Liability What Builders Need To Know George Parmer Residential Warranty Corporation

Builders: How can you deal with LIABILITY? BEFORE BEFORE selling a home, make sure your own house is in order! Do Do not let your liability be exposed on your end!

Expertise We Have Gained; Lessons We Have Learned 31 Years Experience as a Builder 23 Years Experience as a Warranty Company

10 Questions You Need to Answer 1. Is your contract and terms in order? A. Details A. Details of expectations between parties B. Handling B. Handling change orders C. Providing C. Providing warranty and service in your contract D. Resolving D. Resolving future disputes: handle them early E. Keep E. Keep records throughout construction F. Plans F. Plans must be detailed and agreed to prior to construction G. Build G. Build to code

10 Questions You Need to Answer 2. Does your customer know what to expect? A. Expected A. Expected start and finish time frame B. Result B. Result of customer not meeting the draw schedule C. Sub-contractors C. Sub-contractors under control 1) They 1) They must have ability to do job and respond to callbacks 2) They 2) They need proper insurance 3) Builder 3) Builder should be an additional insured

10 Questions You Need to Answer 3. What should you remember? A home is usually the most expensive product a customer will ever buy. Service it for what it is!

4. What is important to you as a consumer? A. How A. How do you react when you buy a car, truck or appliance and a problem arises? B. What B. What if a problem remains unresolved?

10 Questions You Need to Answer 5. What about cost projections? Do you add service or warranty into cost projections? If you dont you should! Many builders do not.

6. How can you adjust your cost projections? A. Add A. Add your regular mark-up on service and warranty cost projections Lets look at an example

Projected Job Cost Permits1,000 Site Costs15,000 Foundation11,000 Framing lumber16,000 Warranty cost750 Service of home cost2,500 Otherxxxx Otherxxxx Otherxxxx Total projected job cost$200,000 Overhead & profit mark-up 25%50,000 Selling price$250,000

10 Questions You Need to Answer 6. How can you adjust your cost projections? A. Add your regular mark-up on service and warranty cost projections B. With interest rates low, now is a good time to make these adjustments

10 Questions You Need to Answer 7. What is the cause of most problems between builders and homeowners? Low profitability

8. How can you establish fair standards? A. Have A. Have a written warranty B. Contract B. Contract should include mediation or arbitration as dispute settlement process. An insured, third party warranty provides this.

10 Questions You Need to Answer 9. Are you having problems servicing your homes? Take a close look at your call back services

10. How should you handle customer relations? A. Be A. Be proactive B. Resolve B. Resolve issues quickly and timely

Top 10 Complaints Received by 10 Year New Home Warranty Program 1. Foundation – structural issues 2. Floor coverings – fastener/nail pops, gaps at seams, loosening of flooring 3. Roof leaks 4. Window and door leaks 5. Lot grading and drainage 6. Plumbing leaks 7. Masonry and concrete cracks 8. Drywall cracks 9. Insufficient cooling and heating 10. Basement wall leaks

A Look At National Trends Right-to-cure laws Right-to-cure laws 1. Relatively new 2. Often supported by builders 3. Washington, Arizona, Nevada, California 4. Attempt to eliminate lawsuits

Operation of plumbing & systems 4 yrs Cracks in exterior driveways, sidewalks, sidewalks, patios 4 yrs Products manufactured offsite 1 yr Noise for attached units 1 yr Operation of irrigation & drainage system 1 yr Decay of untreated wood posts 2 yrs Unreasonable corrosion of untreated steel fences & adjacent components 4 yrs Deterioration of building surfaces due to paint or stain 5 yrs Landscaping 2 yrs Dryer ducts 2 yrs Fit and finish warranty 1 yr Everything else What Happens with Regulations The California Example

The Right to Repair Timeline or The Frightening Nightmare Homeowner sends notice of claim to builder Builder receives notice 30 DAYS 14 DAYS Builder acknowledges notice Builder sends Documents to Homeowner 14 DAYS Builder completes initial inspection Builder restores home to pre-testing condition 48 HRS Indicates a choice Builder sends Documents to Homeowner Builder offers to repair Owner receives offer Owner authorizes repair MediationPermit Commence repairs Repair plan or 120-day goalRepairs complete 30 DAYS 30 DAYS 14 DAYS 7 DAYS 5 DAYS 3 DAYS 40 DAYS Builder sends owner request for 2 nd inspection Builder complete 2 nd inspection 48 HRS Builder restores home to pre-testing condition 30 DAYS Owner elects up to 3 alternative contractors 20 DAYS 35 DAYS One additional noninvasive inspection Builder presents owner with choice of contractors 20 DAYS

A Look At National Trends Other changes in California Other changes in California 2 years ago, builders had a choice of 35 insurance companies 2 years ago, builders had a choice of 35 insurance companies Today, they have 6 Today, they have 6

A Look At National Trends Large residential construction companies face premium increase of 400 – 600% Large residential construction companies face premium increase of 400 – 600% Exposure for construction defects is considered one of the most serious problems by the insurance industry. Exposure for construction defects is considered one of the most serious problems by the insurance industry.

Ways to Combat These Issues Offering a 10 year new home warranty Offering a 10 year new home warranty Meet stringent membership criteria Meet stringent membership criteria Note: Council of BBB, Arlington, VA Complaints against home builders 19993, ,323

Pennsylvania Summary Builders need to do what they can to avoid the level of regulations and control developing in other states Builders need to do what they can to avoid the level of regulations and control developing in other states Plan and pay attention to details Plan and pay attention to details Include specific language in your contracts which provides formal dispute settlement Include specific language in your contracts which provides formal dispute settlement What are you going to do to avoid liability? What are you going to do to avoid liability?

Liability What Builders Need To Know George Parmer