Despite the continuing challenging home building market and strong competition from bigger builders in the Washington, D.C., area, Caruso Homes president and owner Jeffrey Caruso is enjoying a lighter state of being these days.

"We have shed 3,000 lots that we owned or contracted for. We are reorganized, and we are lean and mean and we are ready for the market turn around," said Caruso. "We have local business investors and funds, and we don't have any debt."

And that lightness is giving the Crofton, Md.-based builder the agility to compete against a market full of big builders. Caruso has sold about 40 homes since May by building in communities too small for bigger builders to bother with, providing options other production builders have abandoned, and offering services they can't.

For instance, Caruso, which has two model sales centers in North and South Prince George's County, Md., has started offering to build on homeowners' lots. The company is providing its proven floor plans and architecture to buyers as an alternative to more expensive and time-consuming custom construction.

"We had nice success with this in the past," Caruso said. "In the custom home community, it takes a long time to build a house. [Buyers] don't realize that until they get into it. We can sometimes take a year off the process."

The company has just begun to market the service. It is putting its signs up on lots that are for sale in a cross-marketing deal with the landowners. "It helps the lot owner. In addition, it gets our name on a lot of lots."

Caruso is also having success finding lots to build on by picking up smaller-parcel lots from banks that are too small for any of the national builders to care about.

"We are talking with banks about a lot of nice small jobs that maybe other builders might not finish," said Caruso.

Caruso is now building in six communities, two of them under Caruso's control and four where it has lot take-down agreements with developers.

While the builder's target audience is first-time buyers, the same as many nationals, Caruso is differentiating itself by offering standard upgrades that have been pulled from many of the national builders' homes.

"Builders are stripping houses to the bone, and we are keeping our position as the high-end of the affordable builders," he said. The company works to keep all its offerings below the local FHA loan limit of $417,000.

"We have triple 9-foot ceilings [on every level, including in the basement], a better appliance package, we include more wooden floors and more closet space and windows," he said.

But there is one place where Caruso has had to change its practices to compete--building spec homes.

"The D.C. market is not a spec-home market. Most builders are not building spec homes, the banks won't let them," Caruso said. Yet some of the nationals are, and it was hurting sales because buyers were waiting to sell their homes and then going shopping for something they could buy quickly.

So Caruso has been adding a couple of spec homes in each of its communities, financing the construction with cash on hand, both personal cash and some from local business investors who have worked with the 25-year-old company for years.

"We haven't finished a home that wasn't sold, fortunately" he said. "You do end up negotiating. People drive around with a check in hand."

Caruso completed a reorganization a year ago under Chapter 11 of the bankruptcy code in a process that was such a model of civility that the judge complimented the attorneys involved. Part of the agreement was that Caruso will share some future profits with creditors.

The company's staff shrunk from 160 to 18 people in the process.

"We are in a great position for a market turnaround," Caruso said. 
Teresa Burney is a senior editor for BUILDER and BIG BUILDER magazines.

Learn more about markets featured in this article: Baltimore, MD, Washington, DC.