic ownership responsibilities. You should plan for these post purchase holding costs and determine how you will fund them and for how long the expenses will last.
Cost of securing the site- you may need to secure the site from entry either by boarding up existing buildings or by fencing the perimeter. Cost to clean the site- you may need to clean the site of debris or even remove a dilapidated building. Regardless of the initial treatment, there will be ongoing site maintenance needs such as mowing and trash removal. Insurance- you will need to obtain liability insurance to cover your organization and the board. The insurance carrier will be able to advise you on ways to limit your liability on the particular site.
Later in the process, if you are proposing to build on undeveloped land, you will incur site development expenses for the following: Infrastructure, Sewer tap, drainage and detention, sidewalks and streets, government required fees, bonds, and letters of credit required for the process. If you are building on scattered-site existing lots, you may avoid all of this, but be careful. Some abandoned lots can have collapsed sewers, shared wells and sewer taps, or even may have had the gas meters removed because of moratoriums from the City. In either case, the site development process will be covered in Section 5.
Cutting Costs While Choosing and Obtaining Property Site Issues: Cost of Vacant Land - When making an initial inspection of a site or sites you need to determine if there are any extraordinary development costs. You should have a sense of current construction costs for the average unit, because you need to know if you should budget extra amounts in your pro forma. One piece of raw land may cost twice as much to develop as another one that is right down the street. Before financing can be secured there will have to be an environmental survey and engineering design work. But early in the decision making process, some potential problems can be seen with the naked eye. These might include pooling of water, overhead transmission lines, and underground tank pipes seen above ground, unusual topography. Is the property located in a flood way, or a flood plain (100 year)? In some cases it may not be prohibited to build in the flood plain, but the regulations on what has to be done according to the department that of natural resources (DNR) may make building on the lot far too costly. Other factors to consider are size and shape of the lot, access to main roads, access to utilities, and grading relative level to surrounding property- sewer lines dont drain uphill! You must ask-What is the soil composition (is it all rock) and, the condition of the surrounding area? If you are considering inner city lots that are already developed and may have once contained a house, you should be aware of the availability of utilities and sewer taps. If water and sewer taps are on the opposite side of the street from the lot, development costs could be several thousands of dollars higher. Check to see if your local government has a homestead program that will allow for the transfer of tax-foreclosed properties at a significant discount. In Memphis, properties can be obtained for a
deposit of $2,500, and on completion of the unit, the full deposit is refunded! Think about Impact Fees- when you build on raw land hooking up to the sewer, for example in Wisconsin, can cost you $4, 000.00. In Virginia, impact fees are based on the amount of drains that will be installed (as much as $850.00 per drain). In rural areas, you must consider the cost of digging wells and installing septic systems, or even developing a parcel of property that is tied in with neighboring lots on a shared well. Demolition Cost - If there are no vacant lots you may look at sites with vacant structures on them. Does the local government have an aggressive code enforcement program? What is the normal turn around time for demolitions? If the city does the demolition, will the cost accrue to the tax bill and ultimately be a cost to the project? If your organization does the demolition what will be the cost of demolition and removal. Zoning Cost - The first thing to check is the zoning. Will the zoning allow for the development that you have in mind? If not - you must build in more time and money to get the zoning changed. The rezoning process is not only expensive, it is time consuming. It may be worth it if you will achieve increased density for your lots or some other benefit to the overall project. Typically reducing the number of lots can be accomplished by deed, but increasing the number of lots requires a rezoning, a PUD or an approval from the Board of Adjustment. For example, if you find 10 thirty-foot lots in a row and wanted to build 5 new homes on 60 food wide lots, you could probably do this by deed. If, however, you wanted to do just the opposite, take 5 sixty foot lots and divide them into 10 thirty foot zero lot line town homes, you will, more than likely, need to spend a good deal of money on a rezoning or a PUD. Gift Property: Remember, that a gift of property may come with some strings attached, so beware. All of the items noted above may come into play. There could also be back taxes, unknown liens, or deed restrictions.
Do your homework! Complete a title search, and if you have any suspicions at all about environmental issues, address that too. It is possible that your community development office could complete an environmental assessment, but if not, this could cost in the thousands of dollars. Provide Builder Incentives for Low-Cost Housing: Builders might be inclined to build low-cost homes for lower profits if those were the only homes moving in the market. As an example, in Texas, median home prices have increased steadily for the past several years. Continuing population growth has ensured that builders can find plenty of business in the most profitable price ranges. Therefore, if the states housing programs are to help increase the supply of owner-occupied, affordable housing, the Texas Department of Housing and Community Affairs (TDHCD), is looking at providing incentives for builders to devote some of their resources to building homes that would not otherwise be their first choice of projects. This builder incentive partnership would feature a guarantee purchase assured take-out agreement in which TDHCD would guarantee to each participating builder a percentage of the purchase price for a certain number of homes built in the $30,000 to $50,000 range. The incentive program would feature a cost-plus structure that would offer builders a flat fee for each completed home, rather than a percentage-based profit on the homes sale price. This would provide an incentive for builders to work in the lowest end market, while the guarantee purchase arrangement would minimize builder risk. Homes purchased through the builder incentive partnership should conform to a set of quality and design criteria developed by TDHCD. The houses would be designed to allow the addition of rooms and amenities, in case families decide to add on to their homes in the future. Builders would continue to market their product directly to buyers. Homes that were not sold to buyers soon after completion could be sold to individuals, nonprofit groups, local housing agencies, or local government entities.
What other builder incentives can you think of?
COST SAVINGS
1. Have the government entity demolish the property. 2. Acquire the property from the government entity at a discount. 3. Donated property, but BEWARE 4. Are there utility company incentives? 5. Does your community have an urban homesteading program? 6. Is there an inventory of tax-foreclosed property? 7.Are there any foreclosed subdivision lots owned by banks?
What Your Thoughts? What property acquisition strategies can you add?
1. _____________________________________________ 2. ______________________________________________ 3. ______________________________________________ 4. ______________________________________________ 5. ______________________________________________

SITE SELECTION RECAP
Conduct a site and soils investigation to learn about the following: 1. Availability of water; 2. Ability of soil to percolate, which will allow use of a septic system; 3. Contamination of the site (e.g., lead, asbestos, industrial hazards); 4. Stability of soil to support structures. If possible, select sites with existing roads, sewer, and water service. If possible, select sites above the 100-year flood elevations. If possible, select sites that have site features that could be a plus for the project (such as natural drainage, trees).
Design and the Approval Process
When selecting the development TEAM, the organization must look at the in-house team and the additional team members that may be needed. You may need an architect, civil engineer, environmental consultant, legal representative, a site developer, a homebuilder, and one or more real estate agents. The selection of an architect, engineer, and other professionals is an important decision as these parties may be assigned direct responsibility for the project in addition to or in lieu of consulting with your organization. Make sure these people are licensed and insured! Preliminary plans and the project budget will be prepared after you have completed the feasibility/market study.
The following text is reprinted from Associated General Contractors of New Hampshires Publication Owners Guide to a Successful Project
The question of the best or most appropriate delivery system (conventional bid, construction management, design-build) is a complex issue involving project specific questions best addressed through discussions with your design or construction professional. The question posed, however, should afford a better understanding of the design and construction process. What are the most important criteria for selecting an architect, contractor or engineer? The selection of your design and construction professional is clearly the most critical decision you will make in developing your project. There are several important questions to be asked when reviewing a firms or individuals qualifications. Does the firm or its key personnel have experience with similar projects?
Similar projects include not only those of similar use, but also projects of similar size, cost or complexity. Has the firm or its key players successfully completed projects under similar development conditions? Conditions may include: Geographic location Schedule (fast-track) Special environmental conditions (winter construction, hazardous materials, wetlands, special permitting, etc.) How will you staff the project? Will the same personnel be assigned throughout the duration of the project? What are the educational and experiential qualifications of key personnel? What is the concurrent workload of both the firm and key staff? Perhaps most importantly------ insist on meeting with the key staff to be assigned to the project. Which references are most important to check? References are important in that they create a historical image of the firm. Some areas to research are: Financial banks, lenders, credit rating Trade suppliers, service accounts Clients especially recent and similar project types Industry Peers competitors
Authorities and Agencies especially those that might be involved in the project Safety Records Are there any other issues that should be considered? Sometimes there are particulars of the project that will impact a choice between two equally qualified firms. Consider: Does it matter if my contractor is union organized? Is direct experience with local authorities a MUST?
