New House Building: Money Saving, Convenience and Healthy House Tips
New Home & Builder Warranties
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Let me get right to the point. The warranties of many big builders protect them, not you.
Things will go wrong with your new home. It's inevitable. The question is: Who is responsible for fixing these problems? All of this information should be spelled out in the builder's warranty. The builder's warranty is one of the items that you must read and understand before you make a buying decision. If the warranty references another document, such as standards set forth by a building trade organization or the state, make sure you also read and understand those documents.
The way the warranty reads will give you insight into how the company operates and the faith that they have in their product. Large builders usually have a more detailed warranty chock full of legalese, disclaimers, and limitations. Because the warranty is almost always referenced in the purchase agreement, it is a legally binding document that you are agreeing to, so make sure your attorney reviews it.
You should compare warranties, tolerances, and remedies for different builders. If you have a huge crack in your garage floor, for example, is the builder’s remedy to fill the crack with caulk or replace the floor? If the builder is informing you in writing before you even agree to buy the home that they are not going to stand by their product and fix something, that should send up a red flag!
Warranties vary greatly depending on the size of the builder and the area of the country. Some builders operate under a standard warranty that is mandated by the county or state government similar to a building code. The length of the different parts of the warranty will vary, just like new car warranties. Like a new car, you will have a responsibility to maintain your home to keep the warranty enforceable on the components in your home. For instance, is the concrete warranty void unless you seal your concrete? Remember, it’s just like the warranty on a new car: If you don’t change your oil as prescribed, kiss your warranty goodbye.
Most new home warranties have two components with varying terms of coverage. When you are shopping for homes you will commonly see “1-10” or “2-10” warranties.
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One and Two Year Warranty Coverage
Think of this as the “Bumper-to-Bumper” version of your warranty. Almost everything in your home will fall under this category. From your squeaky floors to your doors that won’t shut, it is the builder’s responsibility to fix them for the period outlined in the warranty. Some builders will limit this part of the warranty to the major components of your home such as plumbing, heating and cooling, and electrical systems. Don’t make the mistake of thinking absolutely everything (like caulk and paint) is covered. Read the warranty and all of its exclusions.
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The longest period in most warranties offered by builders of new homes is the “Structural Warranty.” This is the “10” in the “2-10” warranty. Think of this as the “drive-train” portion of your home warranty. Just as a new car warranty defines the drive-train warranty as covering just the systems that make the wheels move, the builder limits the Structural Warranty to the components that keep the home from collapsing. Structural defects usually refer to defects in the load-bearing portions of your home such as roof rafters or trusses, floor joists, beams, foundation, and footings. The structural portion of a warranty is not often invoked because, as most warranties read, the home must be deemed “unsafe for habitation” before the builder has a duty to repair the condition.
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Items Almost Never Covered
From the time you move in, most builders will not warrant items such as landscaping, paint, caulk, floor coverings including carpet, vinyl, tile, and hardwood. You need to pay special attention to these, and any other items not warranted by the builder, during your walk-through. It is important to make sure the house is clean when you do your walk-through so that you can identify defects in any of these products and have them repaired prior to closing.
Almost every component in your house has a warranty from the manufacturer. However, it is a bit unrealistic to think you are going to get the warranty card for the subfloor or concrete. What you should get is warranties from all of the major mechanical component manufacturers used in your home.
Specifically, make sure you get the warranty information for:
>> garbage disposal
>> air conditioner
>> water heater
>> water softener
>> entry doors
>> garage doors and openers
>> roofing material
>> whirlpool type tubs
If the builder uses name brand components with strong warranties you are protected even after the builder's warranty expires. In the case of a stove, there is little a builder can do to improperly install it and void the warranty. On the other hand, for something like a window or door, it is very easy for the builder to void the warranty by not installing it according to manufacturers instructions. If you do have a problem with the windows or doors several years after the builder's warranty expires, your claim could be rejected because the window or door manufacturer will simply say that the builder voided your warranty. If your windows carry a ten-year warranty and you have a problem (caused by your builder) in year seven, good luck going after the builder. Most builders look at a seven-year-old house as ancient and probably built in a neighborhood that was long ago completed.
