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LiabilityLiability
What Builders Need To What Builders Need To KnowKnow
George ParmerGeorge ParmerResidential Warranty CorporationResidential Warranty Corporation
Builders: Builders: How can you deal with LIABILITY?How can you deal with LIABILITY? BEFORE selling a home, make sure BEFORE selling a home, make sure
your own house is in order!your own house is in order!
Do not let your liability be exposed Do not let your liability be exposed
on your end!on your end!
Expertise We Have Gained;Expertise We Have Gained;Lessons We Have LearnedLessons We Have Learned
31 Years Experience as a Builder31 Years Experience as a Builder
23 Years Experience as a 23 Years Experience as a
Warranty CompanyWarranty Company
10 Questions You Need to Answer10 Questions You Need to Answer
1. Is your contract and terms in order?1. Is your contract and terms in order?
A.A. Details of expectations between partiesDetails of expectations between parties
B.B. Handling change ordersHandling change orders
C.C. Providing warranty and service in your contractProviding warranty and service in your contract
D.D. Resolving future disputes: handle them earlyResolving future disputes: handle them early
E.E. Keep records throughout constructionKeep records throughout construction
F.F. Plans must be detailed and agreed to prior to Plans must be detailed and agreed to prior to
constructionconstruction
G.G. Build to codeBuild to code
10 Questions You Need to Answer10 Questions You Need to Answer
2. Does your customer know what to expect?2. Does your customer know what to expect?
A.A. Expected start and finish time frameExpected start and finish time frame
B.B. Result of customer not meeting the draw Result of customer not meeting the draw
scheduleschedule
C.C. Sub-contractors under controlSub-contractors under control
1)1) They must have ability to do job and respond to They must have ability to do job and respond to
callbackscallbacks
2)2) They need proper insuranceThey need proper insurance
3)3) Builder should be an additional insuredBuilder should be an additional insured
10 Questions You Need to Answer10 Questions You Need to Answer
3. What should you remember?3. What should you remember?
A home is usually the most expensive product a A home is usually the most expensive product a
customer will ever buy. Service it for what it customer will ever buy. Service it for what it
is!is!
10 Questions You Need to Answer10 Questions You Need to Answer
4. What is important to you as a 4. What is important to you as a
consumer?consumer?
A.A. How do you react when you buy a car, truck How do you react when you buy a car, truck
or appliance and a problem arises?or appliance and a problem arises?
B.B. What if a problem remains unresolved?What if a problem remains unresolved?
10 Questions You Need to Answer10 Questions You Need to Answer
5. What about cost projections?5. What about cost projections?
Do you add service or warranty into cost Do you add service or warranty into cost
projections?projections?
If you don’t you should! Many builders do not.If you don’t you should! Many builders do not.
10 Questions You Need to Answer10 Questions You Need to Answer
6. How can you adjust your cost 6. How can you adjust your cost
projections?projections?
A.A. Add your regular mark-up on service and Add your regular mark-up on service and
warranty cost projectionswarranty cost projections
Let’s look at an exampleLet’s look at an example
Projected Job CostProjected Job CostPermitsPermits 1,0001,000Site CostsSite Costs 15,00015,000FoundationFoundation 11,00011,000Framing lumberFraming lumber 16,00016,000Warranty costWarranty cost 750750Service of home costService of home cost 2,5002,500OtherOther xxxxxxxxOtherOther xxxxxxxx
OtherOther xxxxxxxx Total projected job costTotal projected job cost $200,000$200,000 Overhead & profit mark-up 25%Overhead & profit mark-up 25% 50,00050,000 Selling priceSelling price $250,000$250,000
10 Questions You Need to Answer10 Questions You Need to Answer
6. How can you adjust your cost projections?6. How can you adjust your cost projections?
A.A. Add your regular mark-up on service and Add your regular mark-up on service and
warranty cost projectionswarranty cost projections
B. With interest rates low, now is a good time B. With interest rates low, now is a good time
to make these adjustments to make these adjustments
10 Questions You Need to Answer10 Questions You Need to Answer
7. What is the cause of most problems 7. What is the cause of most problems
between builders and homeowners?between builders and homeowners?
Low profitabilityLow profitability
10 Questions You Need to Answer10 Questions You Need to Answer
8. How can you establish fair standards?8. How can you establish fair standards?
A.A. Have a written warrantyHave a written warranty
B.B. Contract should include mediation or Contract should include mediation or
arbitration as dispute settlement process. arbitration as dispute settlement process.
An insured, third party warranty provides An insured, third party warranty provides
this.this.
10 Questions You Need to Answer10 Questions You Need to Answer
9. Are you having problems servicing your 9. Are you having problems servicing your
homes?homes?
Take a close look at your call back servicesTake a close look at your call back services
10 Questions You Need to Answer10 Questions You Need to Answer
10. How should you handle customer 10. How should you handle customer
relations?relations?