Are participation by local firms and/or minority participation necessary for approvals?1
When selecting the Attorney for the development team, what are the most important criteria to look for? It is highly unlikely you will not require some local legal assistance at some point. Attorneys are like insurance its best to have them before there is a problem. It costs a whole lot less to have an attorney review your proposed development before there is a legal challenge or legal problem. An attorney experienced in development and land use may save you months and dollars by spotting a problem area in your proposed development. Common legal issues include: a. Adjacent owners rights; b. Zoning and lot size regulations c. Annexation problems
Text reprinted from Associated General Contractors of New Hampshire with permission
d. Municipal storm water, sewer requirements e. State-specific contract language f. Lien resolutions Some attorneys will know the Chief Planner by his first name, and some attorneys wont even know where his office is. There will be some municipal oversight with every development. Do not open the Yellow Pages: find an attorney familiar with these issues through references and other satisfied clients. Starting with adjacent owners rights, the law has long held that your rights to use and develop your property are not absolute. What is the impact of your proposed development on adjacent owners rights? What about municipal access? Legal issues are peculiar in that while 5/8 type X drywall has a one-hour fire resistance whether it is installed in Maine or California, a buildable lot is whatever local codes and local officials say it is, and such rules can vary from one county to the next. Another important area for attorney input is contract language. outof-the-box contracts are just fine in a perfect world, but the world isnt perfect, and slavishly using form contracts, whether the AIAs or somebody elses, may not be in your best interests. Be prepared to absorb particular legal costs that a lender requires: ie; a subordinated mortgage or lien to protect a special lenders position. A great deal of energy is wasted on technically feasible but legally impossible dreams. Get a legal assessment up front. The Approval ProcessFrom the Neighborhood to Moving Through City Hall
OK TAKE A BIG BREATH - just when you thought that you had made headway, lets talk about getting neighborhood approval. This is a very critical step in your planning process. Without neighborhood approval it will be hard to get through City Hall! Moving your project through the City Hall process can be expensive. It can be a process of give and take. It can be a process that reveals unresolved community concerns. Or, it can be a piece of cake. You will need to rely on your project team for much of this work. However, your organization will need to be involved with the appropriate governmental bodies and the public. In general, if you are reducing density but consolidating more lots into fewer lots and the current zoning is appropriate for the project, then very few of the following governmental processes listed below will apply to the project. If, however, your project will require the creation of a new subdivision, a Planned Unit Development (PUD), or a rezoning, then the process will be time consuming and expensive.
Preliminary Meetings on Concept and SiteIt is a good idea to start the process with informal conversations with the planning commission. You should provide the project feasibility study to the staff contact along with any preliminary site plans and house plans. The staff will be able to give you their opinions on acceptance by the neighborhood, and conformance to the rules of the land use control system. These meetings may reveal suggestions to modify the proposal and plans to make them more acceptable and approvable! Planning DepartmentOnce you have consulted the planning department on an informal basis, you will probably need to formally submit your proposal for staff review. In this phase, the architect/engineer will lay out the overall land use plan, including site configuration, drainage, street plan, utility plan, and sewer plan. You will probably have to submit multiple copies of the architectural/engineering plans that will be reviewed by many different offices within city hall. During the process, you will receive numerous
suggestions and plenty of advice. The negotiation process may blossom at this stage. You will also have to submit a mailing list (for public hearing purposes) of property owners within a certain distance of your site. These people will be notified of your intended plans and will be invited to any public hearings regarding your project.
Land Use Control Board of AdjustmentCity Council: Zoning, PUDOnce you have completed all of the necessary work required by the planning commission staff, you will present your plan to the official review and approval body of the community. Planning commission staff will make the presentation and will generally make a recommendation for approval, approval with conditions, or denial. Based on the success of your preliminary work with staff, you should know what the recommendations would be. Your organization will be given the opportunity to speak to the project. And community members will be given the opportunity to address the project. If you have done your homework, this will be a very smooth meeting. If the project is controversial, you could face delays, postponement or outright rejection of the proposal. If it appears there is unexpected opposition, it may be wise to ask the body for a deferral of the item to a future meeting so that negotiations can be completed with the opponents. In many cases, the final decision of the Land use board must be ratified by city council. So any unresolved issues will likely surface here again. Be prepared to sell your project at all of these hearings. City EngineerOnce the approval process is completed you will begin to work with other governmental agencies that will sign off on various phases of progress. The city engineers office will require detailed plans regarding the project including all information on elevations, drainage, ingress and egress, and utility placement. This is very detailed
work and best handled by the project engineer. In the field, the engineer will need to call for appropriate surveys and site measurements to gain approval to start construction on the homes. Without approval from the engineers office for all items called for on the plans, work cannot move forward.
Road DepartmentThe city may have a separate road department that will require development of streets in the subdivision or for streets the subdivision connects with. Sometimes requirements for improvements along the frontage of the property or for sidewalks within the subdivision can be waived, saving the project significant funds. Utility CompanyThe utility company generally has very specific requirements for installation of electric lines, gas and water. Some utility companies have policies that will provide a discount or rebate to affordable housing projects. Again, the project engineers and your organization will have to negotiate these details with the utility company. And by the way, it is normally the utility company that assigns addresses. Sometimes this can be a bit confusing, so be careful with identification of lots when you start your sales program!
There may be other governmental agencies that need to sign off on the project before you can begin. This may include the Fire Marshal and the Construction Codes Department. There may be others in your community. Your project consultants will advise you on these matters. Just be aware that these approvals require time and effort and may require ongoing modifications to plans that you thought had been approved.
Cutting Costs in the Design and the Approval Process Product Design Determining design standards for low-income housing that would fit in any income development has always made us cringe. To be affordable the overall design has to be simple, but it does not need to be ugly. Smaller yes, but there are many less expensive ways to transform an ugly box into an attractive home. Design standards exist in every development project, but taking the time to put these standards in writing is a must. You may commission an architect to create designs for the project, but without adequate direction regarding the design standards that fit the clients financial capability, the plans may be something that are over-built for the income of your clients and for property values in the community. If you tell the architect that you want a house plan that will cost $65,000.00 to build, will the architect design a house with one bedroom, two bedrooms, one bath or one and a half baths----------will they know what your clients need? If the streetscape is comprised of two story brick houses how will the in-fill house look compared to the existing? What treatments can be given to your design to keep it suitable to the neighborhood? You should check with the community development office to see if there are existing design standards and even existing house plans that have been approved. You may find the plans to be perfect for your project or with minor modifications the plans can be made to fit nicely in the neighborhood. Typically, working with an architect to design plans will cost considerably more than buying stock plans from a plans company.
The difference could be thousands, not hundreds, of dollars. Spend time reviewing plans, check around with other CDCs contact builders they may already own plans or have drawn them in-house. Builders plans could even be free! Buying good plans doesnt have to be expensive. But building from bad plans is always expensive! You will be saddled with change orders, or a product that isnt quite as attractive or functional as you or your customer desire. That lack of umpf in design could hurt your sales effort. Examples of Innovative Building Techniques: Building Innovation for Homeownership, a publication from HUDs Office of Policy Development and Research, recognizes 63 award winning housing projects from across the US that meet The Build Innovation for Homeownership (BIH) program. These homes were below the median cost for new family housing. The awards were given on the ability of designers, developers, and contractors to adopt the technology in the development of affordable housing projects. Winners used a wide variety of innovative techniques. Twenty-four of the projects used factory built components, such as manufactured housing and modular construction. Other awardees worked to promote energy efficiency sustainable design and construction, and innovative site design. A wonderful example of these techniques is the Coliseum Oaks in San Antonio, Texas. The builders used site design, energy efficiency, modular, and steel construction to develop an attractive affordable housing community of forty-five units. Wall and Framing Techniques: Homebuilders have adopted alternative wall-systems that are characterized as strong, durable, and energy-efficient, such as a new wall system for housing called Insulating Concrete Forms (ICFs). ICFs are an emerging alternative to lumber wall frames.
How does steel framing stack up to stick framing? In short, steel framing is faster. If you take a look at straight labor cost, the difference can be counted not just in nickels and dimes, but also in hundreds and thousands of dollars. It will take a crew one week to frame a 2,000 sq. ft. house using light gauge steel. In the wood-framed home there is nearly two and one half times more labor and it takes more than twice and in some cases three times as long to frame the same home. Primary objections to steel framing for builders have been labor availability, a time consuming learning curve, and concerns about processing delays (plan approvals from cities). In the late 1970s, an innovative federal program called Operation Breakthrough promised to reduce housing costs by applying the techniques of industrialization to the home industry. The program fell short of its goal, however, and the building industry and the U.S. Department of Housing and Urban Development (HUD), recognizing the inherent advantages of building in volume under controlled conditions, have continued to seek ways of applying the efficiencies of factory production to residential construction. The majority of the nations new homes still are erected at the building site by a large number of small builders. As housing prices have continued to rise, traditional builders have looked toward prefabricated components and subassemblies to better meet the demand for more affordable homes. We are not talking about mobile homes what we are talking about are modular homes that are built in a climate-controlled environment of a factory, that is not exposed to damaging conditions such as rain, snow, or mud during construction. Generally, modular homes cost considerably less than homes constructed on-site. Most framing, drywall, electrical and plumbing components, bath fixtures, counter tops, cabinets and flooring are installed in the factory, which saves both time and money. Modifications on modular homes can be made by selecting options for the home up front through the contractor or by the homeowner making modifications themselves once the home is in place, for example adding a deck or opting to leave the basement unfinished. The modular home market has expanded into higher income markets and is increasingly used by innovative developers.
In Memphis, a unique program called Building for the Future (BFF) matches the local carpentry union with the criminal justice system. BFF works with Habitat and other non-profits to construct wall panels in a controlled warehouse on the property of the county prison. Inmates are trained with a skill and panels are constructed that are then trucked to the site for assembly. The cost to the non-profit is for materials! Any plan can be constructed. If pursuing any type of alternative construction techniques, it is wise to check with the codes department. There may be restrictions, not only on building techniques, but also on materials. There may even be prohibitions against modular homes in your local zoning ordinances. Double-check before you invest too much time or money. Floor plans for Todays Lifestyles: The evolution of the floor plan for homes today is driven by:
a. Land availability Is your community moving
toward smaller lots and higher density development such as zero lot line town homes?
b. Political trends regarding growth Is your
community discussing smart growth? Is the city or county facing pressures on service delivery in suburbs?
c. The economy What is the unemployment rate in
your community? Where do people work? What are the prospects for plant closures are downtown businesses moving to the suburbs?
d. Income of new buyers Once again, who are your
buyers and how do you match wants and needs with product? In a strong neighborhoods buyer wants become the driving factor, but in weaker neighborhoods buyer needs drive the purchase decision.
