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