Guide to New Home Warranties

new homes covered by home warrantiesBob Bostock's home warranty saved him tens of thousands of dollars.

Three years after moving in to his Wildwood, N.J. condominium, Bostock noticed problems with the condo's deck, including mold and mushrooms growing from the boards. Before calling the home warranty company, he called the builder, who came over to inspect. "He said he pulled everything and there was nothing wrong with it," Bostock remembers.

Two years later, problems snowballed with Bostock's deck, as well as three others in the neighborhood. The condominium's association board banded together to insist that they be fixed. Under Bostock's original new-home warranty, workmanship on the condo was covered completely for the first two years and structural or engineering problems were covered for up to 10 years. The builder argued that the deck issues no longer were covered, but the original architect examined the problem and determined the problem was structural.

Bostock and his neighbors pursued a claim with their warranty company; the decks eventually were repaired at a cost of $25,000 each.

A new-home warranty can offer peace of mind for homeowners, guaranteeing that if something goes wrong in the early stages of a home's life, it will be covered. Most builders include a home warranty as a benefit for buying their product, and in many states, builders and developers are required by law to provide home warranties.

But requirements and stipulations for new-home warranties vary from state to state, and home warranties themselves vary widely in terms of coverage. If you are the owner of a new home, even if you're not directly shelling out cash for your new home's warranty, it pays to pay close attention to the fine print. With a new home warranty, the devil is in the details.

Buyers of new homes should always insist that they receive a copy of their home warranty well before taking possession of their property. Then they should read it. Carefully. They should first learn which company holds the warranty: While warranties often are called "builder's" warranties, the builder usually contracts with a third-party provider to solve claims.

A good home warranty will spell out exactly what's covered. New-home warranties cover, to different degrees, workmanship and materials related to a home's systems and components, including the heating and air conditioning system, the electrical system, plumbing, windows and structural concerns. Usually they don't cover items like appliances or anything that comes with a manufacturer's warranty, or cosmetic issues such as cracks in drywall, cement or brick -- unless the cracks are determined to be of a sign of a structural problem.

A home warranty also will delineate how the company plans to handle claims, either repairing or replacing the items covered. Often, this is where homeowners and home warranty companies don't see eye to eye. For example, a homeowner believes that certain items should be totally replaced or rebuilt if there are problems with them, while the company insists on repairs instead. Under the home warranty, the company usually has the right to decide how to fix the problem.

Many home warranties say that the warranty company can choose the subcontractor who will make repairs on any filed claims. Some homeowners appreciate this because they are new to the area and don't know any local repairmen. Critics often charge that this allows home warranty companies to use the cheapest, sometimes less effective or less diligent workers.

If you have a new-home warranty, consider calling the company that holds it and find out who would be doing the repairs should a problem come up.

Owners of new homes shouldn't expect repairs to be completely free. Most home warranties insist that the homeowner pay a deductible, usually a service charge, for a repairman to visit the home. Also, few home warranties cover expenses incurred while having the work done, such as alternative accommodations if the repairs make it necessary to vacate.

Homebuyers also should be careful to read the fine print. Many home warranties include a clause that requires homeowners to deal with any significant problems through arbitration. This is to keep costs down, but often the clause requires homeowners to waive their legal rights if a problem grows. Again, these regulations vary from state to state, but read carefully and ask questions before you sign and accept the warranty.

A new-home warranty can last for as long as 10 years but include shorter coverage terms for certain systems and materials. For example, the drywall, doors and trim may be covered for only the first few years of the warranty term, while major structural defects are covered for longer. Again, be sure to read the fine print.

A new-home warranty is more akin to a service agreement than to an insurance policy. In many cases, filing a claim will involve diligence and follow-up on the part of the homeowner. In Bostock's case, he first called the builder's warranty agent, who determined the deck problem was not covered. As the issue grew worse, the association called in the original architect, who noticed that the deck's header beams (which support its front end) were the wrong size, and the method for supporting critical beams didn't match the architect's original drawings. Because the problem was structural it was covered under the warranty.

Filing a Claim

If something goes wrong in a new home, experts recommend that its owners pursue the issue with both the original builder and the home warranty company. The builder likely will defer to the warranty company, but at least they've been alerted.

Homeowners should make a list of the problems that they want resolved, and they should make sure that they're covered under the home warranty. Pay attention to the "performance standard" section of the document, which lists common problems and describes to what extent the builder is responsible for fixing them.

When filing a claim, homeowners should put repair requests in writing and ask for a return receipt for their records. Copies of all correspondence should be kept and additional copies should be sent to the builder.

In a best-case scenario, the builder or the home warranty company will fix the problem. If issues persist, however, the problem could go to arbitration (remember, many new-home warranties require this less-expensive option as a way to avoid the court system).

One way to guard against future problems is to hire a home inspector to examine the house before taking possession. Many new homeowners believe that that they don't need a home inspection since municipal building inspectors have signed off on the work done in the home; the house is brand-new; and it is covered by a home warranty.

The U.S. Department for Housing and Urban Development recommends that all homebuyers get a home inspection, though.

"A qualified inspector takes an in-depth and impartial look at the property you plan to buy," writes HUD's Office of Single Family Housing.

New homeowners also should remember to keep a maintenance file containing documentation of everything done on the home, including routine and special maintenance. The paperwork will come in handy if a claim is needed.

In filing a claim, homeowners should remember to be persistent. It may take a while. In Bostock's case, it took four years and $1,600 out of pocket for additional inspections, as well as a temporary shoring wall that he built to ensure that the deck didn't collapse and hurt someone.

In the end, he said, diligence paid off.

"We were fortunate in that we didn't have to hire a lawyer. In New Jersey, if you buy a new home, a home warranty is a requirement. I know if I bought a house elsewhere, I'd make sure the builder bought a private homeowner's warranty," Bostock says.

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