New Construction Warranties

I recently had a conference call with an agent and his buyer who was purchasing new construction from a small builder. In the course of the conversation, we started talking about the builder’s warranty (which there was none) and the agent chimed in with the following: “Well, even without a written warranty, the buyer will still get the one year warranty that is required under state law.” Unfortunately, I had to correct Mr. Agent in front of his buyer by letting him know that the only warranty that a builder provides by law is the Implied Warranty of Habitability.

[photopress:oldhousecrunch.jpg,thumb,alignright]Good news was this warranty is an implied warranty in the contract and the statute of limitations on bringing a claim under the contract is 6 years, not one (subject to a bunch of other issues too complex for this post). Bad news was that the Implied Warranty of Habitability is very limited and basically means that the home can be lived in. In recent years, it has been extended to things like conformance with building codes. It does NOT, however, cover things that a new construction buyer usually deals with post-closing. Things like paint chipping, floors warping, siding going bad, window cracks, carpet coming up, etc., etc., etc. These defects are usually smaller items but can add up in total to a lot of money and even more frustration. The only warranty that would cover something like this is a written warranty from builder to buyer. If one does not exist, then no warranty and no recourse to Buyer. Buyers should also read the fine print as many builder warranties contain more holes than swiss cheese. Don’t rely on the fact is says “Warranty” on top of the page. In my experience, the good builders usually provide pretty decent warranties. The smaller builders are across the board. In this case the old adage applies — Get it in writing!

6 thoughts on “New Construction Warranties

  1. Good topic Russ.

    As you know, where there’s a warranty, there’s a disclaimer. While certain warranties cannot be disclaimed,such as the new construction implied warranty you speak of, some can be.

    But be aware that disclaimers usually have to be CONSPICUOUS and buried in the fine print.

    So, if you get screwed by a warranty disclaimer have your atty make sure of 2 things: 1. the disclaimer is permitted under the law and 2. the warranty was disclaimed properly.


  2. Of note: If the builder’s warranty is insufficient or non-existent, there are warranty companies that can provide you with a similar warranty that the buyer can purchase, to compensate for the builder’s “weakness” in that area. These are not the standard 1 year warranties that are generally offered in real estate transactions, but specialized warranties for new construction.

  3. I thought Caveat Emptor was the old adage.

    These days, as the amount of writing piles higher and higher, “getting it in writing” seems to mean less and less. When I was working in real estate on Nantucket, we usually used a one page purchase agreement drafted by the firm’s attorney. It was simple to read and understand.

    Meanwhile, here in Colorado the contract is 11 pages long, difficult to understand, and packed with legalese. A few weeks ago I read aloud and explained in detail this contract (visually impaired client) and to get through all of her questions took 6 hours over two meetings

    Sadly, the majority of buyers and sellers don’t bother to completely read and understand the contracts that govern real estate transactions.

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