For example, in Northern California, land for development is scarce due to growth controls and limited availability of utility resources. While the first choice for homebuyers is single family-detached housing, there is significant political pressure from local government to build more multi-family and small lot housing to reduce the amount of traffic and make the homes more affordable. In Memphis, land for development is available, but credit and income problems dictate housing development of homes that range from $65,000 to $75,000. In Nashville, new housing being developed in the downtown area is purchased as fast as it can be built for over $150,000. Every market is different! The Architectural Touch: Affordable housing does not have to look out of place on the block. This is called reverse enhancementcost more but reduces handling charges. You should never drive down a street, and be able to pick out the lower-income houses. There are some simple details that can be added to make the affordable housing just as appealing as market-rate housing. The roof pitch, the height of the foundation, and the height of the walls, a front porchall can make an amazing difference in the curb appeal and livability of a home. Attention to parking can make a big difference as well. If there are alleys, you may consider parking access from the rear to help keep the streets less congested. Carports or garages may be desirable but the cost may be prohibitive. Unfortunately, since these parking areas are not heated space, they do not add much to the appraised value of a home. They generally cost more to construct than the value assigned by the appraiser. You may consider a plan that is designed to be added on to in the future and even provide a copy of the garage to the buyer for future use.
Some design features may actually cost a little more, but the expense is well worth the investment because of the improved marketability of the home! Understanding your market will help you evaluate these issues. Energy Efficiency: Local codes require a wide variety of energy efficiency measures for new construction. Some states have adopted the National Energy Code (NEC). You may have special programs in your area offered through the utility company that will pay for increased energy efficiency. There may be plans or guidelines available, that if followed will have a tremendous impact on the buyers utility bill. This could be a real sales tool! Kitchen Appliances: You probably will include some kitchen appliances in your home. You must decide how many and how much? You might consider a package price not to exceed a certain amount and let the customer pick what they want. You may have multiple packages with different prices to choose from. In either case, you may consider working directly with a supplier to purchase and install kitchen appliances outside the builders contract. You might save some money, but you will probably increase the difficulty in closing a sale. Pre-wiring: It will absolutely be easier to wire for telephone, cable and security systems when the house is being built rather than after a buyer moves in. These items will cost several hundred dollars, but are well worth it. They will add value to the appraisal and will definitely be a marketing asset.
Other Items? The key is to be sure that your costs can be recouped through the sale of the home, that your appraisals will justify the sales price, and that your target market will be able to qualify the mortgages on the homes. Simple - right? What other items might help cut costs from the specs? Electrical: _________________________________________________ Plumbing: _________________________________________________ Floors: Kitchen: Interior: Exterior: _________________________________________________ _________________________________________________ _________________________________________________ _________________________________________________
Other Methods & Materials: __________________________________ _____________________________________________________________
DESIGN DEVELOPMENT RECAP

Use basic designs that can be embellished with options such as carports, porches, additional bedrooms, etc. Designs should have spaces that can serve more than one function (e.g. laundry area in bathrooms, combined eating/dining/living area). Take advantage of site features to help make the house comfortable, such as trees for shading, prevailing winds for natural ventilation. Consider how the homes plan and the way it is placed on the lot might make it easy to add onto later. Make sure that the plans meet local codes, zoning ordinances, and other regulations. The design should have detailed specifications that emphasize overall performance of the home. If using stock plans, make sure they are changed to meet local building codes, and to take advantage of specific site features and local available materials and products. You must constantly monitor the impact on costs of any design changes.
Bidding Process
Once you have moved your project through city hall you will be ready to start the development project. If the project is on scattered sites and the lots already have the complete infrastructure neededutilities, sewer and roadsthe bid process will focus on the house itself, and the bid process will be a relatively painless process. If, on the other hand, site work is involved, this could be a multi-step process. Therefore, you need to determine what needs to be bid, based not only on what you need to accomplish, but also on what funding sources require. Consider the following:
Site development- Do you need to bid all of this work or will local government complete portions of the work on your behalf? Housing construction - Do you need to bid this out or would it be more beneficial to develop the lots and sell them to private builders? Will your funding allow this? Professional contracts - Are there special requirements governing the selection of all of the project partners? Be aware of these prior to making selections and entering into contracts.
In the end, you are looking for a reasonable price and you also need to meet the demands of funders. Sometimes funders have conflicting requirements. Be clear with all concerned about special bidding restrictions imposed by the funding source. Specification Development: Specifications must be clear, concise, complete and measurable. In each of the areas where bids are required you must be very clear on what is included in the bid. You must be concise and specific in what is being requested. You must be complete in your request in order to avoid numerous change orders in the future. And finally, your request
must be measurable so that you get all the work necessary to complete the task at hand. Methods of Seeking Competitive Bids: One of the following procurement methods shall be chosen, based on the nature and anticipated dollar value of the total procurement: Sealed Bids: For procurements under the CDBG and the HOME Programs, sealed bidding is the preferred method used for all construction and equipment contracts. (CFR 85.36). Competitive Proposals: 1. Request for Proposals (RFP): Competitive proposals may be used if there is an adequate method of evaluating technical proposals (price and other factors considered CFR 85-36. An adequate number of qualified sources shall be solicited and given sufficient time to provide a responsive proposal.
2. Request for Qualifications (RFQ): Used when selecting
professional services, including architectural, landscape architectural, engineering, environmental, land surveying or construction project management firms, which are procured by the Qualification Based Selection Process.
Noncompetitive Proposals: 1. Conditions for Use: Procurements shall be conducted competitively to the maximum extent possible. Procurement by noncompetitive proposals may be used only when the award of a contract is not feasible using purchase procedures, sealed bids, or competitive proposals, and one of the following applies: The item is available only from a sole source, determined by market research or there is a reasonable basis that the minimum need can
only be satisfied by a unique supply, service or trade. A public urgency or emergency situation exists that seriously threatens the public health, welfare, or safety, or endangers property, or would otherwise cause serious injury, as may arise by reason of a flood, earthquake, epidemic, riot, equipment failure, or similar event. In such cases, there must be an immediate and serious need for supplies, services, or construction such that the need cannot be met through any other procurement methods, and the emergency procurement shall be limited to those supplies, services, or construction necessary to meet the emergency; Contractor Responsibility: Procurements shall be conducted only with responsive and responsible contractors and vendors, who have the technical and financial competence to perform and who have a satisfactory record of integrity. Suspension and Debarment: You must check with HUD to see if the contractors or firms are on the HUD Suspension and Debarment List NOTE: Davis Bacon is required for CDBG funded projects of 8 or more and for HOME funded project of 12 or more. Evaluation of the Bids: You must be satisfied that the bids are complete and responsive to your request. Bids that are incomplete should be rejected. You must also determine if the bids are within a reasonable range, no more than 10%, of preliminary estimates. If not, why are there larger differences? Did the specifications miss something? Be particularly leery of low bids. Sometimes a contractor will low bid work just to
keep his work force busy. Other times, a low bidder will seek excessive change orders. Suspension and Debarment: You must check with HUD to see if the contractors or firms are on the HUD Suspension and Debarment List NOTE: Davis Bacon is required for CDBG funded projects of 8 or more and for HOME funded project of 12 or more. Evaluation of the Bids: You must be satisfied that the bids are complete and responsive to your request. Bids that are incomplete should be rejected. You must also determine if the bids are within a reasonable range, no more than 10%, of preliminary estimates. If not, why are there larger differences? Did the specifications miss something? Be particularly leery of low bids. Sometimes a contractor will low bid work just to keep his work force busy. Other times, a low bidder will seek excessive change orders. Procurement by Non-Profit Agencies: If a non-profit is the recipient of the CDBG or HOME award funds, the non-profit may choose to utilize their own procurement standards or follow the local governments procedures. However, if the nonprofit chooses to utilize its own procurement standards - then the local government or the funding agency that contracted with the non-profit must approve the procurement standards. Procurement by non-profit is governed by OMB Circular A-110.
Contractors Bidding Joke: Three contractors were touring the White House on the same day. One was from Chicago, another from Tennessee, and the third from Virginia. At the end of the tour, the guard asked them what they did for a living. When they each replied that they were contractors the guard said, Hey, we need one of the rear fences redone. Why dont you guys look at it and give me a bid. So to the fence they went. First up was the Virginia contractor. He took out his tape measure and pencil, did some measuring and said, Well I figure the job will run about $900. $400 for materials, $400 for my crew, and $100 profit for me. Next up was the Tennessee contractor. He also took out his tape measure and pencil, did some quick figuring and said, Looks like I can do this job for $700, $300 for materials, $300 for my crew, $100 profit for me. Then the guard asks the Chicago contractor how much. Without so much as moving the contractor says, $2700. The guard, incredulous, looks at him and says, You didnt even measure like the other guys! How did you come up with such a high figure? Easy says the contractor from Chicago, $1,000 for me, $1,000 for you and we hire the guy from Tennessee.
