Your guide to understanding new construction home warranties

Newly constructed homes often come with modern design elements, energy-efficient building materials, brand-new appliances and other features that existing homes often don’t have.

While those may seem attractive to most folks looking to buy a new home from a builder, new homes still have warranties designed to save buyers the trouble of covering a costly repair on their own. New home warranties cover structural, systematic and workmanship-related repairs. Let Homes.com give you an understanding of new home warranties and how they can serve you as a buyer.

New construction home warranties fall under two categories: a builder warranty — also known as a new home warranty — and a standard home manufacturer warranty.

A builder warranty is backed by the homebuilder. It covers your home’s fixed permanent and structural components, such as the floor, framing, ceiling, electrical systems, plumbing, etc. In other words, anything that’s foundational to your home and can’t be easily replaced is covered under a homebuilder warranty.

A manufacturers’ warranty, which is usually covered by one or more third-party companies, covers components such as HVAC units, lighting fixtures, appliances, etc. In terms of the physical work, third-party independent warranty companies provide service contracts for buyers to purchase. “Many of the appliances would have a manufacturer warranty for the first year, but many times, the labor itself is missing,” Mark Emerick, regional sales representative at Home Warranty, Inc., said. “Most of the time, the labor cost is heavier than the part cost. So, by having that new construction warranty, we take care of all those labor items.”

As a buyer, you would work with your real estate agent to set up manufacturing warranties via a third-party company.

Also, it's worth noting, builders are required by law to buy third-party warranties for buyers who use Federal Housing Administration or Department of Veteran's Affairs loans, according to the Federal Trade Commission.

A builder's warranty is designed for the long haul. It typically falls under two primary categories: materials and workmanship.

“A builder’s warranty is designed to give the buyers peace of mind by covering defects in materials or workmanship that may arise after move-in,” said Deborah Correa, vice president of warranty and quality assurance at Williams Homes. These defects may arise within the foundation, framing or load-bearing walls, Correa added. Essential systems like electrical, plumbing or heating, ventilation and air conditioning systems may also be included.

Materials refer to the physical elements used to build components of your home. "It can also include protections for finishes, such as doors, windows, flooring and roofing, though the length and scope of that coverage can vary by builder,” Correa added.

Workmanship refers to how those materials are assembled by the builder. In other words, the work itself falls under warranty. So, if your roof shingles fall off because they aren’t properly attached, that would fall under a workmanship warranty.

The builder covers its own warranties, although some of the costs are baked into the price of the home when you purchase. “In fact, the builder will kind of use it as a marketing aspect to set themselves apart from other builders,” Emerick said. For manufacturer warranties, you are responsible for covering this as a buyer, although you can have your builder cover warranties even if you don't use an FHA or VA loan.

Warranty costs vary depending on the price of the home itself. New home warranties are also cheaper than existing home warranties since the parts and systems are newer. For specific pricing, check in with your warranty provider.

A builder's warranty for workmanship and materials usually lasts for about one year after the closing date of your new home. That coverage period is common for newly constructed homes. “Typically, homeowners can expect a workmanship and materials warranty for the first year, which covers items such as paint, drywall, doors, trim and finishes,” Correa added.

However, product warranties — which cover items like a microwave or refrigerator — have different coverage periods. “Product warranties in the home are covered separately under manufacturer warranties, which can range from one year to over 10 years,” Correa said.

With warranty types, it’s vital for homeowners to understand their builder’s and manufacturer’s warranties and how long those coverage periods last. With each warranty type, ask the builder to give you information on the coverage period for your personal records.

If you notice an issue that’s covered under your warranty, contact your builder or warranty provider as soon as possible. “Most builders have a dedicated homeowner service portal or warranty department where residents can submit claims or requests for inspection,” Correa said. “It’s important to document the issue with photos, dates and a brief description, however, so the claim can be processed efficiently.”

From there, your builder or warranty provider will schedule an evaluation to confirm your claim’s veracity. “We all need to have a diagnosis of what’s wrong with it and how much it costs,” Emerick said. “Some warranty companies require that you use their technician. But we, for example, let clients use their own.” In that case, you would simply pay for the technician and get reimbursed by your warranty provider at a later date.

After that, your builder or warranty provider will send a representative or technician to make repairs and schedule follow-up appointments to ensure that everything is in working order. In some cases, your builder or warranty provider will cover lodging expenses if you're displaced from your home during a repair.

Some components or elements may be beyond the scope of repair, often requiring the complete replacement of the component. While this may seem pricey, some warranty companies help with covering the repair costs. “For most of the homeowners doing this, we allow them to take that cash that we would spend on repairs and apply it to the purchase of a component,” Emerick said. Each warranty provider and builder will handle these situations differently. As such, it's best to ask questions and review your provider's policies as they pertain to unrepairable items.

Beyond that, unresolved issues may go to mediation or arbitration, according to the FTC. In terms of mediation, the homebuyer and a mediator will sit down with the builder or warranty company to hopefully resolve the dispute and move the repair process along. However, if that fails, the dispute will move into arbitration, which is essentially a less formal court process where a third-party will rule in favor of either the homebuyer or the warranty provider.

According to Emerick, there is one mishap that can trip up a homebuyer while attempting to use a warranty. "All of the warranty companies have in our terms and conditions that everything has to be in normal operating condition when the warranty goes into effect," he said. If something is improperly installed before you purchase the warranty, then it likely wouldn't be covered under a warranty.

So, here's what you could do: Schedule your own third-party inspection. Try to catch issues before the warranty is applied. If you do, the builder will have to repair it, and if it breaks after that, the warranty will come into play. "Some people think, 'I bought a new home, but I don't need an inspection," Emerick said. "But city inspectors miss things. And there's a lot of things the builder might just miss because they're in a hurry."