Warranty and Homeowner Management: Made Simple

2008-05-17T22:22:06Z

2008-05-17T21:13:19Z

Perfecting the Art of Passing on Warranty Costs

According to Eric Arnum of Warranty Week homebuilders seem to have perfected the art of passing their costs on to others.  In the building materials sector in our report is a catch-all for all sorts of items used to furnish offices and homes. It includes cabinets, roofing, faucets, doors, chairs, windows, beds, pillows, tables, locks, pools, paint, carpets, and lots more. And while some of these items attract above-average warranty costs, the sector as a whole is the second lowest of all, beaten by only the auto parts supplier sector.

There's something to be said for being a supplier. On each of these charts, the brand names facing the consumer suffer the highest warranty costs, while those further back in the supply chain seem to keep their costs far lower. The big difference is that the homebuilders seem to have perfected the art of passing their costs on to others.

U.S. Building Manufacturers and Homebuilders
       Warranty Accrual Rates, 2003 to 2007
                       (As a % of Product Sales)

 

Transfering Manufacturers' Product Information

Although many builders and remodelors provide manufacturer’s product and warranty guide in a 3 ring binder, new options are available to deliver digital copies to buyers in a single resource.  For homebuilders and remodelers this information could include product registration procedures, user guides, warranties and installers guides for systems such as HVAC, structured wiring, security and home entertainment.

Providing contact information and website links to manufacturer’s websites has been a particularly important time-saver for builders and their buyers.  Keeping a listing and reciept acknowledgement of exactly which manufacturer’s documents the buyer receives may help minimize the builders exposure to warranty  claims.

Generally manufactured products that could be included are items that are manufactured completely off the jobsite.  Some vendors offer web-based document lockers and library system can help you keep track of homeowner documents and facilitate burning them onto CD-ROM and offering them via their corporate websites.

Warranty registration cards and homeowner obligations

Are homeowners obligated to return their registration card to protect their warranty rights?  Generally this is not true - and prohibited in a few states, notably California.

For warranty purposes, the only information a manufacturer needs is the homeowner's name, the date you purchased the product, its model and serial numbers, and a way to contact you in the event of a product recall. 

But the registration cards usually ask you to provide much more personal information, including marital status, the size of your household, frequency of travel and favorite activities. Product owners are not required to answer personal questions to be protected by the warranty.  (NY Daily News) More...

The Ultimate Question and learning from homeowner experiences

The length and complexity of the new-home buying process means there will be several occasions where each home buyer's relationship with the builder will be stressed. New research into the most successful companies shows how soliciting direct feedback often and responding effectively creates authentic relationships with customers.

Identifying, managing and learning from Detractors is discussed in detail in the book The Ultimate Question by Fred Reichheld of Bain & Company.  This book describes how companies such as Enterprise Car Rental have grown into the largest car rental company in the world almost exclusively using referrals. They accomplished this using a simple question and feedback that focuses the company culture on the quality of their customer relationship. View the first chapter of the book.

The Ultimate Question in the context of the home building industry and this book is: “How likely is it that you would recommend your home builder or remodeler to family or friends?”  A home buyers’ response to this question is graded 9 to 0 and segmented: when strongly positive – as a Promoter; neutral - as Passive; and negative – as a Detractor.

Using this simple metric Reichheld describes how companies better manage customer relationships and improve processes that impact their level of satisfaction.  The Net Promoter Score (NPS) is the percentage of promoters minus the percentage of detractors.  He argues convincingly that this measurement may be the one of the best determinants for a company’s future performance.

To monitor the home buyer's experience builders may consider multiple mechanisms to facilitate feedback. Traditional satisfaction surveys alone can be a dissatisfier so Reichheld suggests simple survey methods that enable immediate responses, particularly when customers become Detractors.

For homebuilders this might mean creating more touch points to enable feedback at closing, during move-in, or in the warranty and post-warranty periods. This could be as simple as a "Tell us about your experience" button in an email or on a website that automatically initiate follow up and a rapid response from your customer service team to remedy any problems.

Some marketers claim that The Ultimate Question is oversold, oversimplified and sloppily researched.  However most experts agree that there is much to be gained by implementing the principles set forth in this book.

