What You Need to Know About Home Warranties
You’ve just purchased a newly constructed home – congratulations! And it comes with a home warranty – even better! But what exactly does the warranty cover and how does it work?
“Builders purchase insurance-backed structural warranties for the same reason people purchase other insurance products — to protect their businesses and homeowners from the burden of a large unforeseen financial loss,” said Karen Lott, risk management specialist at 2-10 Home Buyers Warranty.
The homeowner has assurances that qualifying warranty issues will be addressed and the quality standards within the warranty document help them understand the expectations and process, according to Lott. Additionally, builders know there are certain things beyond their control, regardless of what they might do.
“Over 80 percent of claims made are the result of some form of soil movement and not contractor or subcontractor error,” said Lott. “An anomaly may underlie the site that could not be expected, and if more than one home is affected it could be catastrophic.”
In addition, most home builders can’t afford to effectively deliver their own multiple-year warranty or pay for a catastrophic structural claim or certain warranty issues. “Third-party, insurance-backed warranty providers offer an economical solution that clearly outlines a builder’s one-year workmanship and two-year systems responsibilities,” said Lott.
“We actually administer the initial one-year performance through a two-step process – a 30 day follow up walk and a one year follow up walk” said Todd Lipschutz, president of Inspired Homes. “From there, the customer can reach out to us on a two-year mechanical issue for us to manage and the buyer will work through the 2-10 Warranty group for a structural claim. However, we will engage with the process if needed.”
Lott noted there are differences in the types of warranties, coverages, timelines for coverages and limits of liability – similar to an insurance policy. For example, some warranty company’s structural coverage doesn’t start until year three.
What constitutes a qualifying structural claim and how the problem is fixed sometimes varies between warranty companies as well, according to Lott. It’s important to know whether the warranty provides coverage for secondary damages to surfaces and finishes original to the home caused by the structural issue. Some home warranties will only cover the cost of the structural repairs, and not cosmetic correction, which can add another 10-20 percent to the cost of repairs.
No matter the warranty provided, it offers an additional layer of protection for the builder and home buyer.
“We provide this to the buyer to reinforce our commitment to a quality home with a warranty program that we stand behind – similar to a car – we want our buyers to feel secure in their decision,” said Lipschutz.