Unimproved Property Contract

STIRMAN & KENNEDY, P.C.
ATTORNEYS AT LAW
COMPASS BANK BUILDING
25211 GROGANS MILL ROAD, SUITE 120
THE WOODLANDS, TEXAS 77380-2174

E-MAIL: stirman@flex.net
WEB PAGE: www.flex.net/~snk

DONALD S. STIRMAN, MEDIATOR
CLIFFORD L. PARMLEY, M.D., J.D., OF COUNSEL
JOSEPH T. KENNEDY
ERIC R. HIRD
KEVIN T. SHEA
TELEPHONE (281) 367-5955
FAX (281) 292-7905

February 22, 2001

Via e-mail

Mr. & Mrs. Mike McConnell
13451 Belhaven Drive
Houston, TX 77069

RE: Proposed Unimproved Property Contract by and between Flair Construction
Co., Inc., as Seller, and Mike and Chris McConnell, as Buyer

Dear Mike:

We have read and reviewed the above referenced Contract and your letter to
us regarding same dated February 20, 2001. We want to respond to the
questions and issues raised in your letter as well as make some suggestions
and comments about the proposed Contract itself.

First, the Contract being used is the standard type of Contract used for the
proposed transaction. The Contract is promulgated by the Texas Real Estate
Commission and is to be used by all licensed Real Estate Brokers and Agents.
We are interested in knowing, however, if the Contract was filled out by Mr.
Larry Williams of Prudential Gary Greene Realtors. If so, does Mr. Williams
represent you or Flair Construction Co., Inc.? Please advise us
accordingly.

As we discussed, we think it is most important that you have the opportunity
to read and review the Construction Agreement that Flair Construction Co.,
Inc. intends on using for the construction of your home. The fact that
Flair is both the Developer, as well as the potential Builder, raises some
issues. Usually, Builders have agreements with the Developer regarding the
purchase of lots and building on same. Often, lots are reserved to certain
Builders and if you purchase those lots you are required to use the
designated Builders. However, often lots are free to be purchased by
potential homeowners who then can choose the Builder they want. We are
interested in knowing if the lots you are purchasing are actually reserved
to Flair Construction Co. Inc., or is Flair just requiring you to use them
to build your home since they are selling you the lots in question? As you
point out in your letter, if you sign the Contract as it now reads, you are
captive to the Builder and are not free to negotiate with other Builders.

It appears to us that you will be one of the first homeowners in this new
subdivision. We think it is critically important that you get a copy of the
Deed Restrictions even before you sign the Contract to make sure that there
are restrictions in place regarding the size of homes to be built, size of
lots, etc. We want to make sure that your home is not horribly atypical for
the neighborhood.

We do not know if The Lakes of Sterling Gate Estates is in the City of
Houston or within its extraterritorial jurisdiction. This is something you
may want to find out as soon as possible. If it is outside the city limits,
is there already a MUD district in place to provide water and sewer
services? Since this is a brand new subdivision your concern regarding its
future development and tax rate is very legitimate. Usually, until the
subdivision is fairly well built out, the Developer controls the Community
Association as well as the Architectural Control Committee. Therefore, if
this subdivision does not take off you will be under the control of the
Developer.

We recommend in the strongest terms possible that you talk with recent
customers of Flair Construction Co. Inc., to make sure that they were happy
with the construction of their homes, as well as warranty work. Some
Builders are far better than others as it relates to follow-up warranty work
after their customers move into their homes. We normally recommend that
homeowners do not move into their homes until all punch list items are
completed to the satisfaction of the homeowner.

The foregoing was our general comments regarding the proposed Contract. We
will now make more specific comments and suggestions in chronological order
regarding the Contract:

1. Paragraph 2. PROPERTY. As we previously stated, we think it is important
that you acquire copies of the Restrictive Covenants and Deed Restrictions
as soon as possible. You will be responsible to pay assessments to the
Property Owners Association. Since Flair is both the Builder and Developer,
you may want to ask Mr. Kent for an estimate of what your Community
Association Fees will be.

