Build Trust and Add Value with a Third Party Home Warranty

By
Education & Training with BuilderRadio.com

This week we speak with Jerry Thompson – StrucSure Home Warranty

A number of companies offer third party warranties through builders to homeowners.  These warranties offer homeowners up to 10 years of coverage against structural defects. Some go even longer.  But the real value of a warranty goes past the coverage it offers and extends to the reputation of the builder.

StrucSure Warranty is a company with over 13 years of experience providing home warranties to both homebuilders and remodelers.  SturcSure’s founder, Jerry Thompson, joins us to explain the real function a warranty fills – peace of mind.

Warranties As A Sales Tool
When homeowners are buying a house it’s a very emotional decision. There’s a lot of fear that goes into making that decision, such as the fear that they are getting something they’re paying too much for or that doesn’t perform as they’d expected. A third party allays some of those fears and offers buyers real peace of mind in their decision.

It helps the builder when they’re trying to work with a prospect and the question comes up, “How do I know that the home will stand for thirty years or that someone will come back and take care of my warranty problems for the first year?” Having a third party warranty program puts homeowners minds at ease. They know that at least someone will be there even if the builder can’t for some reason.

That’s where a warranty will step in the place of that builder to take care of the first year punch list items, such as squeaky floors or leaky windows. Then, for a ten-year term, we assume the liability for taking care of major structural defect problems that may occur. Those are infrequent, but when they do happen they can be very expensive.  It would cover load-bearing portions like the foundations, roof trusses, floor joists, and load bearing walls – anything that carries a load.

Warranties Bring Buyers Back
I have a motto: “Home building is an easy business to get into and out of.” Today with the economy as it is builders are having a tough time making ends meet. We’re hearing more and more stories of homebuilders shutting the doors or being unable to go back and fix those warranty issues that they’re responsible for.

Warranty companies provide a certification process that stands behind the builder and says to the homeowner, “Even though they’ve been around for many years and has many satisfied owners, if something happens and they are not here, we will step in and somebody will be there to fix these things.”

We’re warranting the house, but also endorsing the builders. We provide marketing material for builders to use that explains what the warranty program is, why it makes their house a better choice than those that aren’t offering an independent third party warranty program, as well as the fact that someone will be there to take care of those problems if the builder is unwilling or unable to fulfill that obligation.

How Warranties  Add Value
There’s risk in building everywhere across the nation. Things change from locale to locale and the risks are there. In Colorado, where we’re headquartered, there’s an expansive soil risk where the soil is normally dry, but when a lot of water is added it becomes a clay that expands and over the years has been known to cause serious damage. There are areas in the north and northeast with freeze/thaw issues. That’s a risk area there. Settling sands in Texas, New Mexico and Las Vegas have been issues. So the risks vary all from place to place.

Builders will use a program to put homeowners minds at ease.  A third party warranty can provide them with a layer of liability protection.  Major structural defect can be very expensive and many times they can’t assume that financial obligation on their own.  So they’re using it as a sales tool in their marketing efforts and as part of their risk management program.

The third area is the HUD/FHA arena. Many times FHA will give builders some exemptions on inspections and paperwork if they use an underwritten warranty program. We are approved by HUD on their list of 10-year warranty providers.

On the structural side of things, actuarial studies have found that there is a kind of bell-shaped curve when it comes to structural defect. The peak of that curve is typically years 5 – 7 years.  A lot of builders say that they sell the house and take care of the problem in the first year, and then they feel that their liability is over. What they don’t realize is that every state has what they call an Implied Warranty of Habitability.  This will vary from state to state, but is typically from six years – even out to twenty years in some states – that the courts have determined the builder is responsible for that product performing and being habitable even after that first year is over with. If that home experiences a structural defect or even a habitability issue, such as the roof leaking or flooding in the basement, many times the courts will find in favor of the homeowner because they are more sympathetic towards those people.

