Surprising Pathways

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."

Making the Quality Connection: Update

Industry experts from around the country convened a roundtable to address the insurance crisis a few years ago and now is a good time to reflect on our progress in response to their innovative proposals.  One objective of particular interest to our business was “To educate consumers about t heir responsibilities for maintaining quality housing”. This action plan was recommended:

• "Develop a homeowner guide that sets forth obligations and practical advice for maintaining their homes."
• "Provide an easy and efficient way for homeowners to report regular maintenance to their builder as a part of keeping their warranty (or their extended warranty) current."
• “Identify sponsors to work with the industry to develop a guide that includes necessary maintenance actions and is credible with the new home buying public.”
• “Link new homes and their maintenance history to the builder’s warranty records for the same new home.”

Partly in response to these recommendations several companies have launched the programs to the increase homeowner’s accountability for maintaining quality housing.  The industry continues to make progress by adding new features such as email reminders, web services, and maintenance tracking tools to help our clients keep homebuyer’s accountable for their maintenance activities. View Report from HUD. PATH and the NAHB Resource Center

Magnuson - Moss Warranty Act Revisited

For home building, remodeling and improvements, consumer products warranties are generally transferred to homebuyers or homeowners.  Providing these warranties can protect housing professionals installing these products from defect claims and minimize implied warranties that might otherwise arise.

Consumer products are defined by the FTC's Magnuson-Moss Warranty Act as tangible personal property which is normally used for personal, family, or household purposes.  Materials or equipment that are part of the structure may be considered consumer products if they are specified as a product at the point of sale (contract) and then incorporated into a new home, remodel or improvement. Use this link for updated information about the FTC's definition of a Consumer Product....

The act also requires that the consumer have access to consumer product warranty information prior to purchase.  This may include providing homebuyers with updated copies of the applicable warranties at the sales office or using Internet-based information services that present this information to prospective buyers prior to sale.

Lifetime Warranties

The popularity of "Lifetime Warranties" has grown among manufacturers of home building products such as windows, doors, skylights and decking.  However when it comes to the installation of these products consumers have fewer warranty options. Typical warranties are for a period of one year or less.

This appears to be changing as intrepid installers have begun offering Lifetime Warranties on complete systems such as roofing and weatherproofing.  Misapplication of the system would be covered by the warranty.  Some of the programs include a maintenance program that consists of two visits per year using a 26 point checklist. Visit an example of this here http://ca.prweb.com/releases/2007/8/prweb549169.htm for details.

This sounds attractive for consumers but questions remain for the companies that may be considering this approach:  1) How much of a premium will consumers be willing to pay for this coverage? 2) Will contractors be able to manage the expense of sending service personnel to inspect systems as much as twice per year?  and 3) Will installers be able to overcome the consumer's fear that the installer may not be in business to honor the warranty?