New Home Warranties
Protection for your Newly Built Home

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New Home Warranty: Description

Warranties for newly built homes promise to repair or replace certain elements of the home, if necessary, within a certain time. If you are considering a new home warranty, it is important to understand what it covers, how to make a claim, and the process for resolving disputes with the builder or warranty company.

Many home warranties are backed by the builder; others are purchased by the builder from an independent company that assumes responsibility for certain claims. For additional protection, home owners may purchase coverage on their own from third-party warranty companies to supplement the coverage their builder provides. 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 new homes with FHA or VA loans.

New Home Warranty: Coverage

New home warranties 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. A warranty also typically defines how repairs will be made.

The duration of coverage varies depending on the component of the house. Coverage is provided for workmanship and materials on most components during the first year. For example, most warranties on new construction cover siding and stucco, doors and trim, and drywall and paint during the first 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 and put the owner in danger. For example, a roof that could collapse is a “major structural defect.”

Most warranties for newly built homes, however, 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
• components covered under a manufacturer’s warranty

New Home Warranty: Claims

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 company. Chances are your claim will be handled 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.

New Home Warranty: Disputes

Occasionally, a dispute arises between a home owner 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 the home owner and the company resolve the problem by facilitating discussion between both parties. It is up to the home owner and the company to reach an agreement.

If mediation fails to resolve the dispute, it is likely that the home owner 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 the participants presents their cases. Some warranties allow home owners to pick an arbitrator from a list acceptable to the builder or the third-party warranty company.

Arbitration is less formal than court, although the home owner and warranty company may appear at hearings, have legal representation, obtain documents from one another, present evidence, and call and question each other’s witnesses. Most warranties require that both parties abide by the arbitrator’s decision, without appeal. If your loan is financed through the FHA or VA and you file a claim against the third-party warranty company, you can choose between arbitration or going to court. If you choose arbitration, be aware that you are bound by the decision.

New Home Warranty: Costs

Although arbitration is generally less expensive than going to court, home owners can expect to pay up to several thousand dollars to take their claim through the process, depending on the complexity of the arbitration. Read your warranties carefully to determine what arbitration costs or expenses the homeowner is responsible for and what costs or expenses the builder must pay.

A few companies offer home owners the choice of arbitration or going to court. Sometimes builders pay all costs associated with arbitration to encourage a homeowner to agree not to take the matter to court.

New Home Warranty: 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. If you have a VA loan, you can contact the nearest VA office.

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