Homebuilding industry's warranty-spending is extremely low – while homebuyer complaints are at an all-time high? "When buying an airplane, helicopter, a car, a washer or dryer, computer, printer, desk or even an office chair, the percentage of dollars spent by the manufactures on warranty issues is greater than that spent by homebuilders on defectively built new homes. The percentage of earnings spent by a builder on warranty issues is as little as 0.3%, while Gateway reported 6.2% and Lexmark International, spent 9.7%."

If you have read any of the other pages on this website, you have already gotten my message that you must be truly vigilant about every detail surrounding your home-improvement project. Guess what; the same holds true with any warranty that the seller / builder / contractor provides with their work. I have "Warranties" listed under "No Protection From..." on my Site Menu because there are many slick tricks that contractors, builders, sellers, and warranty companies can use to render your warranty – worthless. These traps can take the form of a requirement, limitation, omission, or exclusion in your contract or in the warranty itself. Remember these companies don't want to repair your problems; and if they do make those repairs, they will want to do it with the minimum cost to them. Your only real hope, to get proper service, is if you are lucky enough to be dealing with a reliable company that sincerely cares about customer-satisfaction.

"I don't believe in them," says Ron Barney, vice president of Trend Homes, a 900-unit builder in Chandler, Ariz. "It's an appeasement to homeowners that really doesn't do anything for them. I have a problem wasting money like that." 10-year structural warranties ...their narrow and vague policy language excludes most homeowner claims or common residential construction problems, from drywall cracks and nail pops to more severe issues of foundation fissures and beetle-infested framing. "They're in the business of collecting fees and not paying claims," says Jack Dorwart, manager of Holladay Group in Lakewood, Colo. "For the types of things a homeowner wants [covered], there's always an excuse [to deny the claim]." Even those in the industry admit their policies are limited. "Most construction defect lawsuits don't fall under warranty protection," says Wallace "Em" Fluhr, CEO of 2-10 Home Buyers Warranty (HBW) in Atlanta. According to Fluhr, HBW's policy language specifies that a building has to be structurally unsafe, unsanitary, or unlivable, as determined by the Code of Federal Regulations, to qualify for coverage. "If you read the warranty, the home almost has to be uninhabitable for [the policy] to kick in," says Dorwart.

Problems often show up months or even years after the builder / contractor has moved on. "Shoddy building practices can be concealed from many purchasers who cannot be expected to have the technical expertise to evaluate the structural soundness of a home or the quality of electrical, plumbing, or air conditioning systems..." You will perhaps first notice a leak, or cracks in a wall, or doors / windows that don't close right.

A good warranty company will react quickly and provide prompt repairs, which can save you a significant amount of money and anguish. But if you overlooked one of those traps I mentioned – well, you may be in for some tough times – hardships often include living with illness due to toxic molds, fear for one's safety, and financial losses.

You have the right to expect that your home will not leak or breed toxic mold(s), is structurally sound, and that all mechanical systems and structural components will perform properly. After all, you paid good, hard-earned money for it. A home is one of the largest, most difficult, emotionally-charged purchases the average family makes in a lifetime; and that mortgage contract will create the heaviest, longest-term debt you will ever assume. In this emotionally-charged context, anxiety and disappointment are magnified when something goes wrong, perhaps more so than with any other product.

Extremely shoddy construction and / or faulty materials typically cause severe mental, emotional, and financial stress. All too often, marriages and families cannot handle the strain, and fall apart. When you're faced with this kind of strife, you need arsenal of warranty coverage to protect your family. Many warranties currently available fall short of fair, so you have to be careful. Janet Ahmad, president of HomeOwners for Better Building (a national consumer organization), says this of warranties, "I think they are very important to have, as long as it's a reliable company."

The Better Business Bureau suggests that consumers, who are interested in purchasing a home warranty, take certain cautionary steps before signing on the dotted line.

• You will need to research the company that backs the warranty. [The HOW Warranty was provided to hundred of thousands of homeowners during the 80s and 90s. Around 1994 they went into receiver­ship leaving these homeowners with little, if anything. Do not let this happen to you.]
  Click here to see how to research the warranty company.
  How Do You Research a Warranty Company?

  
  

  If there's a home in your future, and it comes with a warranty, do your own research before you sign. What, if anything, can you find out about the warranty company or the builder when it comes to being responsive to repairs? Ask your builder if the warranty company is financially stable, and how you can research this information. Verify the warranty company's track record. What is the company's customer-satisfaction record with claims? Check out the company with other homeowners, the state, and any local or national consumer groups. Are there complaints or pending actions?. Is there a history of multiple names or addresses?