2. Paragraph 5. EARNEST MONEY. We suggest that the earnest money be paid to
the Title Company and not to Flair Construction Co. Inc.

3. Paragraph 6. TITLE POLICY AND SURVEY. (6) The standard printed
exception as to discrepancies, conflicts, shortages in area or boundary
lines, encroachments or protrusions or overlapping improvements is in your
Owners Policy. In other words, the title policy does not cover these types
of discrepancies or conflicts. However, if a survey is completed and an
additional fifteen percent (15%) of the policy premium is paid, the title
company will probably delete this exception. This is something you may want
to consider. However, this cost would be yours to incur. If, however, it
is subsequently discovered that there are such discrepancies and conflicts
or shortages, then you will have title insurance coverage accordingly.

4. Paragraph 6. TITLE POLICY AND SURVEY, last paragraph. Make sure you are
provided a copy of the Commitment for Title Insurance as soon as possible.

5. Paragraph 6. TITLE POLICY AND SURVEY B (3). It appears to us that the
only survey you will be provided with by the Seller is one for the new
recorded plat of the subdivision. Therefore, the Seller is not providing
you a survey of your actual lots. If you were to have the standard printed
exception as to discrepancies and conflicts deleted, we believe you would
need a survey of your lots. You will have seven (7) days after you receive
the Commitment and/or the survey to object in writing to any matters
disclosed or you will be deemed to waive such objections accordingly.
Therefore, please make sure that we have the opportunity to review the
survey and commitment as soon as possible after you receive same.

6. Paragraph 6. TITLE POLICY AND SURVEY (6). We agree that this paragraph
relating to the Sellers right to continue to show the property for sale
should be deleted.

7. Paragraph 7. PROPERTY CONDITION: B (1). We suggest that this paragraph
be checked and utilized rather than paragraph 7B (2) which states that you
will be accepting the property in its present condition. Paragraph 7B (1)
states that you will pay a fee, usually very small, like $100.00, for the
unrestricted right to terminate the contract in the event the property is
not suitable for the purposes for which you intend on using it. In other
words, you can have whatever inspectors you deem necessary to look at the
property to make sure that it is satisfactory for your home construction.
We often suggest that an independent inspector be hired by the homeowner to
inspect and review the construction of the home as it progresses. In
addition, there may be some environmental issues or soil condition questions
that an inspector might raise if given the opportunity. As the Contract now
reads, you are simply accepting the property as is and have no right to send
an inspector out to the property accordingly.

8. Paragraph 8. BROKERS' FEES. You may want an affirmative statement that
you as the Buyer will not be responsible for or pay any Brokers' fees.

9. Paragraph 11. SPECIAL PROVISIONS. It is written in that the closing on
these lots will be as soon as roads are in place or on March 1, 2001,
whichever is later. However, we do not know what roads are being addressed
and think that this sentence needs far more specificity. The second
sentence regarding your obligation to use Flair Homes has already been
addressed earlier. The third sentence regarding when construction must
start should be revised to give you more time as you make reference in your
letter. However, we also suggest that the Builder be put under an
obligation to start construction within thirty (30) days after the date you
notify him that you are ready for construction to begin.

10. Paragraph 13. ROLLBACK TAXES. If there was ever an agricultural or
timber exemption on this property, you need to know. Otherwise, you will be
obligated to pay rollback taxes on the property which may go back five (5)
years.

11. Paragraph 18. ESCROW. As we indicated earlier, we believe your earnest
money should be paid to the title company. In light of the fact that the
earnest money is in excess of $50,000.00 and the closing date on the lots is
somewhat uncertain, we suggest that you ask the title company to deposit the
earnest money in an interest bearing account and that you receive a credit
accordingly.

Please call us after you read and review this letter.

Very truly yours,

Donald S. Stirman

DSS/csb