What Does a Builder’s Warranty Cover?
With the boom in new building construction taking place all over Charlottesville – from Crozet to in town and all along the 29 North corridor – many people considering building new might also want to think about what the builder’s warranty will cover after the home is built. Or, what it might cover if you buy a newer home a few years after that.
Most builder warranties cover material and workmanship on a new home for one year, with coverage that lasts as long as 10 years on major structural elements.
We always recommend making sure you follow up on the year inspection that many builders offer to make sure the home hasn’t settled or developed unforeseen issues.
We always also recommend researching a builder thoroughly before deciding on new construction – you can look up their Better Business Ratings and other reviews online and also you can query local inspectors about their reputation for building a sound home and other owners of homes nearby to see what their experiences have been. Your Solutions Agent will also have a good idea of the quality and craftsmentship of most local builders.
As we have seen in our area, several builders have faced financial trouble so if the builder goes out, your warranty may be worthless. Moreover, many big-name builders form limited liability corporations, or LLCs, to develop each subdivision, technically holding the larger parent company harmless when and if the LLC goes out of business or is unresponsive to warranty requests. While this may be good business practice for a builder, the home-owner should at least be aware of this possibility. Another good reason to use a reputible builder.
There are third-party warranties you can buy from independent companies that at least hypothetically ensure that if the builder can’t or won’t cover warranty work, the third-party company will. There are mixed reviews on the value of these third-party documents, however.
Here are a few key questions to ask of the builder (and yourself) about your warranty:
What isn’t covered? What happens if I have a claim or dispute? Where are some of your previous projects so I can speak with owners there? What’s the extent of your liability?
Some states are tougher on enforcement of builder warranties than others. That’s why it’s wise to check with your state’s Attorney General Office or contractor licensing board to make sure the builder is offering all warranties required by state law.
Some states have created or are creating laws that raise the typical one-year duration of warranty coverage on material and workmanship to two years and mandate even more time (four years or more) for major defects in HVAC, electrical and plumbing systems, plus up to 10 years for structural defects and water-penetration problems.
There’s also the Magnuson-Moss Warranty Act, a federal law protecting consumers against misuse of warranties, and making warranties easier to understand.
What is a “warranty document”?
Buyers are sometimes asked to sign a “warranty document” at time of closing on new homes, which only serves to narrow the scope of their warranty demands. Unless you have already consented in the sales contract that you would sign such a document, you can and should decline to sign this warranty, which often sneakily imposes new terms on you as a Buyer that weren’t included in previous negotiations.
Here at Solutions, we always recommend using a real estate attorney with new construction no matter how often the builder tries to insist on using an in-house settlement agent. Your attorney will be your partner in understanding the legalese and protecting your interests, not the builder’s.
During the building process, it is often a good idea to do a “pre-drywall” inspection – this is the time to correct any problems before the walls go up.
Before you move into your new home, make sure you complete a thorough “punch list” during your final walk-through with your builder, clearly designating the items for which the builder is responsible under warranty.
While the builder is still responsible within your warranty period even if you miss something then, it is much easier to get action on walk-through items than push for it after the fact.
Some Buyers have their new home inspected by their own inspector both prior to this walk-through and right before the 12-month warranty expires to point out defects or potential defects.
Know what is covered
Builders’ warranties vary greatly, so it’s important that homeowners take the time to learn what’s covered. Even with new homes, things can go wrong. That is why many Buyers of newly built homes are interested in warranties, which promise to repair or replace certain elements of the home.
Many home warranties are backed by the builder, while others are purchased by builders from independent companies that assume responsibility for specific claims. In other cases, homeowners purchase coverage from a third-party warranty company to supplement coverage provided by their builder.
In fact, the Federal Housing Authority (FHA) and the Department of Veterans’ Affairs (VA) require builders to purchase a third-party warranty as a way to protect buyers of newly built homes with FHA or VA loans.
The key to any of these warranties is to understand what’s covered, what’s not covered, how to make a claim and the process for resolving disputes that might arise between you and the builder or warranty provider.
Most warranties for newly constructed homes offer limited coverage on workmanship and materials as they relate to components of the home, such as windows, siding, doors, roofs or plumbing, electrical and HVAC systems.
Warranties typically provide coverage for one to two years, although the specific time period may vary by from component to component; coverage may last up to a decade on major structural elements. Warranties also routinely define how repairs will be made and by whom.
Warranties generally do not cover household appliances, tile or drywall cracks, irrigation systems or components covered under a manufacturer’s warranty. Most warranties also exclude expenses incurred as a result of a warranty repair construction, such as the need to store household belongings while a repair is being made.
To learn more about builders’ warranties, contact your state or local builders’ board. If you’re making your home purchase with an FHA or VA loan, those organizations can also provide you with additional information.
Side note: I build a lot of homes with my clients and am happy to answer any questions you might have. The key is to use a builder that has longevity in the business, has a sound financial position and obviously has a good reputation. Call me anytime, Charles McDonald.