New Construction Home Warranties and Walkthroughs

People often assume the buying a new home is clean cut and what-you-see-is-what-you-get process.  The reasons make sense.  The home is new, everything is new; therefore, all is well.  Like buying a new car, it all works and comes with the new-car smell.  If it doesn’t, one would just take it back to the dealership within the warranty period.  With new construction the buyer usually doesn’t need to obtain an inspection which can simplify, and save time and money in negotiation.

The assumption: Why would you pay for an inspection?  First, the law requires builders to warranty the home against defects and, second, builders usually pay for an extended warranty by a third-party.

Watch out, do your homework.  New construction isn’t necessarily all that it’s cracked up to be.  This often comes with the territory if the builder and agent are inexperienced or don’t understand the duties of new construction.

Senate Bill 5550

Often what’s given in new construction is a “walkthrough,” in which the buyers walkthrough the house and make sure everything is in working order.  This keeps the buyers happy and saves the builder time and money from fixing little items later.  If no walkthrough, or something similar, is provided the buyer is still entitled to corrections to defects.   Senate Bill 5550 states:

1)    For two years, beginning on the warranty date, the new home is free from any defects in materials and workmanship

2)    or three years, beginning on the warranty date, the new home is free from any defects in the electrical, plumbing, heating, cooling, and ventilating system…

If builders do not respond to buyers request for corrections this could easily lead to arbitration or even legal action.  Here’s where things can get sticky.

Recently, I closed a deal and worked with the builder’s real estate agent.  Before closing, the house appeared to be up to par, so the inspection was waived in the process to save time and money.  Later, the walk through revealed small problems with the property.  Senate Bill 5550, no problem right?

The agent gave me the toughest time getting all the little items fixed in the house.  She claimed that my buyers did not get their inspection and therefore, have waived any right to making sure everything is working order.  This is absurd because new construction should have everything working properly.

Because of these “little items” my buyers had to delay the close until the sellers had agreed to fix these problems.  The cost of all the minor repairs estimated around $1600 with most of the cost in the electrical wiring that didn’t work in the garage.  It baffled me the sellers would cause the delay of closing and potentially lose a buyer for duties they ought to know they’re responsible for.  The cost of carry a month for that house easily exceeded $1600.

Bottom Line: Do not assume everything the sellers will perform their duties as required by law.  When in doubt have it in writing even for new construction.  Even if it takes more time, it’s worth it.

In the end, my buyers received all the items they asked for, but the lesson is there and the advice is strong.  Even though we tried to save time by waiving the inspection, we actually ended up spending more of it on hassels.  Though the law requires obligations from the builder, get documents.  It will ensure you have a better experience in the long run.