Whether you are considering introducing a new material to your building process or a new software program for your back office, one of the first parameters you’re likely to consider is price. We understand that your process for vetting a potential new warranty program is no different. Cost must be a consideration.
However, unlike building materials that come with a price per unit or square foot or software that comes with a monthly or annual licensing fee, warranty and other risk management programs include a host of complexities that require some discovery before a price can be given.
Likewise, when you evaluate the cost of a warranty program, there are a number of factors to contemplate. There is the cost of purchasing the warranty (the immediate out of pocket expense), and there is the cost of not buying the warranty (potential long-term risk and liabilities).
Pricing Factors & the Cost of an Insured Structural Warranty
It is best to think about the pricing structure for insured structural warranties the same way you think about other types of insurance. The amount of coverage you buy, the deductible, and the way underwriters view your risk will all play a part in how warranties (and other insurance coverages) are priced.
Here are a few of the underwriting variables that can influence your warranty rate:
- What is your experience as a builder? – When evaluating risk, underwriters like to understand how long a company has been in business or the background and experience of key principals.
- Where you do you build? – Structural warranties insure long-term risks against load bearing items and not all soils are created equal. Some parts of the country experience subsidence issues, and examples like these are factored into evaluating the risk.
- How many homes do you build? – Production builders and custom builders have different variables, and these need to be taken into consideration.
- What product is being constructed? – An underwriter likes to understand the product being built. For example: Does the builder’s portfolio include single-family detached homes or condominiums? Is there a mix of both? Price point and overall sales volume are also considered in the equation.
It is easy to understand how the rate for a home builder’s warranty can vary when you begin to weigh these factors. In many ways, warranty rates are priced in the same way as car insurance. When you are a new driver, your rates are higher. This is because insurance companies reward experience, especially when a driver has a good record. Likewise, the amount of insurance you purchase can depend on what you drive, when you drive, where you drive, and even how much you drive.
While we cannot answer your specific pricing questions without knowing more about your specific needs, we can help give you an idea of what to expect. The cost of a 10-year insured structural warranty from PWSC typically ranges between .25% and .5% of the sales price of the home. Like other insurance programs, this price is usually presented as an amount per $1,000 of the home’s sales price.
Pricing Factors & the Cost of a Builder-Backed Structural Warranty
While builder-backed warranty programs are not as tricky to price as insured warranties, many of the same factors still need to be considered. Your warranty partner will not be taking on the risk of insuring the homes you build against major structural defects, but they will be committing to administering your warranty program for a number of years (usually up to 10) for each home you build. Understanding your building experience, the litigiousness of the areas where you build, and the other factors we highlighted in the previous section will still play a role in determining a price.
Much like the insured warranty (and like the homes you build), pricing is also dependent on the options you select. Not all builders’ needs are the same, and not all warranties are created equal. Added features, like insurance claims management services, will add to the price of your program, but these same features can also have a tremendous positive impact on your return on investment.
Unlike the insured warranty, builder-backed warranty options are generally priced as a flat rate per home. The price is usually not more than .1% of the home’s sales price.
The Cost of Ancillary Services
The final piece of the warranty pricing puzzle is ancillary services. You may want to consider bolstering your warranty offering with additional support services, such as warranty call-handling or customer-facing value-adds, such as system and appliance warranties. These extras can range in price but are always worth considering, as some are even available at no cost to the builder. For example, you can choose to offer that system and appliance warranty as an option for your buyers. It’s a free marketing tool for you!
Get a Quote from PWSC
PWSC has been a leader in the home warranty industry for more than 25 years. Our experienced team has built a complete line of solutions for every builder and every budget. Please, contact us to learn more about your options and pricing.