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The Hard Truth about a "Builders Warranty"

Why is it essential for all real estate agents to understand that "New Home Construction" needs to undergo a Professional Home Inspection before the closing?

Simply reason: To protect your client!

Before the closing, the home belongs to the builder and the money is the purchasers. If a home inspection is performed and defects are noted, the builder has a very real impetus to correct the problems and please the purchaser. If the purchaser waits and relies on the builders warranty the focus is entirely changed. Their are very few builders that have the same since of diligence and urgency to fix or repair the house after it belongs to your client.

What if after the closing your client discovers problems with the home. They call the builder, he says he will get to it in the next couple of weeks. Not so bad on the surface of things but then he doesn't show up. He happens to be real busy building someone else's home now. Your client calls back; "Oh I'm sorry, the builder says, I let it slip my mind. I'll get right on it as soon as I get some free time. Fast forward: The builder keeps promising but never comes through. What recourse does you client have?

If your client wants to go to the time and effort, their are ways for them to report the builder to the appropriate licensing agencies. And that will give the builder a bad mark in there file. (WOW) But it will not get their house repaired. There is no magical phone number to call and report the builder and "presto", massive pressure is brought to bear that forces the builder to respond properly and repair the home.

The bottom line is this. If your client is not willing to sue the builder in court there is nothing that forces or requires the builder to repair the home. So what is the "Builders Warranty" really worth? Nothing more than the integrity, honesty and conscience of the builder. Your client could sue without a warranty.

I can tell you from experience in the industry and the sad stories that I have heard over and over again, it's not worth the gamble. It is essential that the home be inspected BEFORE CLOSING!

Posted by Paul A. Perry, Home Inspector - Crossville, TN on 07/14/2007 05:51 PM

Comments (16)

buiders warranty, agents, home, home inspections, responcibility, ethics

16 Comments on The Hard Truth about a "Builders Warranty"

JUL

2007

Paul, bad news. Most clients are limited in their ability to sue builders due to a clause in the contract that requires arbitration (good for the builder; waiving a jury trial, not so great for the buyer). I view a builder's warranty as you do- gray. The best thing that your clients can do to protect themselves is A: buy from a strong national (read: deep pockets) builder- while it could take time, generally problems are resolved or B: EXACTLY AS YOU ARE WISELY RECOMMENDING. Treat the house as a resale, and examine it TOP TO BOTTOM with your licensed inspector. Great advice- thanks for the post!! :)

Excellent point, in fact I might add it is a good idea to have periodic inspections during the build cycle. Maybe even before each draw of money from the construction loan.

Yes I have seen the same thing many times.

In buying Real Estate it is : Location, Location, Location

In building a home it is: Inspection, Inspection, Inspection

Best to all, Charles

thanks for the heads up and nice posting :o)

Paul - I made this mistake and paid dearly, this was prior to my real estate career so I am advocate for home inspection on new construction.

People have higher expectations with new construction and as I have said many times before these expectations are often not met.

I just began blogging on my site regarding some of the common things I see over and over again that never seem to get done.

I find more items for the punch list in new than in old.The reason is cosmetic items are far more important to people.

Some would say an inspector should not be concerned with cosmetic items ,and those people are wrong when it comes to new construction.

I won't even start on the systems check.

Paul,

It does make sense to get an inspection before closing on a new home. I've heard all about those promises builders make and then forget about the home buyer after the deal is closed. But, there are also builders who do keep their word and indeed make the needed repairs rather fast.

Your absolutly correct. I just had an inspection done on a new construction and found some significant issues.

JUL

2007

I have posted about this numerous times. Buying any home without an inspection is only asking for trouble. In my opinion, only buying from the national (deep pocketed) builders is also asking for trouble. The guys with the deepest pockets have lawyers on staff and can stave you off indefinitely.

That is one way to look at Dave.Never thought about it before however I image one could also check the Bettor Business Bureau.to look for complaints on a builder if you are suspicious.

A inspection prior to closing is good, but it is no guarantee that the items will be fixed or fixed right. You have to have a good lawyer who will put the repairs in escrow and the client has to have #alls to fight the builder.

I did and in fact it was one of the reason I got into this profession and the other was I love to plagiarized web sites. It took me seven years to settle with the builder. His legal fees on both side were more than the award.

T he market has cooled so the builders are more likely to fix things, when the market was hot they would let you walk or you had to sue.

Esko,

You are of course correct. The builders that you mention are the exception to the rule however instead of the common occurrence.

Mitchell,

It would be nice if the Home Inspector was allowed to have a time to meet with the purchasers and give them a little advice from our perspective, but that doesn't usually happen. Most of the time it is the Real Estate Agent (rightfully so) giving the counsel and advice to the purchaser. That is the reason the post was primarily directed to the real estate community.

If I was personally giving advice to the client I would: A - Advise them to postpone closing until the repairs were performed and reinspected. B - Insert an addendum into the closing documents that set aside at least fifty percent more than what the estimated cost of repairs would be and that gave the builder a set amount of time to perform the needed repairs. If the repairs were not completed, outside contractors would be paid out of the escrow to complete the repairs and what ever money was left over at the end would be sent to the original contractor.

We must remember, it is the purchaser/client that we are supposed to be working for and protecting. I know it gets tough when it is the builder in this case who has the real estate/property for sale.

Paul

What I am saying is A and B are not possible, all the builders I know will let the buyer walk. Or say it your choice take it or leave it.

No it is not tough at all just lay the truth on the table and turn the fan on.

Mitchell,

Wow, there must be a really strong sellers market down there in your area. I'll have to admit that is not what I've been hearing for the last couple of years.

It should be a self correcting market. If you have builders with that attitude they wont be in business for long. There is this thing called the "Fair disclosure Act", once the seller/builder or the real estate agents are aware of defects they are required to "disclose" those defects to any prospective purchaser. In both cases (where states license builders) their license/livelihood is on the line if they get reported.

Very, very few are willing to take that risk in my area of the country.

Paul

Have you read any good disclosures yet? I haven't. I just did an inspection on a unit in Miami and the deal died because the unit was full of defects. I will guarantee that does not become part of disclosure. The buyer moved on the Realtor moved on and I moved on. Who will check to see if they disclose?

Year over year our prices are still up in certain areas. In a lot of new construction down here the builder will not allow an inspection until the unit closes. The builder owns the unit until you close, so if you don't have an inspection option in your contract beware.

And if you do have an inspection option in your contract sometimes the builder will only give you 30 minutes or 1 hour max to do an inspection on a 3 to 4k sq ft home.

NOV

2007

I just recently wrote a blog about builders trying to get agents comments on how they feel about builders......during the normal markets they treat agents horribly and our clients almost as bad but then when the market tightens they beg for our buyer business......when will they learn....

Please check out my blog DO YOU HATE BUILDERS as I would love to hear what agents think in other territories......

Todd Hueffed

www.ThatHomeZone.com in partnership with Keller Williams North Seattle

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