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  • w999surf w999surf Aug 26, 2012 9:22 PM Flag

    Supply of new homes fell.

    If a sub contractor's action causes damage, their insurance company must pay for the repair. Then if their limitations on coverage does not cover the cost, then the builder's liability insurance will kick in. Now, the repair usually requires a contractor to coordinate all the repairs and the fees for his services. I would submit an estimate for the repair to the insurance company and if they accept it, I would get a check from them. The insurance company isn't going to pay each sub and supplier separately. Furthermore, most insurance companies do not have a licensed contractor on their staff to perform the work required.

    If the owner gets a judgement for repair against a builder and their subs, and if they don't use the builder for those repairs, the owner will go to another contractor to perform the repair. In that case, the repairing contractor will get a full profit.

    If the builder does not want to submit an insurance claim, then they will, along with the sub contractors perform the work for nothing and pay for the materials themselves. That is a case where they don't want to see their insurance rates go up. But if the sub contractor is at fault, the builder will perform the repair and get paid for their services by the sub or their insurance company.

    In the case of the Chinese drywall, the contractor pulling the permits for the repair will get paid for their services by the insurance companies covering the suppliers, sub contractors and their own general liability insurance. If the builder does not want to put a claim against their insurance company, they will cover their cost by eliminating their profit and over head. In any case, the builder's exposure is limited.

    And yes, cash is the most valuable asset for a builder. Just go to a bank and see how much they will lend you on raw land or lots. If you can find a bank that will, they will lend you 60% of appraised value. For a builder, when you acquire a lot for $40,000, the builder cannot sell the lot for much more and after sales commissions, the builder will take a loss. It is only after the builder builds a house on it does the builder get a 15% return on the lot cost. Bottom line, land does not give builders much of a cash flow and that is why land is not listed as cash or near cash on their balance sheet.

    Just keeping LOL

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