Not too many custom home builders are constructing spec homes these days, nor getting financing for them. David Werschay of Werschay Homes in St. Cloud, Minn., however, is an exception.

“I didn’t realize this was such a big deal,” he says of his financing struggles. “I was thinking it was just me, but it’s a national thing; nobody’s getting money.”

Werschay, who worked for 13 years for a production builder, started Werschay Homes in 2003 in part to bring a more personal, hands-on approach to the building process. His wife Mollie provides interior design services to clients.

Werschay’s approach to spec homes is straightforward: “I can’t sell cars if I don’t have cars on my lot,” he says. “If I don’t have a house out there to drive traffic during these promotion times — or any other time — I’m not going to sell lots and I’m not going to sell houses,” he adds.

Dealing with Banks

Banks, he found, were not nearly as enthusiastic as he was about spec homes. In fact, Werschay approached three banks to finance a model home. All three turned him down. “We’re just not lending money to builders; our underwriters won’t allow it,” he was told.

Not one who takes no for answer, Werschay broached the subject at an annual meeting with his suppliers and vendors. Telling them that banks were not willing to loan much money, he suggested he pay suppliers and vendors 60 percent on their invoices and they would hold on to the 40 percent until Werschay closed on the house. He reasoned that at 60 percent they could pay the majority of their hard costs and wait for their profit.

He asked them to let him know within a week, but by the time he returned to his office he had messages from a majority of the vendors saying they were in. Werschay went back to the bank — and he hastens to add that when he says “bank” he is referring collectively to the three banks he dealt with.

He presented the proposal outlining the agreement with his vendors and suppliers, and he detailed why he wanted to build this particular house. He cited extensive research into the homes on the market at that particular price point, showing that of the 12 homes only two were two stories and they were 12 years old. He also provided a profile of his clients, demonstrating that 95 percent of them were young families building two-story homes.

“I’m thinking this is a slam dunk,” Werschay says, “but the bank said, ‘No, we just don’t think this is a good home to build in this market.’”