Thursday, May 27, 2004

Area builders know they must take extra initiative in a keenly competitive market to show potential buyers they stand behind their new homes.

One of the ways to give customers confidence, builders say, is to offer a clear, com-

prehensive warranty. Many builders are upping the ante in their bid for buyers by offering coverage that goes beyond the basic requirements.

While home buyers might question the value of a contract they hope they never have to use, industry insiders agree that a warranty is critical when making such a large investment.

The savvy buyer should ask specific questions about the coverage offered, how defects or problems are handled, and how the warranty deals with disputes.

Donna Reichle, vice president of media and public relations for the National Association of Home Builders, headquartered in the District, says warranties offer the homeowner peace of mind about the quality of the home.

“Knowing that items are covered can be worthwhile for many people,” she says.

Susan Matlick, executive vice president of the Maryland National Capital Building Industry Association, strongly urges builders and buyers to do their homework on warranties.

She says warranty coverage in Maryland can vary by jurisdiction, so builders need to know the local laws.

“We encourage builders to go to that settlement with a warranty and to explain exactly what is covered and what isn’t, and if they don’t offer a warranty, to disclose that,” Ms. Matlick says.

Ms. Reichle says that there is no standard builder warranty and that state requirements vary.

“Each builder has its own warranty. There is no set list of contents,” she says.

Many local builders, including Richmond American Homes, U.S. Home Corp., Centex Homes, Miller and Smith, Stanley Martin Cos. and Washington Homes, provide warranties backed by third parties.

These insured warranties offer what they refer to as basic “2-10” coverage, which covers workmanship and material through the first year of ownership, major mechanical systems through year two and major structural defects through year 10.

The third party administers claims, handles disputes and steps in if a builder defaults on an obligation.

Most builders have a department that responds to customer complaints and have their own employees or the subcontractors repair any defects.

Jennifer Featherstone, customer care manager with U.S. Home Corp.’s main office in Silver Spring, says customers can maintain a list of any minor problems, to be handled during the first-year walk-through, or they can submit important defects as they come up during the first year.

Mrs. Featherstone says warranties are essential in an industry where it is impossible to create a perfect product.

“It’s hard to get a ‘10’ when you’re working with manual labor and materials, things you can’t control, such as wood floors and granite counters,” she says. “A warranty gives you a sense of security and lets you know we’re not going to take your money and run.”

Does a warranty lull new homeowners into a false sense of security? One consumer group questions whether warranties provide adequate protection and says they protect the builder, not the homeowner.

Nancy Seats, president of Homeowners Against Deficient Dwellings (HADD), a nationwide grass-roots consumer-protection group for homeowners and buyers founded in Liberty, Mo., says buyers should know that most warranty coverage is limited.

“Basically, a house has to be unlivable, almost, before the warranty kicks in,” she says. “They don’t fix anything unless the home is falling in on you.”

HADD issued a 13-page report in 2003 titled, “New Home Warranties: Deception or Protection? A Consumer’s Perspective,” prepared by Texas chapter President John R. Cobarrauvius. It includes findings HADD gathered after reviewing warranties that are most commonly issued.

The analysis concludes that these warranties are full of exclusions and that “some of the limitations would shock new home buyers,” such as the fact that a cracked foundation might not be specifically covered in a warranty, although the cracks themselves might be covered and repaired.

In addition, the report says that after the first year, little of anything is covered, including paint, flooring, cabinets, walls and roof.

Ms. Seats says one of the HADD’s major concerns is that warranties usually have a mandatory binding-arbitration clause, which limits the home buyer’s right to a trial.

The group’s report recommends that home buyers ask to remove the binding-arbitration clause from the warranty.

Additionally, HADD recommends having the home inspected during and after construction; comparing the performance standards detailed in the warranty to actual construction during the final walk-through; and, most important, reading and understanding the warranty.

Ms. Seats also suggests that new homeowners research area builders by visiting the local courthouse and logging onto the civil-court database to search for any lawsuits pending against builders.