  A quick Internet search can let you know if the warranty company or builder is dogged by complaints. Find out whether it's a local or national firm and how long it's been in business. What are current and past customers saying about the company? If the company has other customers in your immediate neighborhood – such as in a condo or townhouse complex – see if they would buy or renew a contract with that firm. Talk to homeowners in the subdivision about the builder's warranty.

  What you want to know: Are owners satisfied with the warranty or have they had problems with it? Is the home holding up well and does the builder, or the warranty company, stand behind the product? Is it fairly easy to get repairs completed? Are repairs done well, and is there a fairly quick response time? Are most things covered, or are there a lot of out-of-pocket costs? Did the homeowner have to jump through any hoops to prove that the item was protected under the warranty?

• Do some comparison-shopping. Most policies cost between $300 and $450. But not all offer the same benefits. You may find that some of the lower-priced policies charge extra for coverage of water wells and some appliances, such as washing machines and dryers.
• Consider the deductible. The industry average is $50 to $100 per claim, but some companies charge as much as $150 per call. With most policies, you cannot combine two or more repairs into one service-call deductible
• Get a detailed, independent inspection of the house during all major phases of construction. This should be done regardless of whether you receive a home warranty. You should allow yourself time and money for an independent inspector to verify the construction of the new house. The inspection will alert you to any pre-existing problems, which may not be covered by the warranty.
• Call the warranty company before you buy a policy. Ask questions, clarify coverage and most importantly, see how the customer service representatives treat you. If they don't respond promptly and courteously before you buy a policy, odds are they won't be very helpful after the sale.

Many home warranties are backed by the contractor; others are purchased by the builder from an independent company that assumes responsibility for certain claims. Some homeowners purchase additional coverage on their own, from third-party warranty companies, to supplement the coverage their builder provides. These add-on service contracts are commonly called warranties. 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.

Limited Coverage

Warranties for newly built homes generally offer limited coverage on workmanship and materials relating to various components of the home, such as windows, heating, ventilation and air conditioning (HVAC), plumbing, and electrical systems for specific periods.

The duration of coverage varies depending on the component of the house. Typically, coverage is provided for workmanship and materials on most components only during the first year. For example, many warranties on new construction cover stucco, siding, doors and trim, drywall, and paint for one year. Coverage for HVAC, plumbing, and electrical systems is generally two years. Some builders provide coverage for up to 10 years for "major structural defects," sometimes defined as problems that make a home unsafe, unsanitary, or otherwise unlivable. [There are also one-year warranties, which usually cover the "moving parts" of a home, like appliances, heaters and air conditioners, and do not include conditions caused by poor construction or bad maintenance.] Make certain to obtain all warranty cards and instructions for use and maintenance before you make your final payment.

Most warranties for newly built homes do not cover expenses an owner may incur as a consequence of a major construction defect or warranty repair, like the cost of having to move out of one's home while repairs are being made. Nor do they typically cover: household appliances; small cracks in brick, tile, cement, or drywall; or components covered under a manufacturer's warranty.

Warranties also typically define how repairs will be made, and who will perform the repairs. Most warranty companies have their own network of service contractors, but some do allow you to hire a contractor of your choice. How will they select the people they send to your home? Try to get a manufacturer's warranty that allows repair work to be done by another (different, competent) contractor if requested by consumer. This is an important issue to consider because you don't want to be stuck with the same workers {who did the poor workmanship in the first place} doing the rework. Can you insist that alternate personnel do the repair without endangering your coverage? Be sure you understand the company policy before you buy the service.

All warranties offered by the contractor need to be in writing; accept no verbal warranties (promises). You should look for written manufacturers' warranties that provide full coverage for defects in materials and workmanship {during the first three to five years after application} and will pay for the replacement of those materials including the labor charges necessary to restore your home. Also insist on a warranty that covers leaks, mold, other labor-related defects, and all related subsequent damage.

Obtain a copy of all the warranties that your contractor is offering with their bid, BEFORE you buy. {Too many times, buyers don't see the warranty until closing and have no idea what's in it.} Take the warranty(s) home and READ it! Home warranties can use narrow and vague policy language, so make sure you fully understand what is or isn't covered, and all the terms and conditions, including the duration of the warranty(s). Don't forget that while considering each bid, you will also want to determine the quality of all appliances and other components, so be sure to get copies of those warranties, as well.