Cutting Costs in the Bidding Process In addition to determining what type of services are required for a project, it is important to know how these services are being contracted or delivered. Each delivery method uniquely impacts the cost, schedule, risk, and quality of a project. What type of delivery method is appropriate for your project? For hundreds of years, construction followed a tiered system. The owner contracted with an architect; the architect found a master builder; the master builder (todays General Contractor) found suppliers (Subcontractors) and so on down the construction chain. Each level responded to its immediate superior level. Today, it is understood that owner-involvement, to the extent of the owners capacity to be involved, is important. Traditional Methods: Design-Bid-Build This is a traditional project delivery method used for most public and private construction projects where an agency contracts with an A/E for design and bidding assistance and then contracts with the lowest most responsible bidder to build the project in accordance with the construction documents. During the construction phase, the A/E administers the contract between the organization and the contractor. Negotiated Select Team This delivery method uses the same contracts as design-bid-build but the general contractor is selected earlier in the process through negotiation rather than during the bidding phase. The contractor, as a means of cost control, may choose to bid the subcontractor portions of the work.
Fast-Track Fast tracking is not really a form of project delivery, but a way to reduce the timeline of one of the traditional methods. Work is bid in overlapping phases so that the construction may start prior to having the design completed. Design-Build: Design-Build This project delivery method reduces the number of contracts to just one. The design-build entity takes the responsibility both the design and building of the project by directly employing the architect and the contractor. The advantage to the organization is one point responsibility and timesavings in exchange for the loss of direct project control. Since the architect works for the design-build entity, the organization does not benefit from a direct advisory relationship with the architect. Design-Build Developer This method is also known as turnkey. It is the same as designbuild, however the design-build contractor also takes on the responsibility of site acquisition, real estate development and financing. The developer maintains possession of the property until sometime after the project is complete. The advantage to the organization is reduced risk but the downside is minimal input and control. Bridging This delivery method is a combination of all of the above. The organization hires an architect in the traditional way to develop preliminary design drawings that are used to select a design-build entity. The design-build entity then hires its own contractor and architect under the common design-build scenario. The architect that
was employed by the organization often acts as an independent advisor to the organization during the construction period. Construction Management: Construction Manager Advisor This method adds a fourth team member the construction manager as an advisor to the owner. The added cost of a construction manager must be weighed against the benefits this consultant can bring to the project. In many cases, the architect can fill this role through more comprehensive construction observation, thereby eliminating the need for another contract. However, for large, complex projects, a construction manager, be it an architect, or an outside manager, can help organizations that do not have in-house expertise. Construction Manager Contractor By combining the responsibilities of the construction manager and the contractor, this project delivery method eliminates the added complexity of the forth team member and takes advantage of designbuild cost containment. In this case, the construction manager manages the project and guarantees the cost. A word of caution! Interest in non-traditional delivery methods has increased in recent years due in part by the aggressive marketing techniques of entities that are out to sell a certain delivery method. Quite frankly, this is the wrong way to choose a method of design and construction. Each of these methods has trade-offs that can support or work against you.
1. BIDDING DRIVES DOWN COST 2. The bottom line - when you are looking at cost controls you must look at them in respect to the
house and the project. If your organization does not have experience in construction bring in a GC. 3. What works for you? a. _______________________________________ b. _______________________________________ c. _______________________________________ Post Bid Negotiation - Value Engineering After the process of selecting a builder, you may still need to achieve a lower price. Sit down with the builder or architect and go through the plans and specifications and always look for ways to cut costs. You may be able to substitute material and fixtures. There may be alternatives to site work you have not considered. There may be minor plan changes that can save money. While you want a quality product, there may be alternatives that you have not considered. Any changes at this stage can be handled with a change order to the original bid. And finally, after you have a bid, negotiated, amended, adjusted and agonized over your cost, send your final plans and prices to an appraiser to see what the best-appraised value you can expect for a sales price. Remember, your sales price must cover your cost of construction, soft costs, loan interest, real estate commission and your development fee. If your appraised value isnt high enough, you still have some work to do. You may actually find that adding square footage to the house can help resolve this problem. You may find the only way to cover the gap is to find a source of construction subsidy.
It is certainly not uncommon to find that current construction costs exceed comparable sales values in a targeted neighborhood. If you find that this is the case, then funds from local government, foundations, or the State finance agency will be needed. Be sure these funds are lined up before you start construction. Your construction lender will definitely notice this as a problem, so anticipate it. After all is said and done, Pyramid authority works The pyramids are still standing. Should you or your consultant be at the top of your pyramid?
Team Members: A successful project is the result of a coordinated team effort and the team members must watch their costs! It is not enough to rely on federal grants and assistance in producing affordable housing. The developer, the general contractor and the architect must use innovative cost reduction techniques as well. How can the team members help? Developer: The developer carves out a nitch in the market that is otherwise hard to crack. The job is much more difficult in lower income neighborhoods. Bricks and mortar cost the same wherever you
go, so somehow the developer has to hold down both the costs of the housing, and its financing, in order to develop a lower cost housing project. Community-based development organizations, working in cooperation with government and intermediary organizations are in a unique position to take on the challenge. Architect: The architect will produce the site plan and product design. The architect may subcontract some of the work to an engineer. You have to watch the architect carefully so that he doesnt blow the budget, so tell the architect what you can afford for the construction before he begins his work. General Contractor: Make sure the general contractor (GC) has built this kind of product before. Make sure that the GCs financial status is sound. Remember that the GC has to pay for materials at the beginning of construction. The money does not come from the lender until laterwhen there is work in place, and a draw down has been approved. Subcontractors: Lets talk about who actually completes the work on time and in a cost effective manner. If you look at the pyramid, the subcontractors are either holding it all up or they are bringing it all down!
Article from The Journal of Light Construction (JLC), March 2004 edition The author, Fred Seifert Jr. and his brother John operate Seifert Construction Corp in Mattituck, NY
Make Subs Part of the Team In my work as a custom homebuilder, ever day comes with its share of problems. Running from job to job to put out fires can be a full days work in itself. The last thing I need is trouble with my subcontractors. So Ive learned to apply a few simple rules, based on the notion that subcontractors are a part of my team. It sounds simplistic, but it works. And though weve all heard it before, it still surprises me hoe often the team approach is ignored.
A team that works together stands a better chance of producing a successful project and satisfying the homeowner, which benefits everyone. Hire the best subs. I want subs on my jobs who are as interested in the success of their businesses as I am in mine. In large part, our jobs are only as good as our subcontractors, so I try to make sure theyre serious about what they do. How many times have you told a homeowner that a sub will start on Tuesday only to have no one show up? This makes a bad impression on the homeowner and delays the work of other subs. Put the right people in the right places. Would you have a 300-pound offensive lineman go down the field for a long bomb? Of course not, so why would you let your mason do your flashing? I try to pay attention to every subcontractors strengths and weaknesses and put them in a position to succeed. Keep every sub apprised of the progress. Is it fair to tell the painter one week in advance that the Miller house is ready for paint and the carpets will be installed in two weeks? Even if the painter could pull it off, youd probably get a sloppy job, and the painter would be annoyed. Subs have every right to be kept abreast of the projects progress so that they can arrange their schedules accordingly. Motivate subs. The project may have our company sign out front, but the subs need to be just as enthusiastic about it as we are. This is often as simple as paying a compliment. I let our subs know that we value the good work theyre doing, and that because of it we just landed another job. Communicate your companys job policies. We have certain guidelines for behavior on our job sites, and we want our subs and their employees to follow them. I make sure they all understand whats expected. For example, we make it clear that its unacceptable for them to discuss matters like pricing and scheduling conflicts directly with the customer. They often have no idea of the misunderstandings they can cause. Treat subs the way you like to be treated. Although I may be the boss on the job, we are all professionals working toward a common goal. Some of my subs tell me about big time builders who didnt even bother
to say hello. Its important to always convey a feeling of inclusion, that this is a team project that cant be done well without great subs.2 Lender: You should begin to meet with lenders concerning construction financing early in the development process. Take them to the site. Share your market feasibility study with them. Ask them for input in the project. After the bids have been evaluated, you will have the information you need to make final arrangements for construction financing. If you are lucky, you will have access to grant funds that will pay for most of your construction costs. Shop around to various lenders and you may want to discuss this both CRA officers as well as loan officers. Members of the FHLB system may have access to below cost, or even 0% funding. Organizations Staff: Finalize your information package before you go to the bank. You will want to present the project in a concise manner with maps, zoning approvals, and other materials that clearly show the scope of the project and the skill of the development team, including architects, engineers, builders and subcontractors.
This article was written by Fred Seifert Jr. and reprinted with permission.
BIDDING PROCESS RECAP Determine what needs to be bid. Specifications must be clear, concise, and complete. Use alternates in order to achieve the most for your money. Determine the procurement method for your funding source. Recruit contractors that are responsible and responsive Have a set process for evaluating bids. Arrange for construction financing.