So what can you do to protect yourself? First, make sure that your inspector is familiar with the components that your builder is using and can verify that those components are installed correctly. Second, you need to collect as much product information from the builder as you can, including warranty cards, installation instructions, and care and maintenance guides. Tell your builder that you are expecting these items to be given to you at the walk-through (new home orientation when the home is finished, but before closing). This is helpful if, for example, a builder tells you that the finish on your hardwood floor is not guaranteed by the builder, but it does carry a ten-year warranty from the manufacturer. Do you know who manufactured the floor? Do you know who installed it? Do you know how to care for it so as not to void the warranty? Does the floor really even have a warranty or is the builder just blowing smoke?
To curtail this risk, have a simple contingency or addendum added to your purchase contract stating that any warranty voided by the improper installation of any part or system used in your home will be the responsibility of the builder.
Your most serious warranty claims will stem from foundation and framing problems. If you verify that the foundation and framing are done correctly and products such as windows and doors are installed correctly, who cares how long your warranty is? No piece of paper or warranty company will take the place of a well-built house.
State and Provincial Legal Protection and Support
As we have indicated previously in this newsletter the degree of support you will receive from your local state or provincial government varies a great deal. In some jurisdictions there are laws in place that require the builder to warranty their work for periods as long as 10 years while others are much shorter.
The coverage under these warranty programs also varies a great deal. Often there will be a period of time defined for coverage in workmanship, which is usually a short timeframe i.e. one year, another covering cooling, electrical and plumbing systems and a final category which covers major construction items such as foundations.
Many of these laws have specific time periods attached to them regarding notification of the claim, and communication with the builder as well as with the court or government agency that is responsible for administering these laws. The bottom line is that it is up to the homeowner to identify and take the builder to court if the consumer is not receiving satisfactory response from the builder.
Most states and provinces also require the homeowner to maintain their home in a normal fashion. In other words if the builder or the insurance agency feel that the damage is caused by failure or negligence of the homeowner, then it is unlikely that your home will be covered by any warranty, regardless of whether the insurance is provided by private means, the builder or the government.
There are three additional important points that all consumers should review with their own lawyers prior to signing any contract for a new home.
The builder will often specify those areas, which are not covered by the new home warranty and require the homeowner to initial or sign indicating that they agree to waive these warranties. These items include appliances, soil conditions and other items they may identify. It is important to review these clauses and ensure that you are comfortable with these items.
Secondly, implied warranties may also be requested to be waived by the new homeowner. They may state that they are providing express warranties in their place. If you are being asked to waive any kind of warranty, take the time to review and understand the implications and speak with a lawyer in your locale.
Finally in some jurisdictions, implied warranties and other express warranties may be voided if the home is sold to an intermediate party, such as a shell company, prior to being sold to the consumer.
Most builders want to maintain an excellent reputation and plan to continue business operations for many years. Generally speaking these builders have reasonable warranty plans, however if you have any doubt, check with your lawyer.
Some Useful Links:
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Summary and Other Considerations
As you may have realized while reading this newsletter, new home warranties are fraught with pitfalls. Most builders provide excellent workmanship and provide great warranty support for their homes.
However the best protection for any homeowner is to learn about local laws and your builders warranty programs before signing on the dotted line. Each state in the U.S. or province in Canada has enacted laws to protect both consumers and builders. They are not all the same, so take the time to review them in the jurisdiction in which you have purchased a home. Consumers can then make a decision regarding any exposures they may have.
Once you have decided to proceed with the purchase of a new home, follow the best practice approach of noting and documenting all defects in your home at the prescribed times as defined in your contract.
If there is any doubt either before you purchase a home or after, seek legal advice to ensure that you fully understand your rights and exposure from a warranty perspective. Major defects may require your presence in court and you may find that the last recourse is to go to court to file a claim if you are unable to resolve them in a satisfactory manner with your builder.
Maintain your home appropriately. Negligence on your part could void any of the warranties in place, implied or express as stated by your contract.
You contract with the builder should specify in as much detail as possible how warranty issues will be handled.
You should know up front, whether a builder will be responsible for fixing defects or whether he has turned these warranty repairs over to a third party who will be responsible.
The house building contract should specify if possible, the required response times to fix defective items. For example if there is a cosmetic defect that is properly covered under the warranty, the necessity of fixing this is not as urgent as if you had a leaking roof. The former could be addressed within a few weeks. The latter should be addressed almost immediately.
The contract should also specify what happens if there is no response within the specified time frame, or the response is not adequate, or does not resolve the problem.
When it comes to resolving disputes, binding arbitration which is commonly found in many home building contracts, puts the consumer at a disadvantage - and we do not recommend that you agree to it.
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