What to Know About New Home Warranty Coverage
From the crown moulding, intricate tiles, and sleek countertops, right down to the foundation and framing – your new home is your family’s major investment. And it keeps a roof over your heads, so you’ll want to protect it with a warranty in case of any issues once you move in.
A builder’s warranty is an essential part of a new construction property, providing coverage for a specific list of features. Before you sign your builder’s sales contract, it’s wise to understand what the warranty includes, how to file a claim, and the process for resolving disputes between you and your builder, according to the Federal Trade Commission, which is the nation’s consumer protection agency. The FTC warns that warranties for newly built homes offer “limited coverage” so consumers need to be aware of what their warranties entail.
Here are a few key aspects every homebuyer needs to know about builders’ warranties.
What is a Builder’s Warranty?
In a nutshell, the warranty offers selected coverage on the construction and materials used. It’s usually backed by the builder or is purchased by the builder from an independent company that will take responsibility for certain claims. The vast majority – if not all – newly built homes will come with a builder’s warranty, which is also called a limited warranty. They’re usually outlined in your sales contract or as a separate document.
Keep in mind, homeowners can purchase more coverage, often called a home warranty or general warranty. The difference is the builder’s warranty covers the construction of your home while a home warranty will cover major appliances, like the oven, range hood and garbage disposal.
If you’re applying for government-backed financing, via Federal Housing Authority (FHA) or Veterans Affairs (VA) loans, your builder is required to purchase a third-party warranty to protect the buyer and his or her loan.
Warranties are transferable for a certain period of time if the house is sold.
What Does a Builder’s Warranty Cover?
Builders’ warranties provide some new home coverage for the first year or two, with some warranties on structural components lasting for as long as a decade.
What’s covered in your warranty will differ depending on your builder. However, a home’s materials and workmanship often refer to:
- Concrete foundations and floors
- Heating and cooling
- Septic system
- Electrical work and plumbing
- Roofing, siding and shingles
- Insulation, thermal and moisture covering
- Doors and windows
- Dry basement
- Garage doors
The duration of coverage depends on what component of the house requires repair. The FTC points to siding and stucco, doors and trim, carpeting, drywall and paint as key parts of the home that are covered during the first year. These items fall under labor and materials. Heating, ventilation and air conditioning (HVAC), plumbing, electrical work, and windows generally receive two years.
“Major structural defects” – or issues that make a home unsafe and put the homeowner in danger – are covered for up to 10 years, according to the FTC. These significant concerns include issues like a roof that could collapse. Load-bearing walls, framing, and the foundation are also parts of the home that fall under the structural category.
It’s worth noting that warranties for newly built homes usually don’t cover temporary lodging if homeowners must move while repairs are made.
What Does the Builder’s Warranty Exclude?
What isn’t included in your warranty is just as crucial to pay attention to. Most builders’ warranties don’t include:
- All home appliances, such as your stove, refrigerator and dishwasher (which can be covered by their own manufacturer’s warranties or home warranties)
- Normal wear and tear and fading of paint
- Defects or problems caused by work done by the homeowner or other contractors after the builder’s work is complete
- Weather-related damage (which can be covered by homeowner’s insurance in some cases)
- Insect damage
- Renovations to bring out-of-code systems into compliance
- Damage caused by the homeowner’s abuse, misuse, or lack of adequate care (such as condensation or dampness triggered by a lack of ventilation, not cleaning the gutters, or addressing a pest problem)
The FTC says builders’ warranties usually don’t cover small cracks in brick, tile, cement or drywall and any other components of the home that are covered by a manufacturer’s warranty.
Some defects are hard to spot. Homebuyers can add a caveat to their sales contract that allows them to get the home inspected before the warranty expiration date. With this added step, a professional can have a thorough look at the home and its workmanship to flag any issues that the builder needs to correct while the home is still under warranty.
Some builders’ warranties already include this feature; it’s your job to make sure a quality control inspector – provided and paid for by the builder – shows up within the first year to conduct an inspection. Mark warranty end dates in your calendar and set reminders so you don’t overlook this.
How Do I Make a Warranty Claim?
If you find a defect in your new home, refer to your warranty or sales contract first to double check if your issue can be covered and still falls under your warranty’s timeframes. Your warranty should also provide detailed instructions on how to file your claim, either by filing your request for repair in writing or by calling a general hotline. Consider urgency too: if your defect requires an emergency fix or will cause bodily harm or consequential damage to other parts of the home, act quickly to inform your builder.
