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Punch List Analysis for 2nd Quarter

Overall the average size of the punch lists has shrunk from just over six items per
Punch List to slightly more than five and a half items per punch list from the first to the
second quarters. Additionally, six out of seventeen closed escrows had no punch lists as
opposed to four of nineteen punch lists in the first quarter. While these two facts could be
attributed to any number of factors the only logical conclusion is that the overall quality
control of the finished product has been good and has had a positive effect on the work of
the contractors and the finished product. The goal is to continue both of these trends,
fewer items per punch list and more sales where there are no punch lists.
The composition of the punch lists nearly mirrors that of the punch lists from the
first quarter, with electrical and plumbing items constituting almost identical percentages
of the total number of items. Of those items in these two general areas that were called
out numerous times, leaks and non functioning electrical outlets stand out. Both of these
defects can and should be eliminated before the property goes into escrow. From now on,
any leaks or non functioning electric outlets detected by the property inspector are not
only to be noted on the final punch out form, but they are to be immediately brought to
the attention to the contractor for repair. As many of the electrical items on the punch
lists were fairly simple to detect, i.e. outlets and lights not working, it is our goal to cut
the percentage of electrical items per punch list next quarter from 24% to 10%.

Appearing on several of the punch lists, regardless of county, was the request
that seismic strapping be placed on the water heater. From now on, we will require all of
our contractors to properly strap and secure the water heaters on our properties. This will
be added to the final punch out check list and Darrell Patterson will teach Damian and
Matt exactly how a water heater should be properly strapped. In addition to water heater
strapping, a general leaks category will be added to the final punch out form. This is to
cover all toilets, kitchen and bathroom faucets, dishwashers and water heaters. Inspectors
should run each sink for at least two minutes during their final inspection to both test for
abnormally low water pressure and any leaks which may present themselves. Also, each
toilet in the subject property should be flushed and each shower/tub fixture should be
allowed to run for two minutes as well. As with any electrical problems that may surface,
any leaks or strapping issues should be brought to the contractors attention for repair.

Although I will list a property if there is a small leak or an outlet or two doesnt work, the
contractor should be asked to fix these problems before the house is in escrow and a
formal home inspection takes place.

Among the individual contractors, there was improvement by both the In-House
crew and Bill Denningham in terms of average punch list items per project. Hockenberry
had approximately the same average sized punch list and Newcastles went up. Teos
went up a little but was still acceptable at three items per punch list. It is difficult to
determine why Newcastles went up. Vicci certainly played a role in this as it was an
extremely difficult project with several sub-standards in place from the start. Perhaps this
shows a slight shift in the market as home Buyers are beginning to be more demanding
in their requests of more expensive homes. Perhaps supervision of Gary was not as good
in the second quarter as it was in the first. The next few punch lists from Newcastle
projects will be watched.


Estimated Cost of Repairs

11035 Emelita, North Hollywood

6071 Geremander, Rialto
4019 McKinley Ave., Los Angeles
19118 Vicci, Canyon Country
11056 Ave. R-4, Littlerock
43227 San Miguel, Hemet
7935 Tujunga, North
N. Shattuck, Orange
5113 Alcoy Ct., Lancaster

$ 6,500.00
$ 400.00
$ 600.00
$ 1,200.00
$ 1,600.00
$ 1,600.00
$ 740.00
$ 2,500.00
$ 900.00

$ 8,600.00
$ 1,200.00
$ 750.00
$ 1,640.00
$ 2,475.00
$ 1,475.00
$ 800.00
$ 4,350.00
$ 1,145.00


As you can see, during the second quarter, the total amount of payoffs for punch
lists was $16,040. The estimated cost of the work which was requested is $22,435, a
difference of over six thousand dollars. The payoffs have the added benefit of allowing

our contractors to fully concentrate on the projects they have before them and not losing
time going back to fix small items four months after finishing the job. Each contractor
was asked to go back and complete some items off of various punch lists from time to
time, and Bill Denningham, as he is relatively new, was asked to go back and fully
complete the Velardo punch list. This serves to clearly illustrate the errors to the
contractor and satisfy some of the simpler demands of the Buyer.
While the average quality of our product is as high as it has ever been, it is our
goal to eliminate as many small/stupid mistakes as possible. The water leaks, faulty
outlets, water heater strapping, etc. need to be cut down dramatically if not entirely
eliminated. While the payoffs were cheaper than the cost of the actual repairs
themselves; smaller punch lists would allow Dawn and myself to negotiate even smaller
settlements or even no payouts at all. This should be what the construction department
strives for in every project.

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