How can Builders Get Liability Protection for Homes They Build?

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When a builder is building a whole neighborhood of new homes or just a few spec houses, they have a liability risk when things go wrong for the home buyers. Defects may show up after the purchase that the builder was not aware of. One way to protect both the builder and the buyer is to purchase a builder’s warranty for six months, one year, two years, ten years, or longer.

Most new home builders do a very good job building the homes they then sell. but sometimes when the new owners move in, problems occur. The home buyer wants compensation or the defect repaired. This can become expensive and time-consuming for busy home builders. One form of protection for builders is in the form of a builder’s warranty. Builder’s warranties cover a limited list of home features inside and outside the home.

There are both home warranties and builder’s warranties and they cover different things.

  • The builder’s warranty covers New construction or remodeling by a contractor. It can cover different amounts of time for different features. The builder’s warranties are given to the buyer by the builder. They cover all of a home’s materials and workmanship. The builder in turn buys these warranties for their protection. They cover home features such as concrete foundations and floors, home walls, ceilings and roofs, carpentry, sheet-rocking, and paint. They cover exterior roofing, siding, doors, and windows, septic, plumbing, and electrical systems. They cover the heating and cooling systems, landscaping, waterproofing, and insulation. It is important to understand what is covered before signing for this warranty.
  • The home warranty is purchased by the buyer or given to them by the seller of the home or the Realtor. A home warranty can be purchased for existing homes and covers appliances such as the oven, range, garbage disposal, refrigerator, and additional listed appliances. It also covers household systems such as electrical, plumbing, and HVAC.

Homebuilders purchase builder’s warranties to protect their profit margins, promote home buyer confidence, and protect themselves from financial exposure from past and present homes they build. The builder’s warranties contain a whole collection of warranties and services to limit the builder’s liability for home defects. The warranties cover the workmanship, distribution systems, and structural elements.

Photo by Anete Lusina from Pexels

What is a Builder’s Warranty?

So, what exactly is a builder’s warranty? This warranty is like an insurance policy that protects the builder and the homebuyer. The warranty is ensuring that the newly constructed home will be free from defects such as structural, plumbing, electrical, mechanical systems and that materials and workmanship will meet certain standards. A builder’s warranty will transfer to the new owner if the home is sold during the warranty period.

Since builder warranties vary depending on who is selling them and what level of warranty was purchased by the builder, it is important to read this document carefully and ask the builder questions before signing.

How Does the Warranty Work?

If a problem happens in a new home, the homeowner checks their warranty to see if the problem is covered and if they are in the warranty period of coverage. If these requirements are met, the next step is to file a claim in writing with the company backing the warranty. Some warranties are backed by the builder and some are backed by an insurance company.

If the claim is accepted the builder or the party backing the warranty will restore the home to the condition it as in before the defect or they will pay the homeowner a reasonable amount of money to repair or replace the feature that is defective. These warranties are usually limited to the original price of the home or defective feature.

What Benefits Are There for the Builder?

The builder’s warranty has benefits for both the builder and the home buyer. For the builder, the home warranty is insurance-backed protection against unplanned repair costs in homes they build. This is important because structural defects can occur from things the builder does not control such as shifting soil, weather events, or faulty workmanship of a subcontractor.

The builder’s warranty is a way for the builder to instill confidence in buyers. The builder buys the warranty and then transfers it to the buyer at closing. This warranty is a commitment to quality and customer service. the builder has financial protection when defects occur.

What Benefits Are There for the Homebuyer?

The homebuyer has benefits from a builder’s warranty and from all the appliance and material warranties that come from manufacturers. The peace of mind that comes from knowing the home is free of defects or any defects once discovered will be repaired by the builder or the insurer is worth a lot. home repairs can be very expensive. what if a roof is defective and needs to be replaced? That could cost thousands of dollars.

It is important to negotiate what is covered and to understand the limits of the builder’s warranty to get the best benefits. Once the builder’s warranty is in place, if anything goes wrong, promptly notify the warranty backer of the problem in writing. Be aware of what is covered and what is not. Be aware of what your responsibilities are for home care and maintenance.

Disagreements arise when the new homeowner and the builder or warranty backer do not have the same idea about what is covered. If the homeowner is uses or does not maintain home features that are covered, their claim could be turned down. another problem arises when the builder backs his warranties and goes out of business. It is best to insist on a builder’s warranty backed by a third party.

If the builder’s warranty is not as complete as the buyer would like, it might be wise to purchase a home warranty for more complete coverage. Being financially protected is very important when purchasing and living in a home. Every homeowner should have some kind of protection. These warranties are not the same as or do not replace the need for homeowner’s insurance.

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