Construction Process
This is when every thing begins to come together actual site work and construction begins. The role of the organization in this phase is to monitor and oversee the builder. Oversight has two components: First - scheduling and problem solving, and Second - monitoring the project for quality of the building and inspecting for the work completed for construction draws. By this time, you have your construction financing in place, and you have a commitment from that lender for end loans (the permanent financing) to your buyers OR you have a plan for your buyers purchase loans, You have agreed with the contractor about the construction phases, You meet the requirements of the local governing body and you meet the standards required by the first mortgage lenders that will ultimately finance the purchase of the homes, The contract documents have been signed with a mechanism for any changes and penalties for not meeting performance standards including completion dates, and Procedures have been put into place for an inspection process that will ensure quality of the housing and ensure timely release of construction funding. You are ready to start construction. Construction Financing: After the bids have been evaluated, you will have the information you need to finalize your arrangements for the construction financing. If you are lucky, you will have access to grant funds that will pay for most of your construction costs. If this is the case you may need a bridge loan to cover costs during the time lag for reimbursements
from the funding source. If grants are not lined up, you will need to obtain traditional construction financing or a line of credit. Put your information together before you go to the bank. You will want to present the project in a concise manner with maps, zoning approvals, and other materials that clearly show the scope of the project and the skill of the development team. In addition, you will want to present your organization to the bank. You will want to show current financial information, the most recent audit, and relevant information regarding the organizations track record with past projects. You will want to shop this around to various lenders and you may want to discuss this with both CRA officers as well as loan officers. The lender may have a need for CRA type loans, and they may not. Members of the FHLB system may have access to below cost, or even 0% funding. You may find that the terms and conditions of the offers you review will vary widely. Be sure to review for the up front origination cost, the interest rate of the loan, the frequency of required payments, and any other recurring costs. Be sure that you fully understand the process for drawing down funds. Once the organization has decided on the loan, the board will need to formally agree to the terms and conditions and authorize the organization to enter into the contract. Site Development: If the project requires site and infrastructure development, there may be several courses of action that can be taken. General site work will most likely be the responsibility of the developer of the project. Moving dirt, creating the proper elevations, laying the base for any streets or preparing areas for water runoff detention may all be included in this phase. Be sure to take precautions for temporary water runoff. Sometimes there are stiff penalties imposed by jurisdictions for silt run off (erosion control) into the neighborhood or nearby streams.
Utility infrastructure (electric, gas and water) may be the responsibility of the project or may be installed by the utility company. This may also be the case with the sewer lines and sewer taps. You must determine what approach works best for the project. The project may have to pay fees, buy a performance bond, or provide a letter of credit to the service provider in either case. These approaches should be discussed with the project team. Additionally, streets, curbs and gutters and sidewalks may be part of the project. The fundamental decision regarding streets is: will they be public or private? If the project develops streets as private drives, there may be cost cutting measures that can be taken on the front end, but if they are not public, long-term maintenance will belong to the subdivisionand will require maintenance paid by management from dues from a homeowners association. If the streets are built by the Road Department to local government standards, the cost may be higher initially, but as public streets, maintenance will be provided by the city. What works best for the project? Once you have gotten all the necessary approvals on site work, the contractor will be ready to pull permits for housing construction.
Legal Tip: If your development has a homeowners association or a condominium association, these corporations must be developed and formed under your states law before the first unit is sold. Ordinarily the developer controls the management until more than 50% of the units are sold. Your attorney must form these organizations according to your states laws and have them in place for you.
Housing Construction: Once the site work is complete, you will finally be ready to begin construction on the houses. While we discussed bidding in general terms earlier, we should take another look at bidding the houses. Construction pre-qualification process: You should develop a list of pre-qualified bidders based on research in your local community. The general contractors you allow on your bid list should provide you with: A. General Contractors License B. Insurance information C. Financial statements D. Experience and references E. Bonding information if required for the Project. You should take this review process seriously and take time to check information. You may want to check the Better Business Bureau, Homebuilders Association, local codes department, and the local funding agency. Be sure to follow up on references and previous jobs. You should not let anybody and everybody on your list. You want the best quality and the least problems. Consideration should be given to the ability of the builder to deliver a product on time. Sometimes the best contractor is so busy he just cant perform. Be sure to ask how much work a contractor has going before asking him to take on more. And finally, make sure the builder has the ability to deliver all documents needed for the eventual sale to the homebuyer. Is the builder FHA approved? Can he deliver a 2-10 Warranty? Once you have developed your short list you will be ready to bid.
Before you release the bid packet, think through a few more questions. Do you want the contractor to build all of the units? Do you want to split the jobs up among several builders? How many will you have underway at any given time? How many different floor plans or front elevations will you bid? Once you are ready to release the bid packets, you may want to hold a pre-bid conference with all of the bidders to review the overall program and the specifics of the plans, site conditions, timeline and general project expectations. At this meeting you should provide the builders with the following: Architectural plans and description of materialsThis should include site plan, house plan, foundation plan, kitchen and bath details, and energy efficiency requirements. Description of Documentation to be delivered prior to closingthis must include 1. 2. 3. 4. 5. 6. 7. 8. 9. Sign-off on all required code inspections, 2-10 warranty, Equipment warranties, Manual J- heat load calculations, Soil treatment letter, As built survey Finished floor elevations. Certificate of Occupancy (COC). Complete waivers of lien as required by local law and the title insurer.
The first mortgage lender at the closing to the end buyer will require all of these documents. Be sure that the contractor knows that he must deliver these documents to you and that the cost of these items is included in the base bid. Bid Tally SheetYou should provide a bid tally sheet to itemize the cost of each component of the house. This should provide for a total and authorized signature for the bidder.
Give the bidders adequate time to prepare their estimates- two to three weeks should be sufficient. Be prepared to answer questions during this time. Once the evaluation of the bids is complete, and you are satisfied the bids are responsive and complete, and that the contractor to be selected is capable of building a quality product in the allotted time, you will be ready to prepare and sign the construction contract. You may wish to use an AIA contract, but this is not mandatory. If you do not use the AIA documents, work with a local attorney to review your documents. It is recommended that you prepare one contract per house, even if the builder will develop multiple units. This is based on the ability of the contractor to perform. If you are working with a lender for construction financing, there will be additional documents needed. Follow the lead of the bank on this. The final contract should reference and incorporate all of the following documents. A. The plans and specs, B. General requirements, C. Closing and sale requirements, D. Bid tally sheet with itemized costs, E. AIA 6702 or AIA 6703 forms (these will be used for construction draws). Legal Tip: Paper is cheap and litigation isnt everything that is easily copied, such as general conditions and specifications should be attached to every copy of the contract.
Now you can issue a proceed order and start construction! Building the House: Construction follows an orderly process that takes us from the foundation to the final (owners, builders, and local inspectors) punch list and sale. During this process you will need to monitor, inspect and make construction draws. At times you will agree with the contractor. At times there will be disputes or arguments. Be sure to document the file with inspection reports and monitor payments and change orders closely. Digital photographs are pricelessnot only for documentation back up, but also for marketing!
Construction Site Tip: Keep a desk set-up on the site with a set of approved and stamped plans & specs chained to it. Note any changes made to the plans in red! Notify local authority of any changes.
#1The Foundation
Be sure to check the foundation for correct dimensions and setbacks. Make sure that adequate rebar or wire mesh, as required by local code, is installed before the concrete is poured. Rememberif the foundation isnt right, the house wont be right.
Foundation Tips: Install slab insulation (location specific). If your area requires frost line depth, your contractor must observe these depths plus 2.
The Old timers will tell you only the gravedigger knows where the frost line is! Watch out for Radon! (Insulate and ventilate accordingly). You should determine from local authorities if there is a likelihood of radon and how much site testing is recommended.
#2Plumbing Top-out
If you are building with a slab, both plumbing and electrical channels are laid before the concrete is poured. If you use a conventional foundation, this may be done after the foundation is poured. In either case, be sure to check the plumbing layout against the floor plan. You dont want the toilet in the kitchen! (Ive seen this happen before)
#3Framing
This stage is critical! Inspect for adherence to the plans. If your walls are to be 9 feet tall, make sure the contractor doesnt use 8-foot studs. Make sure window and door openings are in the right location and are the right height and dimensions. Check to make sure that the lumber is of adequate quality and not split or spliced. The framing stage will include all walls, roof rafters and decking, exterior sheathing, and seismic measures. When youre finished with this stage, it might look like a house, but dont be fooled - its less than 30% complete. So watch your draws!
Framing Tips: Use interlocking plywood (glued and screwed) for sub-floors. Check cost and quality advantages of I-joists over conventional dimensioned lumber, and spec accordingly.
Watch for tall walls (over 8) steel bracing should be installed (check local codes).
#4(a)Electrical, Plumbing, and Mechanical Rough-in

Before any sheetrock (drywall) is installed, everything inside the walls should be installed and inspected. This includes wiring, plumbing, ductwork, low voltage wiring for telephones, cable and security systems, and last but not least the insulation, if included in the specs. No sheetrock can go in until all rough-in inspections are approved by the code department.
Rough-in Tips: Open walls are a fleeting option- Install a 3 to 4 pipe from crawl to attic to gain access in the future to fish any additional cable. Check for blocking between studs for cabinets, towel bars, vanities etc. Measure twice cut once!
#4(b)Exterior Siding and Roofing

Exterior work will go on simultaneously with the interior rough-in work. Once you are in the dry the weather wont be able to stop the progress.
#5Sheetrock, Windows and Doors

During this phase the interior of the house will begin to take shape. If potential customers couldnt visualize what the house would look like before, they will now. Closely monitor the workmanship of the
sheetrock finishing. Imperfections will show through the paint and be a detriment to your marketing efforts. Make sure that the specified door and window units are installed properly, open in the right direction and verify dimensions. You dont want a 2-foot wide door into the bedroom. This is particularly important if the house is intended to be handicapped-accessible.
Window and Door Tips: Specify quality window units with a long life repair and replacement warranty. In almost every climate, metal-clad doors offer good thermal efficiency and security.
#6----Insulation
To get the best performance from insulation, either the framer has to build an airtight shell or the insulation contractor has to install an airtight product. What we do know is that insulation R-values are compromised by uncontrolled air leakage and cannot be delivered by poor installation practices. This can have huge effects on the livability of the home and large utility bills for the homeowner.
Insulation Tips: Glue sheetrock around door and window openings before you install the insulation. Better yet- use an EPDM (rubber building gasket) configuration made for the task. The soft rubber slides into narrow cracks without force and provides a positive seal that moves with the framing.
