Top 4 Questions About 3rd Party Administered Builder Warranty Programs

December 14, 2017

There are a lot of costs involved in building a home. For example, there is the acquisition of land, regulatory fees, labor, and materials, just to name a few.

After factoring a list of potential expenditures into the bottom line, a third-party home builder’s warranty may seem to be a big-ticket item, which is why some builders choose to rely on self-administered warranties instead. However, those who do often end up regretting it.

The truth is that adding home builder warranty services from a third party pays dividends in both tangible and intangible ways . When it comes to return on investment, insurance-backed structural home warranties are hard to beat. If you’re on the fence about whether to buy include a builder’s home warranty covering structural items, here are the answers to some of the most common questions we receive.

 

  1. Do home builder warranties have financial value?

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Savvy builders automatically factor the cost of a warranty into the bottom line of each new home as part of their risk management strategy. Structural home warranties shield builders against the financial and legal risks of potential construction defects.

In fact, one in four homes will exhibit structural distress, usually within 7 to 10 years. Investigating and repairing a structural issue costs, on average, more than $42,000. Without the support of a third-party warranty company, the repair bills can add up quickly—and that’s assuming the homeowner doesn’t decide to sue. A defect lawsuit can cost you legal fees, lost sales and potentially a multimillion-dollar judgment, as well as taking up months of a builder’s time.

“An increasing number of builders are being forced to confront issues related to housing quality and long-term performance,” says Rich Binsacca of Builder Online. “Hypersensitive homeowners with unrealistic (and un-checked) expectations, defect litigation, rising callback costs, and a shrinking pool of skilled construction labor all have contributed to confounding and often confrontational circumstances between buyers, builders, and attorneys.”

All told, U.S. warranty companies have paid out more $574 million in claims on behalf of builders in the past year.  Having a third-party warranty partner shields builders from risk so they don’t have to place all of their assets on the line with every home they build.

 

  1. Do I need them if my competitors don’t have them?

Despite the clear financial benefits, many builders still haven’t caught on to the importance of builder home warranties. Just 36 percent of home sellers offer home warranty incentives, leaving the majority of new homes without an insurance-backed warranty.

The dearth of third-party warranty coverage means builders who do have it can gain a distinct competitive edge over those who don’t. Structural home warranties set builders apart from the competition, setting appropriate homeowner expectations and offering valuable protection to buyers as well as the builder. Today’s consumers struggle with mounting fears around defects in new-home construction, and a 10-year, insurance-backed warranty “does offer some assurances that the builder will be around after the standard one or two years,” says Diane Glena former custom builder and now an industry consultant and independent inspector in Seattle. 

Structural, home builder warranties can also enhance a builder’s reputation and serve as an invaluable marketing tool. Six in 10 homeowners believe structural home warranties are a hallmark of higher-quality homes and builders—a perception that gives builders a leg up on those who don’t offer them. Conversely, builders without them are finding out that not having a warranty often constitutes a negative marketing issue.

 

  1. Do home buyers really care about them?

As home prices continue to rise and homeowner budgets grow increasingly tighter, home buyers face a lot of anxiety over the possibility of getting saddled with a major home repair. A builder’s warranty alleviates that anxiety by safeguarding them in case the home has structural defects.

That’s why eight in 10 buyers prefer a warranted home over a non-warranted one—and they’re willing to put their money where their mouth is. Two-thirds of home buyers say a warranty is worth more than $500 to them, and many will pay more for a home that comes with a structural warranty.

Not only do third-party home builder warranty services offer much-needed protection, but they also provide homeowners with a neutral third party to turn to in case there’s a dispute with the builder. The idea of having an independent warranty company to serve as their advocate appeals to 78 percent of buyers.

 

  1. Do home warranties increase sales?

Studies have shown home warranties help sell houses. Not only do they serve as an effective marketing tool, but they can help tip the scale for a potential buyer who’s on the fence. That’s why savvy real estate professionals prefer to partner with builders who incorporate warranty in their sales offering and can use the value of the warranty to help clinch a sale.

More than nine in 10 buyers are more likely to buy a new home if it has a structural warranty. Warrantied homes sell 16 percent faster, spending an average of 11 fewer days on the market. They also have a 0.91 percent higher sale price, selling for $2,300 more than homes without warranties.

For buyers who must sell their current home before they can buy a new one, offering a resale systems and appliances home warranty on the existing home can help it sell faster, allowing the builder to close the deal more quickly—a win-win opportunity for both builders and buyers.

“You’re more likely to sell a house with a home warranty than you are without a warranty,” says Steve Middendorp, Angie’s List contributor. “Offering a home warranty with the purchase can increase a buyer’s confidence in choosing your home.”

With so much riding on your builder’s home warranty plan, it’s important to choose a warranty partner you can trust. PWSC is the leading provider of comprehensive builder warranty products, including our Signature 10-year insured Builder’s Limited Warranty Program. By helping builders maximize their home values and profit margins while minimizing risks, our home warranty program options, providing both structural coverage and systems and appliances coverage offer an outstanding return on investment.