Builder Warranties are Vital Even if Builders Feel Confident Without One
Are you a builder trying to decide if you need to offer new home builder warranties?
Are you a builder trying to figure out exactly what constitutes a new home builder warranty?
Builder warranties protect both the new homeowner and the home builder, and they provide coverage for potential defects in the construction of a new home. How do you know if you need a home builder warranty, though? What do you need to know about builder warranties? We’ve got all the details on builder warranties for both the builder and the homeowner.
What are Builder Warranties?
New home builder warranties cover the homeowner in the event of a structural defect in their new home. They also provide some level of protection to the home builder in that they outline exactly what is and isn’t covered. A traditional builder warranty typically follows the cadence of:
- 1 Year of coverage on workmanship and materials
- 2 years of coverage on selected portions of mechanical systems
- 10 years of coverage on major structural components. The builder is the warrantor during years 1 and 2 of the standard warranty and the insurer is the warrantor in years 3-10.
What is Often Included in Coverage
Generally speaking, you can expect to see these types of items covered in your warranty throughout the given timeframe. Examples include, but not limited to:
- Doors and windows
- Heating and cooling Systems
- Rafters and Roof Trusses
- Bearing Walls & Load Bearing Beams
What is Often Excluded from Coverage
The list of things covered will be in your warranty documents. There should also be a list of exclusions, so it’s important to review the documents carefully. A list of possible exclusions may look like this:
- Condensation or dampness as a result of failure to maintain proper ventilation
- Defects in the work caused by another contractor, builder or the homeowner
- Items not structurally attached such as driveways, patios, fences, and sprinkler systems.
- Household appliances (extended warranties are available for these)
- Shrinkage of the joints and house
- Weather and/or insect damage (homeowner’s insurance might cover some of this)
While this is just a standard list of things that a warranty isn’t likely to cover, there will be a list of other exclusions that you’ll need to consider. Some of those exclusions include acts of public malice (riots, vandalism, etc.), acts of God (including animals) and normal wear and tear.
Even with exclusions, both the homeowner and home builder are better off with a warranty. Exclusions are a part of the warranty world, so there is no getting around them no matter who you receive coverage through.
Home Builders: Why You Need Builder Warranties
Warranties serve a purpose – they provide coverage for certain labor, materials, and services if something is defective, with varying coverage terms and limits for each category. There are several benefits to having builder warranties:
1. Security in Knowing Your Work is Protected
If you’re like most home builders, your advertising is in your work. The more satisfied a new homeowner is, the more likely they will refer their friends and family to you. You’ll have security, too – you’ll know what exactly is covered, and what you’ll be responsible for in the event of a defect.
Without a home builder warranty, you may be liable for anything that you are taken to court over. There is an inherent risk in doing work without builder warranties, and that includes word of mouth talk that you failed to take care of someone’s construction properly.
2. Peace of Mind in Knowing Your Obligations Will be Met
Since a builder is responsible for repairing or replacing certain aspects of the home (should an issue arise) as described in the warranty, he typically has funds in place, in the form of reserves, to make those Year 1 and Year 2 repairs, but he can transfer the responsibility for more substantial structural problems during Years 3 through 10 to the warranty company, who will keep money aside to pay for those defects. This frees the builder up to build up his business with the money he might otherwise put aside to make those kinds of repairs
3. Comfort in Knowing There is an Intermediary
Without a warranty, your construction business may be subject to claims or other legal remedies if there is any negligence or if a defect is found. There should be comfort in knowing that if a homeowner has a claim, mediation with the warranty company is the best option and you may be able to avoid legal action. This will be substantially less expensive than going to court, and the third-party can act as an interpreter, troubleshooter and negotiator.
4. Contractual Protection from Unqualified Claims
Having a warranty in place puts you in a solid position and means that you and the new homeowner have preemptively agreed on what you, the builder, is responsible for, and what the warranty company is willing to cover in the event a defect arises. Furthermore, should a dispute arise, there is a prescribed simple and less costly method for how that dispute will be resolved under the warranty.
Benefits of Builder Warranties
Aside from the general benefits of peace of mind and contractual obligations, there are some other key benefits to builder warranties:
- Financial Security: For both the home builder and the homeowner, there is a layer of financial protection in having a warranty. Both parties know what their costs may be in the future, so they can build up the appropriate cash reserves.
- Marketing Point: If you are planning to sell your home, a 10-year new home warranty is a great marketing tactic. Most warranties will transfer to the new homeowner, so they get the additional protection built into their home purchase.
- Third-Party Intermediary: There is a professional level of benefit in having your warranty serve as a third-party intermediary. Rather than having to go through costly claims courts, both the builder and homebuyer can enter into mediation, and if necessary, arbitration.
- Builder Confidence: As a home builder, you want to convey a sense of confidence in your product. Offering a home builder warranty to your clients is a great way to let them know they can trust your craftsmanship.
- State Regulations: Each state has different builder regulations. With a warranty, you can be sure that a builder is adhering to proper state regulations.
Average Cost of Builder Warranties and Repairs
Comparing costs is an important part of investing in a home builder warranty. The typical range for home repairs including labor and materials is $4,000 to $18,359, with the national average being $10,774. The average cost to repair a major structural failure can exceed $35,000.
While it’s true that you may not ever need your warranty coverage, the costs of not having one are unjustifiable for most people. Unless you can keep around $50,000 in reserves for home repairs, it may be financially disastrous not to have a home builder warranty.
No matter whether you’re a home builder or a homebuyer, builder warranties are made to protect each party in a home construction project. They provide protection for both the builder and the buyer, and they allow for mediation that is less expensive than a traditional court setting. At the end of the day, a warranty will be one of the least expensive items you can include on the homes you build… and one of the most valuable. Contact Residential Warranty Company, LLC today to see how we can help protect your financial future.