If you are moving into a new subdivision, she says, talk to neighbors.

“Knock on doors,” Ms. Seats says. “Just ask the homeowners. If they aren’t happy, they’ll be quick to tell you.”

Builders see their warranties as meeting industry standards and as a continuing part of customer service. They say they are willing to go the extra mile to ensure consumer satisfaction.

Mrs. Featherstone says U.S. Home Corp. proved that it will go above and beyond the basic coverage when, during a recent incident, the company repaired damage caused by a buyer whose wide-screen TV went through the wall during the first year of ownership.

“We view our warranty as part of basic customer care, of taking care of them,” she says.

Centex Homes recently announced that it is offering its own two-year fit-and-finish warranty, in addition to the traditional third-party-backed warranty.

This two-year “bumper-to-bumper” warranty covers the workmanship and materials in the home for two years, as opposed to the traditional one year.

Karen Silver, vice president of sales and marketing for Centex’s metropolitan D.C. division, explains that this expansion of coverage is partly based on what customers say they want.

“A local market survey Centex conducted says buyers were willing to pay between $1,500 and $2,500 for an extra year of coverage,” Ms. Silver says. “We wanted to give more comfort to our buyers, and this was a good opportunity to put it in writing.”

Ms. Silver says the cost for this additional year of coverage will not come out of buyers’ pockets but will be borne by Centex.

“We’re willing to pay for this extra year because we’ll save by getting referrals,” she says. “We want to let buyers know we are listening to them.”

Beazer Homes says its clearly defined, customer-friendly warranty and proactive approach in addressing issues most effectively address home buyers’ needs.

David Cogley, executive vice president of Beazer Homes-Virginia, says Beazer offers a warranty that includes a definition of construction defects that uses “common-sense guidelines.”

He says these types of defects are defined, for example, as “a flaw in the materials or workmanship used in constructing the home that has an obvious and material negative impact on the appearance of the home or the common elements.

“We don’t want to hide behind our warranty, and legal mumbo jumbo is sometimes hard to figure out,” Mr. Cogley says.

He says Beazer wants to ensure that all of its customers have an enjoyable experience, and the warranty is a big part of that.

“You want to protect your largest investment with a good warranty that is practical and easy to measure,” he says.

Although extended warranties that cover systems and appliances are offered through Home Buyers Warranty Co., the only national company that offers such coverage, Mr. Cogley says few customers purchase extended warranties because most homeowners stay in their homes for only seven or fewer years, and individual manufacturers often offer their own warranties on products.

“Unlike an electronic warranty, as in one for a TV, with our warranty, you are covered longer than you may be here,” he says.

Buyers, always looking at the bottom line, will want to know exactly how much a warranty will cost them.

If you examine the settlement sheet, the warranty costs come out of the seller’s portion, but the builder pays for it, as these warranties can’t be sold directly to consumers.

Representatives from two major players in the warranty industry, Professional Warranty Services Corp. and the 2-10 Home Buyer’s Warranty Corp., say prices of warranties vary widely by location and price of the home, but, based on an average house price of $200,000, a 10-year warranty will cost a total of $400 to $500.

Alison Short, vice president of corporate operations for the 2-10 Home Buyer’s Warranty Corp., based in Aurora, Colo., says one major benefit of an insured warranty is that the third party has a process to make sure any disputes between the builder and the homeowner are brought to a quick, cost-effective resolution.

“We are trying to educate consumers on the value of it,” she says. “For the most part, builders do want to fulfill their responsibility. But we step into the builder’s shoes if the builder has defaulted on an obligation — if they are not here, or they went bankrupt.”

Ms. Short points out that, according to 2001 data from the federal Department of Housing and Urban Development, structural defects occur only 1 percent of the time, the same frequency as for major fire losses.

“But the average cost to repair a structural defect is about $30,000, which is pretty significant,” she says. “It’s a small price to pay for this type of insurance, to know that you have someone standing behind you for 10 years.”

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