Understanding Your Warranty
Buying a home is the most expensive purchase you’ll ever make. Of course, you would be interested in a warranty if you have a new home built. Warranties promise to repair or replace individual elements of your home, if necessary, within a particular time. According to the Federal Trade Commission, if you’re considering a home warranty, it’s important to understand what it covers. You need to know how to make a claim and the process for resolving disputes between you and the builder, or Warranty Company.
The builder backs many home warranties; they purchase others from an independent company that assumes responsibility for claims. You may want to purchase additional coverage, on your own, from third-party warranty companies to supplement the coverage your builder provides. The Federal Housing Authority (FHA) and the Department of Veterans’ Affairs (VA) require you to purchase a third-party warranty as a way to protect your newly built home with FHA or VA loans.
Warranties for newly constructed homes offer limited coverage on work 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. Warranties also define how repairs are completed.
The duration of coverage varies depending on the components of your house. Coverage is provided for work and materials on most elements during the first year. For example, most warranties on new construction cover siding and stucco, doors and trim, drywall and paint during the first year. Coverage for HVAC, plumbing and electrical systems are two years. Some builders provide coverage for up to 10 years for “major structural defects,” sometimes defined as problems that make a home unsafe and put you in danger. For example, a roof that could collapse is a “major structural defect.”
Most warranties for newly built homes don’t cover expenses you may incur as a consequence of a major construction defect or warranty repair. For example, the costs of moving out of your home while repairs are made. They typically won’t cover:
Small Cracks in Brick, Tile, Cement or Drywall
Components Covered under a Manufacturer’s Warranty
Making a Warranty Claim
What should you do if you have a defect in your home that may be covered by your warranty? First, read the warranty or service contract carefully to make sure that your problem is covered. Pay particular attention to the duration of specific types of coverage. Next, file your claim according to the instructions in your warranty, and put your request for repair in writing, even if the company provides a hotline for urgent requests. Request a return receipt, and keep a record of your correspondence and conversations with the builder. Chances are your claim will be handled amicably and to your satisfaction, but if a dispute arises, it’s good to have a record of your dealings with the builder and the warranty company.
Resolving Your Dispute
Occasionally, a dispute arises between a homeowner and a builder or third-party company over whether a defect is covered or whether repair work was done properly. Many warranties on newly built homes provide for mediation of disputed warranty claims, followed by mandatory binding arbitration. In mediation, a neutral third party — a mediator — helps you and the company resolve the problem by facilitating discussion between both sides. It is up to you and the company to reach an agreement.
If mediation fails to resolve the dispute, it is likely that you would be required to submit any claim to arbitration, instead of going to court. In this process, an “arbitrator” or panel makes a decision or award once you and the builder present their cases. Some warranties allow you to pick an arbitrator from a list acceptable to the builder or the third-party warranty company.
Arbitration is less formal than court, although you and the warranty company may appear at hearings, have legal representation, obtain documents from one another, present evidence and question each other’s, witnesses. Most warranties require that both parties abide by the arbitrator’s decision, without appeal. If your loan is with the FHA or VA and you file a claim against the third-party warranty company, you can choose between arbitration and court. If you accept arbitration, be aware that the decision binds you. More details are available from the FHA or VA.
Although arbitration is less expensive than going to court, you can expect to pay up to several thousand dollars to take your claim through the process, depending on the complexity of the arbitration. Read your warranties carefully to determine what arbitration costs or expenses you will be responsible for and what costs or expenses the builder must pay.
A few companies offer homeowners the choice of arbitration or going to court. Sometimes builders pay all costs associated with arbitration to encourage you to agree not to take the matter to court.
For More Information
To learn more about warranties on newly built homes, contact your state or local builders’ board. If you have a loan insured by FHA, contact the closest U.S. Department of Housing and Urban Development field office for more information, or visit www.hud.gov. If you have a VA loan, you can contact the nearest VA office, or visit www.homeloans.va.gov.