The FTC suggests all homeowners submit their request in writing and to ask for a return receipt – even if a phone number is provided. This way you will have proof of correspondence with the company. Take notes during your phone call, including who you spoke to, dates and times, and what was discussed. Your claims process should be a smooth one, but if a dispute arises, you’ll have a paper trail of evidence.
Your builder or the third-party company providing the warranty may want to investigate your claim to determine next steps, especially if it’s a major defect. Don’t recruit a repairman to make any fixes until you get approval – in some cases, the builder will provide the repair or replacement. They may also offer you cash to pay for the repairs. Calling an outside contractor before any decisions are made could void your warranty.
What Should I Do If There’s a Dispute?
Sometimes homeowners and their builder will disagree over whether a defect is covered or whether the subsequent repair work is adequate.
Most warranties for newly built homes call for mediation for disputed claims, followed by a mandatory binding arbitration, according to the FTC. This means that homeowners must first go through mediation, which is when a neutral third party helps the homeowner and builder discuss and come to an agreement.
If this doesn’t work, the homeowner has to try to the arbitration route to resolve their claim. In arbitration, you’ll need to submit your complaint to an expert or a panel of experts in the construction industry. They will take into account both sides of the dispute during a hearing and provide a final decision to resolve the issue. Neither party can apply for an appeal – according to most warranties. Thus, the arbitrator has the final word.
Most of the time, homeowners can choose an arbitrator from a list approved by the builder.
Arbitration is less formal than a traditional court trial, but you may still have to attend hearings, hire legal representation, obtain documents and present evidence. While it’s cheaper, homeowners can still expect to pay several thousands of dollars to cover legal expenses.
If your loan is financed through FHA or VA loan programs, you can choose between arbitration or going to court. Check to see who covers arbitration costs – in some cases, builders will offer to pay all costs tied to arbitration to dissuade homeowners away from opting to go to court.
What About Unfinished Work?
Some warranties specifically exclude uncompleted work in the home. For this reason, you need to conduct a thorough examination of your home at a pre-closing meeting and at your final walkthrough.
Some homeowners recruit the help of a professional inspector for these walkthroughs. During these meetings, complete a thorough “punch list” where you can agree on which items your builder is responsible for and which areas they need to repair. Depending on your contract’s fine print, your builder may be contractually obligated to fix every item identified on that list.
In rare instances, builders close up shop or change names once their work comes to an end, which might nullify the warranties. If this happens and you have a major defect on your hands, contact a lawyer for advice on next steps.
You can also investigate whether your manufacturer’s warranty might apply, especially if you’re dealing with a faulty item like windows, blinds or roof shingles. You may be able to argue that the product doesn’t work; however with new construction homes, the issue is often improper installation.
How Do I Protect My New Home?
Here’s how homeowners can take proactive steps to protect their new homes and make sense of their warranty:
Read your warranty thoroughly: Before signing on the dotted line on any contracts that refer to warranties and insurance, read all documents carefully. Make sure you understand what is being provided, the time frame, and who is responsible to handle any problems – between you and your builder or the third-party company providing your warranty.
Make sure you’re clear on how to notify your builder about any defects that require repair. If you don’t follow the protocol correctly, you could unintentionally void your warranty.
If you’re unsure of what your contract says, enlist the help of a real estate lawyer to explain the terms and conditions.
Pay attention to your responsibilities as a homeowner: While a warranty provides a sense of security, homeowners are on the hook for any damage or defects they cause to their home through misuse or negligence. The most common dispute between builders and homeowners is whether the defect was caused by the builder’s negligence during construction or by the homeowner’s misuse.
Your builder will provide you with a guide to your maintenance obligations and a home orientation session to show you how to properly manage your home, including how to access water shut-off valves, change air filters and locate your home’s fuse box.
Be proactive: You need to be alert as you discover more about your new home. In your first year, your property will be exposed to different seasons. You may only notice in the Spring that your backyard was poorly graded leading to mudslides, and in Winter you may discover faulty window seals.
This applies to major structural issues in the home, too. Sometimes it’s only after the work has been completed and the materials have settled in that homeowners notice something isn’t right. Creaky floors, for example, are a common defect tied to structural problems.
Study your homeowner’s insurance policy to make sure your policy covers as much as possible, from appliances to damage caused by weather.
Prepare for maintenance and repair costs: While warranties and insurance are great tools to help homeowners protect their property, repairs and maintenance expenses are part of homeownership. Save up for home maintenance costs and earmark time throughout the year to stay on top of sprucing up your home.
Courtesy of NewHomeSource.com