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What do builder warranties cover?

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Dear Steve,
What does the typical builder warranty cover on a newly-built home? What do I need to know about them? And whose insurance is responsible if construction materials disappear from the building site?
— Ruthann

Dear Ruthann,
Most builder warranties cover material and workmanship on a new home for one to two years, with coverage that lasts as long as 10 years on major structural elements.

There’s much to be wary of these days in the world of new-home warranties. Many builders are in financial trouble and if the builder goes out, your warranty may be worthless. Moreover, many big-name builders form limited liability corporations, or LLCs, to develop each subdivision, technically holding the larger parent company harmless when and if the LLC goes out of business or is unresponsive to warranty requests.

There are, I might add, third-party warranties you can buy from independent companies that at least hypothetically ensure that if the builder can’t or won’t cover warranty work, the third-party company will. There are mixed reviews on the value of these third-party documents, however.

Here are a few key questions to ask of the builder (and yourself) about your warranty:

Warranty questions
  • What isn’t covered?
  • What happens if I have a claim or dispute?
  • Where are some of you previous projects so I can speak with owners there?
  • What’s the extent of your liability?

Some states are tougher on enforcement of builder warranties than others. That’s why it’s wise to check with your state’s Attorney General Office or contractor licensing board to make sure the builder is offering all warranties required by state law.

Some states have created or are creating laws that raise the typical one-year duration of warranty coverage on material and workmanship to two years and mandate even more time (four years or more) for major defects in HVAC, electrical and plumbing systems, plus up to 10 years for structural defects and water-penetration problems.

There’s also the Magnuson-Moss Warranty Act, a federal law protecting consumers against misuse of warranties, and making warranties easier to understand.

As an aside, buyers are sometimes asked to sign a “warranty document” at time of closing on new homes, which only serves to narrow the scope of their warranty demands. Unless you have already consented in the sales contract that you would sign such a document, you can and should decline to sign this warranty, which often sneakily imposes new terms on you as a buyer that weren’t included in previous negotiations.

A real estate attorney I know has a rule of thumb about builder contracts: The longer and more detailed the builder contract is, the worse the builder is and the more “gotchas” it contains. The shorter the contract, the better and more efficient the builder, he says.

Before you move into your new home, make sure you complete a thorough “punch list” during your final walk-through with your builder, clearly designating the items for which the builder is responsible under warranty.

While the builder is still responsible within your warranty period even if you miss something then, it is much easier to get action on walk-through items than push for it after the fact. Some cautious buyers have their new home inspected by their own inspector both prior to this walk-through and right before the 12-month warranty expires to point out defects or potential defects. Good idea!

As for your other question, the responsibility for stolen construction materials is almost always the builder’s, since he is responsible for materials and material storage and presenting you with a complete product, regardless of security issues. However, the costs of stolen material and tools is indeed passed onto you, the consumer, who pays an industry-estimated 1 percent to 2 percent more for a new home to compensate for those costs.