Before You Buy A Newly Constructed House
Make Sure You Know What Your Warranty Actually Is

By: Fred Willcox TREC Professional Inspector #160
Copyright© 2018 All Rights Reserved

The purpose of this discussion is to advise the newly constructed house buyer that the warranty you receive is commonly not from the builder and the warranty does not cover items you would think it would cover.

Before you even enter into a contract to buy a newly constructed house, make sure you see exactly what the warranties are on the house, who provides those warranties and what the provisions and limitations of those warranties are. You may be in for a real shock if you ever have a problem with your new home.

In almost all cases, you are not given the warranty until you are at the closing table. Then you have the choice to either accept the warranty or to not buy the house.

It has long been of interest to me that a person buying a new house from a builder will accept, what is in effect, a one-year warranty on their new house. If you were buying a new car at 1/10th the price of a new home, or less, and the car dealer offered you a one-year warranty on the new car you would leave that dealer immediately. But, you’ll accept a one-year warranty on a new house.

By State statute, a builder is required provide a 10-year structural warranty on a newly built house. But, there are no rules as to what that warranty is, what it covers or who actually provides the warranty. You’ll want to know that information before you buy the house. What exactly is a “structural defect”, who decides if a “structural defect” exists and who determines how and to what extent the repair of the “structural defect” is to be made.

You also may be interested in who approves and accepts the repair. Because, in most cases, it is not you. You are treated as if you just bought the house and the performance of the house is of no interest or value to you. You don’t know enough to have input into how your house performs. How the repairs are made, what are acceptable repairs and to what extent the house is repaired is not up to you.

I recently acted as an arbitrator in a dispute between a home owner and a warranty company. I’ve acted as an arbitrator before but this case was compelling. The home owners thought that they have excessive differential movements in their foundation. In common vernacular, a “cracked slab”. They hired an engineer who determined that there were slopes in the floor surfaces that exceeded the standard that he recognized however, he determined that no “cracked slab” existed at the time of his inspection.

You, as a home buyer, would think that the builder would be liable for a “cracked” slab. However, under the warranty in the last arbitration case, the builder was liable for ‘uneven surfaces of the foundation’ only for the first two years. The warranty company assumed liability after the first two years.

During the first two years, the builder is only liable to keep the floor surfaces within a slope of 3/8” vertical offset in a 32-inch span. The model building codes require that a foundation be constructed to a standard of 1-part vertical offset in a 360-part span. The standard the builder is held to by the warranty is roughly 4 times greater than the building codes allow. Further, the warranty only provides that the builder return the “surface” of the foundation to a slope of 3/8” vertical offset in a 32-inch span. This can be done by “leveling” from the surface of the foundation, not necessarily by foundation leveling.

After the first two years, a “major structural defect”, such as a “cracked” slab, is defined as: “actual physical damage to the designated load-bearing portions of a Home caused by failure of such load-bearing functions to the extent that the Home becomes unsafe, unsanitary, or otherwise unlivable.”

‘Load bearing portions’ of a house include items such as the foundation, second story floor framing, attic framing and roof framing.

That is not much of a warranty. You may actually have significant foundation performance issues or issues with the structural framing of your home that are causing damage to the integrity of you house but that come no where close to making your house unsafe or unlivable. Yet repairs to the foundation or frame of your home may cost you many tens of thousands of dollars.

Most people I meet seem to feel that a new house will have no problems. That is farthest thing from the truth you can imagine. I have been performing real estate inspections since 1972. Over 85% of the items I call out in a typical resale home inspection, no matter the age of the house, are things that the builder did wrong.

Things the builder did wrong include the fact that I have not seen a structural frame built entirely correctly since I moved to Houston in 1980. I have not seen an electrical system that was properly bonded. Bonding prevents electrical shocks, electrocution and fires and is often confused with grounding. I have yet to see a roofing system completely properly installed. Staircases are almost always improperly constructed. Air conditioning systems are not designed and do not provide proper air circulation inside a house. The list goes on and on and on.

By the way, most warranties I have seen do not cover building code violations. Please know that the building code is the minimum acceptable level of construction, not the average level of construction. A house that is built “to code” means that the house meets the minimum recognized standards of health, sanitation and safety, not a house that is of “average” health, sanitation and safety. A house that is not built to the minimum standards of the building code is not, by definition, healthy, safe or sanitary.

That means the warranty supplied by your builder does not even require that the bare minimum level of construction be imposed on the builder.

With that in mind, who do you think that this warranty really benefits? And, if your builder does such a good job building your house, why is it cheaper for him to hire a third party to warrant what he built?