Air does not move through plywood so shortly before installing the siding, tape (plywood seam tape) all horizontal seams and any other cuts in the sheathing. An EPDM gasket in the sill plate gives far better insulation value then caulk. Seal all electrical outlets on exterior walls.
#7Cabinets and Vanities

Be sure to install attractive and durable cabinets and vanities in the kitchen and bathrooms. Countertops should fit the cabinets and be snug to the walls. In the bath, check for placement of medicine cabinets, mirrors and bathroom accessories. REMEMBER locationlocation- location!
Cabinet and Vanity Tips: Make sure that the contractor screws the cabinets and vanity into the studs! Remember we looked for the blocking so there no excuse not to hit wood!
#8Electrical, Plumbing and Mechanical Finals

The general contractor will probably sub-contract this work to other licensed contractors. Be sure to check their work carefully. If there are issues with the work, direct your concerns to the general contractor, not the subs. Installation of the plumbing and lighting fixtures are important details that will make the home just ok or outstanding. Demand excellent craftsmanship and monitor the work carefully.
Electrical & Plumbing Tips: Builders grade for light and plumbing fixtures is not always the best choice. You may spend a little more for an upgrade in the product and get a better visual quality. Be sure that the over-flow pans for the washer not only fit into the laundry closet space, but that they are big enough for the washer. One of the most common complaints in new construction is an inadequate number of or misplaced outlets. Check and double-check the plans. Code standards are minimum standards.
#9Paint
Have you heard the one about the painter? A customer asked the contractor if he knew a good painter. The contractor said yes, but he died in 1948. The paint job (inside and out) is what will make the job shine. This is what your buyers see first. Be careful with this phase. While semigloss paint for the walls will be more washable, it will reveal blemishes that flat paint will not. Colors should be neutral for the widest market appeal. If you allow any custom colorslimit the color choices to relatively few options. If the pre-sale doesnt close, you could be stuck with a paint job that no one else will acceptand youll have to repaint. This could be an expensive change order.
Paint Tips: Spray the interior (cost effective), but remember to back roll it.
Install trim after you paint no taping no over spray.
#10Floor Coverings
Monitor this stage for use of specified materials and proper installation. Carpet, tile, vinyl, hardwood-- all must be installed correctly for a good finish. As with paint, use neutral colors, its expensive to replace brand new carpet just because its the wrong color.
Floor Covering Tips: Make sure that the sub-floor is clean: even the smallest amount of drywall mud or caulk will leave an impression. Floor installers are notorious for scuffing up newly painted walls. Think about installing the floor coverings (protected of course) before you paint.
#11Finish Carpentry, Touch Up, and Clean Up

The finishing touches include quarter-round, any cabinet hardware, bathroom hardware, outlet covers, and light bulbs! And be sure the contractor cleans up. The last thing you want is a new, but dirty house.
Finish Work:
Do not install appliances until a week before the move in date! Watch out for the midnight marauders Include installation of blinds in the specs. You dont want to see someones discarded sheets hanging in the windows.
#12Finish Landscaping and Flatwork

At the end, the exterior sod, shrubs, flowerbeds and landscaping go in. In the summer, make sure the contractor waters all landscaping. At this stage any final concrete is poured. Many contractors like to pour the driveway lastafter any heavy equipment is out of the way.
Landscaping Tips: Curb appeal can be planted and it translates to upside dollar value. Dont overlook it!
#13Final Inspections
The last steps will involve completing the final inspections on all work. This will include inspections from code enforcement, possibly the construction lender, from the appraiser, and finally from the buyer and buyers agent.
Final Inspection Tips: Nobodys perfect! Do not hesitate to raise issues as to the condition or workmanship, after all you should get what you pay for.
These issues are your punch list. Other Costs: During the construction process, you will have project costs above and beyond the construction. These will include the following:
Interest on the construction loanOf course you have to keep the lender happy, so paying interest is part of the game. But time is definitely money, and construction delays will cost you interest payments. Insurance costsDuring the construction process, you, as owner, will need to keep your builders risk policy in effect. As with interest, this is a monthly cost. Delays can become expensive. UtilitiesYou may have utility costs associated with the project depending on your construction contract. If you are substantially finished with construction but have not completed a sale, the contractor will want the utilities out of his name. It makes sense to keep the utilities for several reasons. First, it helps the realtor show the house. If there is heat, lights and water, a showing can happen at any time. Second, in the winter, you must have heat to keep the pipes from freezing. Frozen water pipes could cause thousands of dollars in damage!
Contractor Disputes: Finally, lets discuss contractor disputes. We have all done our due diligence here. There have been professionals guiding us all through the process. Lawyers have signed off on the contract documents. Your contractor provided you with a list of happy references. What could go wrong? Well, stuff does go wrong and you should be prepared.
Your contract should have clear language to put you in control in the event of disputes. Check to make sure the following items are in your contract:
Stop Work OrderAs the owner, you should have the right to stop work if specifications are not being followed. If you see problems, point it out to the contactor, and if the issue is not resolved, stop the work sooner rather that later. Liquidated DamagesMake sure the contract contains liquidated damages for not meeting the time frame set out in the contract. This could be for $100 or $200 per day or whatever is customary in your community. Do not hesitate to monitor your time line, make the contractor aware of time constraints and charge liquidated damages. Termination for Convenience--In the event of nonperformance, make sure that there is a clear method of termination. Be sure to fully document the situation. Make sure the construction committee is on board, but if you have poor performance, unacceptable delays, or other circumstances that warrant firing the contractor, then do so.
Conditional Approval: In some cases you may need to get a conditional approval on some items. You may need to install the heat and air equipment to get a final from the code department but you may also want to remove the equipment until the day of the closing. Your appraiser may then approve the unit subject to re-installation of the equipment. The key to these types of conditional approvals is timing. You need to time the re-inspection of the items so that the closings are not delayed. General Comments: During this process, there are always issues that come up regarding the quality of the unit and you may disagree with the code department. Code actually specifies minimum standards. You, of
course, want maximum quality. This difference in philosophy may put you at odds with the code department. If you have concerns about quality, do not hesitate to call the code inspectors out for additional on-site visits. Meet on site with all concerned. In the end, however, your inspectors are making a determination about releasing the final payments. Use the golden ruleif you arent satisfied, dont release the gold! As you near completion of the unit, you will enter a transition phase between building and selling the house. You will need to determine how far to go with construction. Depending on location, you could be subject to vandalism and theft. Should you install carpet now or later? What about heat and air equipment, or light fixtures? These are decisions that you need to address based on local conditions. How will you pay the contractor if you stop work at 95%? Do you have adequate insurance during this holding period? What about utilitiesdo you need heat, light and water to show the house? Will you put the bill in your name or the contractors? Whatever you do, dont let the pipes freeze in the winter!
Cutting Costs During the Construction Process As the construction begins, you must be concerned about cost containment, not additional savings. The components to cost containment are a sound contract, quality specifications and plans and, consistent monitoring. The Contract:
Your contract must specify the price for the total project and the allowed timeline. It must include specifications that are clear and accurate and a clear-cut change order process. It should describe the payment process, and penalties for nonperformance. Do not accept invoices for extras or changes that were made without prior approval through the change order process. Make sure both you and the contractor understand the contract. Discuss it prior to signing it. Specifications: What we all said or meant or thought is irrelevant unless its spelled out in the specifications, which are now part of the contract. What are the window sizes? What are the door sizes? What kind of carpet? What kind of light fixtures and plumbing fixtures? How many ceiling fans? How many cabinets and what kind of countertop? Did the bid include the price for connecting to city services as well as installation inside the house? Make sure. If the plans have been used before, it is likely that any kinks have already been worked out. If you are using new plans, you are more likely to have problems. Monitoring: Be sure that you monitor the project regularly, with both announced and unannounced visits. Make sure you are getting what you are paying for. Try to meet with the building inspectors when they are on site and get to know them. If you have concerns about the construction, they will be able to assist you. Be sure to make inspections for each draw request against an itemized invoice. Double-check the invoice against the original bid. Be sure to keep a running ledger of all expenditures to the project in order to make sure items dont get double billed!
Vandalism: Any construction site is subject to vandalism and theft. Make sure the contractor has adequate insurance and is responsible for losses during the construction process. Are you on a site that needs extra security? Can the local police help out and schedule extra patrols in the area? Vandalism can destroy a project budget, so be sure to consider this in your project budget? Buyer Change Orders: What do you do if a potential buyer brings in an offer that includes requests for extras? Do you have room in the appraisal to go up on the cost to cover the extra expense? Do you have permission from your funders, if needed? How about the board? You can be assured this will happen, so be prepared. In one example, the buyer wanted extra light fixtures on the front of the house, a semicircle brick staircase, a Jacuzzi, and additional landscaping. The project required pre payment of the extra cost prior to completion. In this manner, the customer got what they wanted, was more invested in the house, and the sales price did not change.
Change Orders are two fold Too many change orders can run up the cost! Or change orders can keep cost contained! Delays:
A cause of major stress, time and money when building a new home, is when the communication between the buyer and the builder or site supervisor goes askew. For example, the buyer wanted four-panel doors but the spec sheet did not indicate this. The day before the doors were to be delivered, the buyer asked what kind of doors were being delivered, the builder said that the were solid panel hollow-core doors. Not what the buyer wanted! The builder double checks the spec sheet and it did call for solid panel doors, but in order to please the buyer he makes a quick call to change the order. Unfortunately, the manufacturer could not get the doors to the site for four weeks, which would cause too much down time. But the buyer wanted the four-panel doors and decided to wait the four weeks for them. This wait had a ripple effect on the carpenters and the painters --- adding another two weeks to closing and moving day. Another stress point can be weather delays. One Wisconsin contractor commented We lost 38 of the first 42 days of the construction due to the wet weather. We lost time with the trim carpenters (to get them to come back), We lost time with the finishing crew trying to get them back because they were in Alaska [due to the rain delay in Milwaukee] fishing. Lost a week with the tile guys out of the year weve probably lost three months. Time is money and scheduling is a science even when you dont have to deal with Mother Nature!