You can review the legalese on the back of a blank copy of his / her contract at the same time. Just look at what many builders actually put in their Warranty Clauses: "Seller makes NO warranty, ... as to quality, fitness for a particular purpose, ... habitability or otherwise." I would NOT deal with any contractor that had anything at-all-similar to the aforementioned statement.

Nancy Seats, president of Homeowners Against Deficient Dwellings, a grassroots consumer advocacy group says, "Read the exclusions very carefully and really think about the implications of those exclusions." Then READ it again, and completely understand what is covered during each timeframe. Ask your builder what is covered during years 3-10 specifically. (Major Structural Damage) Ask what are the requirements for coverage under years 3-10.

If there is anything that is unsettling or you don't understand, call your attorney or the closing attorney and get a thorough explanation.

You will want to call the company backing the warranty, and ask them to answer in writing.

Take note whether builder's answers match the attorney's and the company's responses.

As you review the contract and warranties, you will want to be asking yourself these questions:

• Verify that the correct company name and address is on the warranty.
• Do they provide toll-free numbers for questions and claims?
• What is covered and what is not?
• How long does the warranty last?
• Will you deal directly with the builder or do you now go through a third party?
• Who (the contractor or the warranty company) warranties the workmanship?
• Does the contract limit the builder's liability if there is a problem?
• How are disputes settled? Mediation (possibly BBB), Court System, Binding Arbitration, or Non-binding Arbitration?
• Do you have a say in the choice of the arbitration service? Some larger town and village courts and some city courts use the services of volunteer mediators and arbitrators to assist parties in resolving their cases. Do not go before an arbitrator that your contractor suggests or insists on using, particularly if an arbitration panel is specified on the contract. "You do not want an arbitration service that gets repeat business from your adversary."
• Do you retain the right to sue if there are significant problems {mold}, or are you giving up that right because of the binding arbitration clause?
• What will the company do if the product fails? Read to see whether the company will repair the item, replace it, or refund your money.
• What parts and repair problems are excluded? Check to see if any parts of the product or types of repair problems are excluded from coverage.
• Look for language (or the absence of that terminology) that could equal additional expense for YOU. For example, some warranties require you to pay for labor charges [or just don't mention who pays for the labor charges]. Also, look for conditions that could prove costly or inconvenient, such as a re­quire­ment that you ship a heavy object to a factory for service, or that you return the item in the original carton.
• Does the warranty cover 'consequential damages' or 'subsequent damages'? Many warranties do not cover damages caused by the product, or your time and expense in getting the damage repaired. For example, if your freezer breaks and the food spoils, the company will not pay for the lost food. What if the roof leaks and breeds mold throughout all of your walls?
• Are there any conditions or limitations on the warranty? Some warranties provide coverage only if you maintain or use the product as directed. For example, a warranty may cover only personal uses - as opposed to business uses - of the product.

WARNINGS:

1. Watch out for MOLD exclusions. In fact, make sure that mold is MENTIONED as covered. Mold can affect your family's health. Since illness to mold is very difficult and slow to diagnose, this illness can wreak havoc on your home-life.
2. Review the contract and the warranty for any statement that withholds the warranty coverage until the builder / contractor receives final payment.
3. Review both the contract and the warranty for any statement or clause that requires disputes to be settled by Binding Arbitration.
   Click here for expanded discussion.
   Binding Arbitration Used with Home Warranties

   
   

   Arbitration is a private legal system that is usually less favorable to consumers than the court system; and diverting construction liability disputes from the public courts to a private, non-transparent adjudication system presents a tremendous opportunity for abuse. Binding Arbitration is often used early on to stop homeowners from getting their warranty work done or even to complete the home. "The builder's strategy is based on the probability that the homeowner will back down because of the high cost of arbitration."

   Public Citizen conducted an investigative report into the practices of certain home warranty insurance companies and the mandatory arbitration process. – The national, nonprofit consumer advocacy organization found very low claim payouts and questionable relationships among the entities involved.

   Public Citizen's investigation indicated that some home warranty companies provide liability insurance to homebuilders in the guise of 'home warranties', and contractually require homebuyers to arbitrate disputes using a particular arbitration panel. One such panel is Construction Arbitration Services (CAS), a private firm that hears cases over defects in new homes. Well, CAS operates in apparent violation of 12 states' laws and is co-owned by Marshall Lippman, a former lawyer who was disbarred by the state of New York in 1997 for stealing client funds among other things.

