A builder's warranty should be an important part of any new home purchasing decision. Whether you're buying from a builder with a household name or one that is new to the business, what a warranty says and the ability to get warranty work completed should not be overlooked.

There are several general types of warranties and each is important to you.

At the most basic level, a home must meet local building code standards. Building codes are complex and detailed requirements which govern home construction. Such rules are largely designed to assure safety and habitability, they do not address workmanship issues (that scratched door...).

Among the states, many have mandatory home warranty provisions. These are limited warranties (virtually all warranties in all fields are limited) which say that if something goes wrong with the home then the builder must step up and make repairs. In some cases, state warranties last 10 years, but coverage is not equal during the entire period -- for instance, the home's structure may be protected during the entire warranty period but workmanship defects may only be covered in the first year.

Consumer advocates argue that home warranty limitations are significant and greatly reduce the value of such policies. In Texas, for example, they say such policies have numerous exclusions and that efforts are under way to even eliminate the requirement that homes must be "habitable" before being made available for sale. For a discussion of this issue, see the site developed by HomeOwners for Better Building.

Builders themselves often have limited warranty programs and such plans can be valuable. However, a builder's warranty plan assumes that there is a builder to provide assistance if something goes wrong. This may not be the case if the "builder" is actually a corporation which exists only to construct a single project and then closes. Once the builder closes, where does an owner turn?

To solve the problem of disappearing builders, many new homes now come with limited warranties from third-party insurers. Under such programs, builders buy coverage and the warranty cost is included within the home's price. If there is a covered defect, the builder must make repairs. If the builder does not or cannot make repairs, then the warranty company does the work.

Third-party plans typically last 10 years. In the first year there is coverage for workmanship and materials, in the first two years basic systems such as plumbing and electrical work are covered, and for the last eight years structural items are protected.

In addition to builder warranties, there may be separate warranties for major systems (such as the furnace or air conditioning system) as well as major appliances.

As a consumer you want to review such warranties with care. If there's a problem, will the builder drop everything and attend to your problem? Or, will you be met with delay and denial?

In looking at warranties, you may want to ask some basic questions:

• What is covered?

• How long does coverage continue?

• What is not covered?

• What happens if you have a claim?

• Is there any cost to file a claim? Is there any deductible?

• What happens if the builder closes?

• What have been the experiences of past buyers? (Visit prior projects developed by the builder and speak with owners.)

• What does the Better Business Bureau have to say about the builder? (Remember, a large builder will likely have more complaints than a small one. The number of complaints is not always the important point to watch -- instead, see how complaints are handled.)

• Does your state have a mandated new home warranty program? If yes, how does it work? What has been their experience with your builder?

• What is the extent of the builder's liability?

• What happens if you have a dispute? Must you sue, or is there a provision for mediation or binding arbitration?

For more articles by Courtney Ronan, please press here.

Published: March 13, 2001

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