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A Sign of the Times


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Well, just experienced another first today relative to the economy.

An agent called me to cancel tomorrow's new construction inspection, because the builder can't go to closing. The builder apparently owes a ton to the subs who have promised to immediately file leans against the property if he tries to go to closing.

Worse yet, I just coincidentally inspected the home the buyers sold, about two weeks ago. So, they now have no home, can't move into the home they've been making progress payments on and can't afford to take their business elswhere. It seems like everyone involved in this mess is going to get hurt bad. Tragic...

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Shoot, Mark,

I can assure you this builder probably owes them for several home's worth of work and closing on this house won't touch the debt.

I was a masonry sub-contractor for years and general contractors are notorious for operating on the float. They were usually paying me for work performed with dollars from projects they had not even started yet - always deeply in arears. I used to take GC's checks to THEIR bank to make sure it was good today, before I deposited it in my bank. Most GC's would be in instant bankruptcy if all their debt was called in at once. For some reason they all seem to fall behind and never recover. Watch for a lot of GCs to fall over just like this one. It's coming.

I was lucky in that the GC company I sold for was one of the rare ones that paid every bill net 30. And, because we did, materials suppliers would give us HUGE discounts because they genuinely wanted us to get the work - they knew they'd get paid!

I know that what I experienced today is only the beginning - the tip of an iceberg. The home building industry is about to go through a brutal house cleaning. A lot of home builders are painted into a financial corner and about to finally run out of options. Wait and see...

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I actually see a trial like this as a good thing, through which we all truly benefit. It's a survival of the fittest deal, which certainly isn't pretty, but permits only the best passage.

During the late 70's and early 80's, it was pretty disheartening to actually observe, with my own eyes, the CEOs of many general contracting companies I worked for, as a sub or employee, snort their company profits up thier noses and quickly fall down. It was a real disconnect from realistic responsible business conduct.

It's easy to understand, in light of the stellar fifteen years of good times we've experienced, how many, me included, became over confident that things could never get as bad as they have as quickly as they have. But, it's perfect storms like this one that send poorly run companies to the bottom, while strong companies find their way. When the sea calms, the best of every profession and industry will survive.

"A smooth sea never made a skilled mariner." ~English Proverb

That's a truth, which the government has tried to defy by propping up some companies. (That's not a political statement and should not be percieved as one.) It's merely a practice that is illogical, and the fact that there were companies in the same industry that could proudly tell the government, "No thanks, we don't need your help." were the companies that were poised to emerge alone, and should have.

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But, it's perfect storms like this one that send poorly run companies to the bottom, while strong companies find their way. When the sea calms, the best of every profession and industry will survive.

"A smooth sea never made a skilled mariner." ~English Proverb

Well spoken.

Marc

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