   Inconceivably, Home Buyers Warranty (HBW) companies have designated CAS as the sole legal forum available to tens of thousands of Americans who buy new homes each year, despite CAS's co-ownership by Lippman. Mr. Lippman has said to a Texas state legislator that CAS arbitrates such disputes in all 50 states – even though 11 states ban arbitration clauses in insurance contacts. In addition, CAS is refusing to comply with California's law requiring disclosure of all arbitration outcomes, according to a letter to Public Citizen signed by CAS's other owner, Lester Wolff.

   "Mandatory arbitration is already skewed against consumers even without the involvement of dishonest persons or illegal operations," said Jackson Williams, legislative counsel for Public Citizen. "In this instance, we see that the HBW companies have very low loss ratios, indicating that CAS may allow them to systematically deny or underpay valid claims from homeowners."

   In a letter to state insurance commissioners, Public Citizen writes that if you are one of the many thousands of Americans who buy newly constructed homes each year, Mr. Lippman's position in CAS wields more influence over your life than the Chief Justice of the United States. "It is simply shocking that someone with this record of dishonesty has been entrusted by insurers with so much power." "It is our belief that the Home Buyers Warranty (HBW) companies are improperly shielding homebuilders from liability for construction defects by directing claims disputes to a biased mandatory arbitration system."

   Public Citizen calls for the state insurance commissioners in four states to initiate market-conduct examinations of HBW Holdings Group: 2-10 Home Buyers Warranty of Virginia; 2-10 HBW of Nevada; National Home Insurance Co. RRG of Colorado; and Residential Ins. Co. RRG of Hawaii. Additional letters to commissioners in 11 states, where arbitration clauses are banned from insurance contracts, ask that those laws be enforced against HBW and CAS. Another letter asks California's commissioner to order HBW and CAS to comply with that state's disclosure law.

4. Review the contract and the warranty for any statement excluding defects caused by poor work­man­ship or waiving your implied warranty of good workmanship and / or habitability.
   Click here for expanded discussion.
   Implied Warranties

   
   

   Verify that you are NOT required to give up your rights to any implied warranty of good workmanship and / or habitability. If there is a waiver attached to your contract, DO NOT agree to surrender your implied warranty of good workmanship; have the waiver removed from your contract and warranty BEFORE you sign.

   Implied warranties ensure that construction work achieves a minimum level of skill and care. They are not written, but instead they have evolved through each state's case law history and are enforced by the courts. All states have them, and almost every purchase you make is covered by an implied warranty. "If your purchase does not come with a written warranty, it is still covered by implied warranties unless the product is marked "as is," or the seller otherwise indicates in writing that no warranty is given. Several states, including Kansas, Maine, Maryland, Massachusetts, Mississippi, Vermont, West Virginia, and the District of Columbia, do not permit "as is" sales."

   Workmanlike construction should carry a higher standard than the habitability standard. Some states blend the standards of implied warranty of good workmanship and habitability. Colorado's implied warranty of habitability includes "the buyers right to a home that is built in a workmanlike manner and suitable for habitation." It is only reasonable to expect that workmanlike performance requires that the house be constructed in a reasonably skillful and workmanlike manner. If a defect is within the scope of the implied warranty of workmanship, the contractor is responsible and must somehow compensate the consumer.

   If problems arise that are not covered by the written warranty, you should investigate the protection given by your implied warranty. Implied warranty coverage can last as long as four years, although the length of the coverage varies from state to state. A lawyer or a state consumer protection office can provide more information about implied warranty coverage in your state. Your state may require that an Implied Warranty of Good Workmanship and Habitability apply to the home itself. Note: If you are not allowed to sue your builder, because of Binding Arbitration, you may not have access to the American court system or access to your state's laws of implied warranty. By the by, in Texas - you don't have a chance. The common law "implied warranty of good and workman-like construction" has been eradicated by a state-mandated warranty. See Corrupt Establishment, Part 2

5. Review the contract and the warranty for any clause stating that they can change the terms of this contract (at will) or can sell the contract to another entity.
6. Watch out for Liability-limitation clauses, which can limit the amount you can collect if there's a problem.

The NAHB, National Association of Home Builders, cites two of their objectives as: "Include binding arbitration clauses in all builder / trade contractor contracts." "Provide written warranty that waives implied warranty laws (where allowed)... " I say ANYTHING that NAHB wants, We should fight tooth and nail, AGAINST!