Homeowners are looking for reasons to put trust and confidence in their builder.  It’s a credibility issue.  It’s not just a builder’s stellar reputation, this is part of them adding to their credibility and reputation and letting the homeowners minds be put to ease knowing that someone will be there to take care of problems in their investment. Today more than ever people are being very prudent when they make that decision. They really want to be comfortable in what they’re doing, and that means more than just a builder’s experience. They want third party verification that the builder is someone that does a good job and will come back after the sale.

Screening Builders
We have a points scoring system that we use to screen builders. But we also look at a number of varying factors, such as number of years in business, how many homes per year that they build, and credit reports to make sure bills are paid on time.  And we do a check with the Better Business Bureau. We also look at contractor licensing boards in those areas that have them. We look very carefully to make sure that the builder is not in it as a hobby and this is not their first home. We try to look for builders that have at least three years of experience and do at least five homes a year.

In some cases we have to ask for additional security, such as a performance bond. If the builder really is adamant that they want this, we will ask them to provide some letter of credit or security so that if they don’t come back we at least have something to protect our company so that we’re here in the long run when a home owner needs us to perform.

The homeowner ends up being the third party beneficiary. We have the contractor, builder or remodeler as our client. They join the program, go through the screening process, and they bring the home or project and we under write each one individually. Then they purchase the warranty and give it to the homeowner to make them feel more at ease.

One of the major differences between home warranty programs and similar programs in other industries, such as the auto industry, is that ours is insurance backed. We don’t just offer a warranty and a piece of paper, we actually have an insurance company that assumes the risk that goes through a tremendous amount of screening by the Division of Insurance. So, someone is going to take that financial risk versus a service warranty or contract that isn’t even required to have insurance backing.

Is It Affordable?
We look at each house individually.  The underwriting criteria tells us what type of risk is associated with each home.  We’ll ask copies of things such as a soil test, which tells us the soil conditions the house will be built on. Based on the foundation recommendation, we’ll have various points along the way of construction to verify that the foundation was constructed in accordance with the specs and done correctly.

Typically on a $200,000 home it’s running on average about 600 dollars for a 10-year structural warranty. Under that program we assume liability from day 1 of closing through ten years for major structural defects, and then we have the additional/optional warranty where we back up the builders obligation on workmanship and materials for the first year.

Helping Builders Reduce Risk
I would highly recommend that builders across the nation get a soil test before they build the home. There are a lot of areas where builders say, “This is the type of foundation that we’ve used forever and it’s what everyone accepts and there’s not any risk associated with it.” But really, a soil test is a very inexpensive form of insurance that could tell builders about anomalies, such as a ground spring or an old mining shaft. It gives someone a feeling of comfort knowing the type of soil conditions they’re building on.

Then I would recommend an engineered foundation where a professional develops a foundation type for those soils. It doesn’t add that much to the cost of the home, yet it provides a lot more assurances that the homes will be done and perform as everyone hopes they will.

On the warranty side, be as responsive as you can. To a homeowner, it’s their sacred place where they live and they expect someone to respond to a warning request quickly.  It may not be something that a builder is responsible for, but I’ve seen many times where those calls are ignored and suddenly small problems become big problems. I think that being as responsive as you can and handling those situations as professionally as possible helps allay a lot of homeowner’s fears. Many times they see a small problem as a large one, but if someone goes out there and explains to them that it’s not, or educates them on certain things, they feel comfortable that someone is paying attention to them as opposed to ignoring them.

Just doing this will help builders today to avoid risk, build credibility and put homeowner’s minds at ease.

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Amber Boyd 11/26/2010 03:44 PM
  2. Amber Boyd 11/26/2010 03:44 PM
  3. Amber Boyd 11/26/2010 03:44 PM
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Charlie Ragonesi
AllMountainRealty.com - Big Canoe, GA
Homes - Big Canoe, Jasper, North Georgia Pros

I always like including warentee with our listings. There are a couple of programs here that heklp the sellers while they are listed and they donot have to pay until the home is sold. So it is a win win

Nov 26, 2010 07:50 AM #1
Rainer
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Amber Boyd
Novus Real Estate - Wylie, TX

this is a great post! please keep them coming.

i always learn a lot from each and every one of your posts.

 

Amber Bennett

Nov 26, 2010 03:53 PM #2
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