In today's difficult marketplace capitalizing on referral sales is crucial as the budget strings tighten.  Tracking and managing your Promoters can help you build and increase your referral sales base. But understanding the quality and quantity of Detractors is even more important. And NPS scores may help builders to determine that some housing projects should be terminated. Getting timely and actionable feedback about the home buying experience is crucial to ongoing success.

Homebuyer management - up to a ten year relationship

Why up to ten years?  Many state laws allow buyers of newly constructed homes to make defect claims based on implied warranties and other performance requirements that can extend ten years or more after closing. The builder may be better protected from claims if they require the home buyers to waive their implied warranties in the purchase and sale agreement but according to experts this protection is not bullet-proof. 

Industry data indicates that ninety percent of claims resulting in lawsuits against builders could have been prevented if simple maintenance had been performed by the homeowner.  Many builders offer some kind of limited "fit and finish" warranty for one year or more.  These warranties include homeowner maintenance requirements as a condition for this warranty. 

To emphasize the long term importance of home maintenance homebuilders may provide a more detailed maintenance guide to increase emphasis on the home owner's long term maintenance responsibilities.  The document should be clearly written and easy for homeowners to understand and implement for up to ten years. 

In addition to or in lieu of a printed maintenance manual, the builder may offer a subscriptions to 3rd party online services that enable homeowner access to home and product maintenance documents and activity logs.  These services could include CD-ROM's, e-mail newsletters and scheduled alert services that allow homeowners to access information from any personal computer or mobile devise.

The beauty of services like these is they can help you enroll homeowners and track communications for many years.  In some states the implied warranties for the initial home buyer can extend to secondary home buyers.  This makes it important that builders develop ongoing programs that are flexible enough to enroll secondary home buyers into your communications regarding home maintenance.

State Laws very significantly so it is important to consult with your attorney regarding the specific warranty requirements of your state.

HVAC & appliances co's pay most for warranty claims

Quarterly Warranty Claims Paid   

According to data published by Eric Arnum and Warranty Week HVAC and appliance companies paid out the most for claims as a percentage of revenue.  As expected, but for the first time in many years home builders are paying the highest percentage of claims or 1.3% last quarter and this can be explained by their declining revenues.  Warranty claims for home builders typically average around 0.9% in normal market conditions.

MASCO Corp. Quarterly Warranty Claims & Accruals

It is interesting to note that Masco, maker of faucets, cabinets, locks, windows has defied this trend.  Even though they have experienced a downward trend in sales their warranty claims as a percentage of revenue have also declined.

Since companies use include different components in their warranty claim numbers it is not useful to compare the percentages from one company to another. However it is can be useful to monitor trends.  So how is it that Masco has been able to reduce their claims in a down market?

Thirty States pass NOR legislation protecting builders and consumers

Industry experts estimate that general liability insurance for builders and trades have increased nearly 400% over the last 5 years.  The NAHB reports that 30 States have now adopted “Notice and Opportunity to Repair” (NOR) legislation to support the building industry and to stem the rising cost of housing for consumers.Please click here to view links to the statutes for each state.

Several States have gone further and have enacted laws that protect homebuilders from defect claims arising from the homebuyer’s failure to maintain the home. To enable this defense builders must provide the homebuyer with their recommended maintenance schedules and instructions for products, materials and components in the home.  California, Washington and Idaho have adopted this legislation. 

Spanish language homeowner guide - S & S Homes of the Central Coast

The California Central Valley has a high percentage of Spanish speaking homebuyers that would benefit from a Spanish Homeowner Guide.  But creating and maintaining two sets of homeowner guides for English and Spanish can significantly increase costs. 

But Leslie Rios, Customer Service Manager for S & S Homes of the Central Coast, says the additional cost can be justified by the savings in reduced service calls and improved goodwill among their homeowners and the larger community. 

Another reason a CD-ROM based homeowner guide works well for S & S Homes is that the maintenance and warranty documents also reside on a CD-based program so the cost of keeping inventory of printed manuals in each language can be avoided.  Homebuyers using the program simply choose their language preference and from that point forward they can view, read and print warranty and maintenance instructions in their language of choice.

Leslie ends by stating "I believe that builders should take this into consideration when weighing the language options....I think that offering a cost effective enhancement  could truly benefit for many of them."