Make Sure Your Contract and Warranties Protect You

Crucial Warranty Clauses to Include in Your Contract:

• A "Hold-Back" clause, which proclaims that your final payment (sometimes called retainage or reserve) is not due until 30 days after the work is completed, to your satisfaction. This usually gives you enough leverage to get the job done right, and to get your contractor to fix anything that may not have been done right.
• Make sure your warranties, preserve all implied warranties of good workmanship, and allow you to request alternate, competent personnel to do any repair work. You retain the right to make the determination whether the original workers were competent, or not. If you hired a contractor who cannot provide alternate personnel, then you maintain the right to hire someone else and make it so your contractor will be billed directly for the repair costs (material and labor). Wow, I think he / she might do the job - right the first time.
• Include a written warranty (covering defects in workmanship and materials of at least one year) in the contract. A reputable Contractor should have no problem including such a warranty. List all warranties and guarantees of workmanship, services, or materials. The names and addresses of the parties honoring the warranties – contractor, distributor, or manufacturer – must be identified.
• A builder's warranty, and other required product / material warranties and information must become effective, and handed over to the consumer, either from date of contract acceptance or on the date of substantial completion. These written warranties (minimum one-year) will cover all defects in materials and guarantee the quality of workmanship.
• Warranties are not to be withheld pending last payment (like Eagle Construction pulled on me). Don't be like me, with a leaky roof and no warranty to get resolution. Eagle's legalese on the back of their contract seemed so innocent.
  Eagle's legalese stated: "WARRANTIES: The limited warranty given in connection with this contract shall not become effective until We receive full payment together with any extras or add-on work."
  Well, I'm withholding final payment because of the poor quality and the ridiculous rework offer. So – I don't get the manufacturer's warranty. I just didn't realize the implications of such a simple statement.

You, too, could be caught in a Catch 22 if you need to withhold final payment until the job is done right, but the warranty (covering materials and workmanship) is withheld and not effective until the firm receives full payment. Making that final payment implies your acceptance of the job. You chance sinking more funds into a project that will never get any better, because you have lost that control over the contractor. You may then get the warranty, but warranties are only as good as the company that backs it up.

It is your right to withhold your final payment to the contractor until you are completely satisfied. Don't let your contractor threaten you with "Breach of Contract" as Eagle Construction tried with me.

Factors Specific to Roofing Warranties

When you review a roofing warranty, you might be surprised by what you find. Most warranties for composition roof covering aren't so hot. In the first year many manufacturers will warrant all labor and material. But, for the next 19-to-39 years, you get a pro-rated settlement on material only. For example: a $4,000 roof that fails in the fifth year might get you a check from the roofing manufacturer for about $500.

A one-year warranty is the minimum, though three or five years is preferable. Insist on a warranty that provides full coverage for labor and materials, and covers leaks, flashing failure, any ensuing damage, and other labor-related defects. Many manufacturers currently train and certify installers using their products and will guarantee installation beyond existing material warranties. These same terms should go into the contract, which should also include what type of shingles will be used. Request the highest-rated, longest-lasting shingles you can afford.

Carefully review the manufacturer's warranty stipulations. You will want to know what responsibilities and financial obligation manufacturers assume if their products fail to reach their expected lives. Some warranties are void if shingles are put on over existing shingles, so tearing off the existing layer could be required, at an additional cost. Asphalt roofs last 13 years on average, so a 20-year warranty should be fine. Just be sure you are given the paperwork and proof of purchase needed to pursue any problems down the road. By the way, be sure to get a separate warranty on removal and replacement labor from the roofing contractor too.

Conclusion:

According to the Federal Trade Commission, the nation's consumer protection agency, if you're considering a home warranty it's important to understand what it covers, how to make a claim, and the process for resolving disputes that may arise between you and the builder or warranty company. The warranty must state whether it is a FULL warranty that gives the consumer certain automatic rights (which vary from state to state or from one jurisdiction to another) or a LIMITED warranty that restricts certain consumer rights.

If you see stipulations in the warranty that bother you, like mandatory binding arbitration or a liability limitation clause, alter the contract, says Janet Ahmad. "Strike them out. Say, 'Do you have a problem with that? Why do we need a limiting warranty that limits the builder liability?'" Of course, make sure that both you and the contractor initial the scoring through, and also make certain that the alteration is legible on both your copy and the contractor's copy of the contract. The bottom line, says Ahmad, if a warranty seems restrictive or unfair, don't sign it. "I think consumers need to say, 'No, I'm not accepting your warranty.'" We need to send a message to the insurance companies that they will not be able to sell their policies unless they revise them and make them more fair.

If you have doubts, consider taking out a service contract for your heating or air conditioning with a local company that will actually perform the service, says Jim Hood, editor in chief of ConsumerAffairs.com, a news and advocacy site. Another alternative: Put some cash aside specifically for home repairs.