What delays can you think of? What can you do to avoid them?
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CONSTRUCTION & INSPECTIONS RECAP Develop a detailed scope of work for everyone hired to work on the project, Get bids from at least three different trade contractors, Make sure the contractors are licensed and bonded, Consider getting estimates for materials and products from at least three suppliers, Hold a pre-construction workshop with all trade contractors so that they understand the project goals, Hold a pre-construction workshop with the future homeowners to inform them about the construction process and schedule. At the time, consider discussing options in the home - floor covering, tile choices, paint color etc.
6 Marketing
Who is the target market, and how do we get to them? Through the design and construction phase you know what you are selling new houses, improved neighborhoods, and a great deal! This is your message and this message needs to be stated through out the development of the entire project. You need to know what are you competing against? Are there other new houses in the neighborhood? Is there a perceived fear of the neighborhood? What about schools and other amenities in the community? In the end, you need to convince a family that they should buy your house. Is it the organizations role to do outreach and advertising? Yes! You already do this for the rest of your organizations programs. So how will you do this for the new homes you have built? Are you going to hire someone to do this for you or will you do the marketing yourself? Just remember, it is not true that if you build it they will come! You must make a concerted effort to convince a buyer to make a very personal decision to buy your house. This is a big and very expensive decision. Dont take it lightly. Not only is this an expensive decision for the buyer, it is an expensive decision for the selleryou have a lot of money tied up in the property. Both the buyer and seller need to be happy at the conclusion of this process.
Marketing should start at the very beginning of the project. Your feasibility study gave you basic information about the market, so use it! There are at least four strategies for your marketingOutreach, Press releasespaid advertisingReal estate agents - You may use all of them or focus on one or two. The marketing effort is an on going process that includes all of the team members in your office. From the receptionist, intake person, financial person, and construction advisor, every one needs to be advised of any and all changes in the circumstances of the potential buyer or the house. Outreach: Put the message out through your normal course of business. All meetings, all publications and newsletters, all homebuyer education seminars give you an opportunity to present your project. You probably have these meetings in churches, schools, and hospitalsall the places you identified in the feasibility study. Create a nice brochure with basic information including pictures and prices in order to have a consistent and easy to make presentation. Staff and board can all help in this effort. Press Releases: Chances are that your funders love good press. Work with the city, banks, Home Loan Bankwhoever is involved in funding and building the projectto do ground breaking events, ribbon cutting events, and anything else that makes sense for the project. Do press releases on special funding received for the project, or for donations of land materials or other money. Do press releases about happy customers that never thought they could become a homeowner-but now are! Do press releases about homebuyer clubs, and current neighborhood residents that are happy about the improvements in the neighborhood. Go after print, radio and TV. Any kind of press is free advertising. You should consider hiring an advertising agency (if you can afford it) just to ensure that your
message is consistent, frequent, and reaching the right market. Track your calls and find out what works and what doesnt. Paid advertising can be expensive, but doesnt have to be. If the agency does the ads for you in the local paper, on radio, or TV, the cost will be pretty high. However, you could also do print ads in the community newsletters, weekly papers, church bulletins, and flyers at the local grocery store. These will be cheap and might be great ways to market in your community. However, remember, if you miss the market, you wont make sales. Real Estate Agents: For some reason, many non-profits seem to be reluctant to use real estate agents. This is a mistake! You should factor in the cost of real estate commissions in your program budget as a normal and standard cost of doing business. Why should you use agents? There are several reasons: Only real estate agents can list your property in the multiple listings. Every other agent in town will know about your properties. Your listing agent and buyers agents will have access to the property so you dont have to show it every time someone calls to inquire. The agent will have open houses not only for potential buyers but for other agents as well. The agent knows the laws in your state and will use all the correct forms and correct addendums. The agent will serve as a buffer between you and the buyer.
The agent will assist in coordinating the closing (remember, they are motivated because they are paid by commission). Think before you select an agent. You may need a firm that has special language skills. You may want to use a member of NAREB (National Association of Real Estate Brokers). Who has the most experience with your market? The Listing Agreement: This agreement sets out the terms of your relationship with the listing agent. It specifies the amount of commission, the sales price, and the time limit the agent has for the listing period. It also discloses the legal relationship the agent has with you and other agents. You should be sure to specify any special financing or property use restrictions that are going to be imposed because of governmental funding in the listing agreement. If there are income restrictions, disclose them. If there are going to be deed restrictions, disclose them. If you will not allow certain types of sub-prime or predatory first mortgages disclose this as well. Once you are satisfied with the contents of the listing agreement, sign it and keep your fingers crossed. Its time to sell a house!
MARKETING RECAP
Marketing is an essential part of your project. Your project may be better served by localized niche marketing than by overly broad and overly expensive conventional media. The upside of marketing through conventional real estate brokers is that they pay the front cost and you only pay at closing.
Sales
When we started the construction process, this was the final destination- to sell the home to a family that would want to live in the new community- a family that would be able to maintain the home over time, and enjoy the benefits of home ownership. But this is also the point in the process where you can loose control, because, during the sales process you open the door to the whole world! In the sales process you will receive calls from agents, lenders, and potential customers that dont know anything about your organization or the purpose of your development. You will need to think through several issues and be prepared for the horse trading that always comes with the sales process. Sales Contracts: While you have a listing agreement with one agent, it is very likely that you will receive offers from a buyers agent and not directly from your agent. If you have any special documents that you must use due to funding sources, be sure that the listing agent makes them available to the other agent. If an offer comes to you without these documents, be sure to include them with the counter offer. Be sure you understand what contract documents you will use and accept? Think about how to evaluate an offer. Offers that require extras: Often, an offer is made that requests extra items that are beyond the scope of your construction agreement. How much latitude will you give
a buyer to pick colors, or change floor coverings? Will you allow extra landscaping or interior alterations such as an extra ceiling fan or extra appliances in the kitchen? If your budget is tight, the answer may be NO! to all of the above. In addition, you may not want to set a precedent and give extras that other customers might expect. Where do you draw the line? Offers that request seller concessions: Often, an offer will request that the seller pay unusual costs on behalf of the buyer. Be careful and cap your exposure with this. The lender may load a deal with junk fees that you will be stuck with. This could make the sale a loss. Be sure you know how much you can give up and still be ok. Offers that require unusual financing: There are many down payment scams now that require the seller to kick in money to a non-profit that, in turn, provides a grant to the buyer. Usually the offer will increase the price of the house to cover this expense. If you have your own source of down payment assistance, why do this? What will you do if the buyer wants your organization to carry a second mortgage? Will you accept sub-prime or predatory loans? What will you do if a buyer comes to you with a loan approval from a mortgage broker at 18% with pre-payment penalties and no escrow? What will your Board Members say? In todays marketplace, this is a big issue, and you need to set policies concerning predatory lending. Who - actually has the authority to approve a contract? When you get an offer that is acceptable, someone will need to respond rapidly. Be sure you know who has the authority to sign a contract. You absolutely cant wait for a board meeting. Have this procedure worked out before the first offer comes in the door.
Permanent Financing:
In order to make sales, you will need to have access to first mortgage loans. You should set this up well in advance of the first closing. Maybe the lender that is providing the construction financing will commit to provide attractive financing for the buyers. Maybe you will want to have several lenders involved. Check with the State Housing Agency and determine what the best loan products are. Understand the pre-qualification criteria and any special steps that might be needed. Ask your self the following questions. Do you want preferred lenders? What benefit will you receive for designating only a few lenders? Could you get any criticism? Will you let any lender or mortgage broker do the financing? What about high foreclosure rates with mortgage brokers? What about higher interest rates to your customers? Could this be counterproductive? Will the lenders work with your subsidy financing? Have you had any special financing strategies approved by your participating lenders? Have they approved your required sales paperwork, such as special notes or riders? Have you checked the FHA rules to make sure they will approve your financing strategies? Are there special restrictions on your financing that will require special documents? 1. 2. Did the funder provide the documents or has your attorney prepared them? Are restrictive covenants required that govern resale provisions?
It is a good idea to have all of these documents approved, not only by your closing attorney but by the funders as well. Making changes after the fact, or having a buyer sign additional documents after a closing, is almost impossible. Do your
homework in advance. Have the closing attorney review and approve the documents before closing.
The Sale! The actual sale of the home and the closing can be a nerve wracking experienceor it can be a piece of cake. The seller must deliver the house in completed condition, even if you have had to finish the last minute details in the last 24 hours prior to closing. The final work and the final inspections must be carefully coordinated. Both the final appraisal inspection and the code inspection must pass before closing. In addition, the customer will complete a final walk-through and probably have a small punch-list of items to address. Many times these items can be taken care of after closing. Your attention to these items is very important, however, as the satisfaction of the customers will be a major factor in all your marketing efforts. Some of the documents you, as the seller, will need to deliver to the closing attorney includesoil treatment letter, survey, warranty information, final inspection tickets or a certificate of occupancy. Collect these documents and be sure to deliver them to the closing. Also, dont forget the keys!
