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Home warranties: Good or good-for-nothing?
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"They should read the extent of their coverage so they know what is covered and what is not," he says. "A warranty is not necessarily going to provide them with a perfect product. A warranty is going to provide them with product that is acceptable under certain professional construction industry standards or guidelines," he says.

Get a copy in advance of your closing and go through it step by step. If there is anything you don't understand, call your attorney or the closing attorney and get a thorough explanation.

Questions to ask:

  • Will you deal directly with the builder or do you now have to go through a third party?
  • Do you retain the right to sue if there are significant problems or are you giving up that right in favor of binding arbitration?
  • Does the contract limit the builder's liability if there is a problem?

Too many times, buyers don't see the warranty until closing and have no idea what's in it, says Nancy Seats, president of Homeowners Against Deficient Dwellings, a grassroots consumer advocacy group. And many of the contracts are "written in legalese," she says.

Her advice: "Read the exclusions very carefully and really think about the implications of those exclusions."

A mandatory binding arbitration clause is included in many warranty contracts and is an important point to consider.

Builders say it's a great way to limit court time and costs. "It's a better way of getting matters resolved," says Crump. "It cuts to the chase and does so less expensively and more expeditiously."

But some consumer advocates believe the arbitration process favors the builders, especially if the builder regularly uses the same arbitration service and names a specific arbitration company in the contract.

"You do not want an arbitration service that gets repeat business from your adversary," says Calvin "Kelly" Vance, a Spokane, Wash.-based lawyer who specializes in construction defect and real estate cases.

Other points to note are appliance replacement clauses and liability-limitation clauses that limit the amount you can collect if there's a problem.

Many appliance replacement clauses state that if the appliance cannot be repaired the company will replace it at little or no cost to the homeowner. The problem there comes in an interpretation of what "unrepairable" means. Is your washing machine considered repairable if an obsolete part from Taiwan is needed and it may take six months to come in? It can be costly to leave this open-ended. Ask the company to explain in writing the criteria for determining if something cannot be repaired before you sign.

If you see stipulations in the warranty that bother you, like mandatory binding arbitration or a liability limitation clause, alter the contract, says Ahmad. "Strike them out. Say, 'Do you have a problem with that? Why do we need a limiting warranty that limits the builder liability?'"

The bottom line, says Ahmad, if a warranty seems restrictive or unfair, don't sign it. "I think consumers need to say, 'No, I'm not accepting your warranty.'"

Next: "And if the seller doesn't pay for it, I recommend the buyer get it."
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