A.A. Be proactiveBe proactive
B.B. Resolve issues quickly and timelyResolve issues quickly and timely
Top 10 Complaints Received by Top 10 Complaints Received by 10 Year New Home Warranty Program10 Year New Home Warranty Program
1.1. Foundation – structural issuesFoundation – structural issues
2.2. Floor coverings – fastener/nail pops, Floor coverings – fastener/nail pops, gaps at seams, loosening of flooringgaps at seams, loosening of flooring
3.3. Roof leaksRoof leaks
4.4. Window and door leaksWindow and door leaks
5.5. Lot grading and drainageLot grading and drainage
6.6. Plumbing leaksPlumbing leaks
7.7. Masonry and concrete cracksMasonry and concrete cracks
8.8. Drywall cracksDrywall cracks
9.9. Insufficient cooling and heatingInsufficient cooling and heating
10.10. Basement wall leaksBasement wall leaks
A Look At National TrendsA Look At National Trends
““Right-to-cure” lawsRight-to-cure” laws
1.1. Relatively newRelatively new
2.2. Often supported by buildersOften supported by builders
3.3. Washington, Arizona, Nevada, Washington, Arizona, Nevada,
CaliforniaCalifornia
4.4. Attempt to eliminate lawsuitsAttempt to eliminate lawsuits
Operation of plumbing & systemsOperation of plumbing & systems 4 yrs4 yrs
Cracks in exterior driveways, sidewalks, sidewalks, Cracks in exterior driveways, sidewalks, sidewalks, patiospatios
4 yrs4 yrs
Products manufactured offsiteProducts manufactured offsite 1 yr1 yr
Noise for attached unitsNoise for attached units 1 yr1 yr
Operation of irrigation & drainage systemOperation of irrigation & drainage system 1 yr1 yr
Decay of untreated wood postsDecay of untreated wood posts 2 yrs2 yrs
Unreasonable corrosion of untreated steel fences Unreasonable corrosion of untreated steel fences & adjacent components& adjacent components
4 yrs4 yrs
Deterioration of building surfaces due to paint or Deterioration of building surfaces due to paint or stainstain
5 yrs5 yrs
LandscapingLandscaping 2 yrs2 yrs
Dryer ductsDryer ducts 2 yrs2 yrs
Fit and finish warrantyFit and finish warranty 1 yr1 yr
Everything elseEverything else
What Happens with RegulationsWhat Happens with RegulationsThe California ExampleThe California Example
The “Right to Repair” TimelineThe “Right to Repair” Timelineor “The Frightening Nightmare”or “The Frightening Nightmare”
Homeowner sends notice of claim to builder
Builder receives notice30 DAYS 14
DAYS
Builder acknowledges noticeBuilder sendsDocuments toHomeowner
14 DAYS
Builder completes initial inspectionBuilder restores home to pre-testing condition
48HRS
Indicates a choice
Builder sendsDocuments toHomeowner
Builder offers to repair
Owner receives offer
Owner authorizes repair
Mediation Permit
Commence repairs Repair plan or 120-day goal Repairs complete
30 DAYS
30 DAYS
14 DAYS
7 DAYS
5 DAYS
3 DAYS
40DAYS
Builder sends owner request for 2nd inspection
Builder complete 2nd inspection48
HRS
Builder restores home to pre-testing condition30
DAYS
Owner elects up to 3 alternative contractors
20 DAYS
35 DAYS
One additional noninvasive inspection
Builder presents owner with choice of contractors20
DAYS
A Look At National TrendsA Look At National Trends Other changes in CaliforniaOther changes in California
2 years ago, builders had a choice of 2 years ago, builders had a choice of
35 insurance companies35 insurance companies
Today, they have 6Today, they have 6
A Look At National TrendsA Look At National Trends Large residential construction Large residential construction
companies face premium increase of companies face premium increase of 400 – 600%400 – 600%
Exposure for construction defects is Exposure for construction defects is considered one of the most serious considered one of the most serious problems by the insurance industry.problems by the insurance industry.
Ways to Combat These IssuesWays to Combat These Issues Offering a 10 year new home Offering a 10 year new home
warrantywarranty Meet stringent membership criteriaMeet stringent membership criteria
Note: Council of BBB, Arlington, VANote: Council of BBB, Arlington, VAComplaints against home buildersComplaints against home builders
19991999 3,9963,996
20012001 4,3234,323
Pennsylvania SummaryPennsylvania Summary Builders need to do what they can to avoid the level Builders need to do what they can to avoid the level
of regulations and control developing in other statesof regulations and control developing in other states
Plan and pay attention to detailsPlan and pay attention to details
Include specific language in your contracts which Include specific language in your contracts which provides formal dispute settlementprovides formal dispute settlement
What are you going to do to avoid liability?What are you going to do to avoid liability?
LiabilityLiability
What Builders Need To What Builders Need To KnowKnow
George ParmerGeorge Parmer