The real estate agent should help coordinate the closing. This will include helping the customer obtain homeowners insurance, making sure the buyer shows up at the right place at the right time, and assisting the various parties complete their part of the transaction. And once again, who has the authority of the organization to sign the paperwork? You may need to deliver a corporate resolution to the closing attorney that authorizes the president or executive director to sign. If this is the case, prepare a blanket authorization as a resolution for the board that will take care of all the sales that are planned. The Closing Attorneys: It may be customary in your community to use one closing attorney for both buyer and seller or the common practice may be to use two different attorneys. There are certainly good arguments for either practice. If, however, there are two attorneys involved, be careful! Make absolutely sure that your attorney is aware of, and shares all special instructions with the buyers attorney. If documents are not flowing in both directions, you could end up without some of the vital documents you need that may be required by the funders. The final step in closing will involve a review and acceptance of the HUD-1 settlement sheet. This document is the description of the financial transaction. The first page shows a summary of the buyers and sellers sides of the transaction. The second page shows the details of the transaction. You will notice that sale day is payday! The bank makes fees, the attorneys make fees, the appraiser gets paid, the surveyor gets paid, the city, county, and state charge taxes, insurance is purchased, the construction loan is paid off, the real estate agents get their commissions, and anything left over is yours. When you review the settlement sheet, make sure something is left over for your organization!
If you are satisfied with the settlement sheet, move forward with the closing. If not, ask questions. If you find unanticipated costs, question them. If the lender has charged expenses that were not disclosed, dispute them. If you are not satisfied, dont close. If you are satisfied, proceed and sign the settlement sheet, the warranty deed, and all the other documents the closing attorney has prepared. NOTE - if there are two closing attorneys, you will need to collect all the documents from both attorneys to see all the information regarding the transaction. Dont leave the closing with out a full deck. And dont forget take a few pictures and get a few quotes. The closing is a scary and emotional event. If everything goes well, you will have some great marketing material and a great advocate for the program! Post Closing: After the closing, there are still a few other tasks to complete. You need to collect all the registered documents and place them in safekeeping. You will need to work with the buyer to complete any punch list items as well as respond to any warranty calls. It is advisable to have the new homeowner make a list of any items that need to be addressed over the first two or three weeks of occupancy. After the house has been lived in for this period of time, then the contractor can deal with the items in one or two visits and scheduling will be much easier.
Trying to respond to a new call every day for the first week or two is just not a reasonable way to handle these items.
Are there Cost Cuts to the sale? The sales process is a very difficult period in the process because you are in very little control of how the public comes to your door. You may be swamped with offers that request extra items or with loan preapproval letters from lenders you have never heard of. You will meet realtors that are working for the buyers that really dont have your interests at heart. So be prepared to see some crazy offers. Be prepared to have to negotiate with potential buyers. And in the end, while you want to sell the house, you will simply have to say no to some offers. Lets look at the process. Listing Agreements: If you are using an agent, and you should, you must negotiate a reasonable rate of sales commission. If you are selling scattered site properties, you will probably have to pay on the upper end of what is customary in your community. If however, you are having multiple lots in a concentrated area, you may be able to negotiate a lower rate. Remember, a small change in the commission rate can add up for the project. A 1% commission rate change on 10 homes costing $100,000 is $10,000! If you do negotiate a lower rate, be sure you know what you are getting. Will you still be getting the properties in the multiple listings? Will the agent still conduct open houses? Will they still run advertisements in the local media? What other types of marketing might be needed? In Memphis, on a current project, we have been very lucky to get several 30-minute television shows on housing. At first, I thought the cable access channels were a waste of time. But I found out differently. The cable shows ran at least 5 times a month and we get calls every time a show runs! In addition we have put brochures is stores and businesses around the site and continue to get calls on those.
You should look at marketing as a shared responsibility. But remember, your agent has a primary responsibility to market the property. Just because you and the agent agree on a lower rate of commission, or you pick up some of the outreach activity, you shouldnt expect less service from the agent. And in the end, whatever you agree to, the commission will come straight off the bottom line of your sales proceeds. So build this into your formula. Offers to Purchase: When you get an offer, your first reaction will be excitement. You will want to think, This is a done deal. But read it carefully and dont let a buyers agent push you into any quick decisions. Once you accept the offer, it becomes a contract, and you are stuck with it! What should you look out for? Purchase Price: Be sure the purchase price is correct. Many people think that if a nonprofit is selling the house, it will be free! Some agents just love to play the game. Be leery of lowering your price. It not only impacts the next customers offer, the sales prices will impact your next appraisal! Mortgage Pre Approval: Your customer may come to you with a pre-approval letter. Make sure you know the lender. Many Swiss cheese pre-approval letters come with so many holes in them, they are worthless. If the letter is from a mortgage broker, be sure to check out the conditions and terms of the loan. If the transaction is to include some sort of Down Payment Assistance, be sure the lender will accept the terms of the loan or grant.
And lastly, be sure to determine if the lender wants any seller concessions! I once reviewed a contract that asked for 6% in seller contributions for down payment and 6% in closing cost payments for the buyer, in addition to the 6% sales commission. Thats 18% of your proceeds that could disappear at the closing table. Avoid junk fees! Extra Work: Be sure to review the section on additional requirements. Note the appliance list, note changes in materials, and note any other exceptions that may be included in the offer. Counter Offer: Every offer is worth working on. Even if you receive what you think is a ridiculous offer, counter with an offer you can live with. You will find out if the customer was really interested in a day or two. If you have worked with your agent on the front end, you wont get too many offers that are completely out of line. The Sale: You have worked so hard to build the homes within budget; dont let your guard down before the closing. Review the Numbers: If you have worked through the transaction with local lenders you are familiar with, thats good. But, if you are involved with a lender you dont know, there could be trouble. While you cant dictate what lender a customer uses, you can set conditions on the types of loans your program will accept. Ask for the truth in lending statement and a HUD-1 before the closing. Review these documents carefully and take them to the closing with you. Compare them to the documents you are signing to ensure that no changes have been made. It is not at all uncommon for mortgage brokers to make an offer and change it at the closing table! If this happen, walk out. There is no reason to close if the deal changes at the last minute.
Supplemental or Secondary Financing: By all means, seek all the secondary financing you can find. Not only will these funds help your buyer, they will help your bottom line. If you have access to down payment and closing cost assistance from local or state government or even from a grant to your organization, these funds will prevent closing costs from being charged to the sellers account at closing. If you have funds that will help to reduce the principal amount of the first mortgage loan, then there will never be a need to lower the sales price. Any funds that can be brought to the closing table from an outside party will increase your net sales proceeds. Typical funding sources include city or county community development offices, Neighborworks organizations, state housing finance agencies, and the Federal Home Loan Bank. You have worked hard to produce a quality product for an affordable price. Dont lose the savings you have achieved in just a few months at the closing table. Watch out for the junk fees. Study the HUD-1 carefully and be sure you are satisfied with the transaction before you sign the documents. After the sale, take a few minutes to reflect on the process. Ask yourself how you might do things a little better on the next house. Think about little design changes that might make construction easier. Think about financing strategies that might make the process easier and more financially advantageous to your organization. Think about your marketingdid you hit the right market? Think about your lender and closing attorneydid you get a fair deal without too many fees? Think about your appraisalcould you ask a little more for the home? After you have considered all of this, it will be time to start again on the next house.
Keep on tracking your project and your costs!
CLOSING RECAP
Hold a post-construction workshop with the homeowners to inform them about the features of their house, the required maintenance, warranties, and where to go for help if something malfunctions. Celebrate successes give credit and appreciation to everyone involved in the project. This will foster partnerships and community pride.
Conclusion:
In the end, you sold the home. You accomplished what you started out to do! Hopefully, the mission of the organization was advanced. Hopefully you broke even or even made a few bucks. Hopefully the customer is happy and you are energized to go and do it again! If so, take the time to reflect with the project team. Look at the design and construction process. Is your team prepared to take this on again? Could the house plan be improved? Take a look at the sales process. Could it be improved? How was the relationship between the organization and the contractor? Did you have ready buyers? A little bit of critical thinking could make the next home even more successful!
Good Job Folks!
ACKNOWLEDGEMENTS
U.S. Department of Housing and Urban Development Washington, DC Neighborhood Reinvestment Corporation, Inc. Washington, DC United Housing Memphis, TN Gary Abbot, Executive Vice President Associated General Contractors of New Hampshire Bow, NH Gary Askerooth, Community Development Consultant San Antonio, TX Jim Erchul, Executive Director Daytons Bluff Neighborhood Housing Services Saint Paul, MN Bill Fondre, Vice President G.W. Thiel, Inc. Carpenter Contractors Rolling Meadows, IL Royce E. Kennedy, Building Inspector & Zoning Administrator Village of Silver Lake Silver Lake, WI George Marks, Partner Kramer & Marks Architects Worcester, PA Thomas C. OBrien, Esq.

Gagliardi, OBrien, Braden, Olson, & Capelli Salem, WI Fred Seifert Jr., Seifert Construction Corporation Mattituck, NY To everyone who ever made us do over sand castles until we got it right!
DISCLAIMER While the information in this document is believed to be accurate, neither the authors, not the reviewers, nor the agencies noted in the acknowledgements, nor any of the employees or representatives make any warranty, guarantee, or representation, expressed or implied, with respect to the accuracy, effectiveness, or usefulness of any information, method, or material in the document, nor assumes any liability for the use of any information, methods, or materials, disclosed herein, or damages arising from such use.

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Housing Opportunities for New Construction

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Program Planning and Feasibility

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Choosing and Obtaining Your Property

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