The best word for describing the 2023 economy may be “uncertain.” Inflation is still high. The Fed has everyone guessing on interest rates. Some U.S. housing markets remain hot while others have cooled off considerably. Talk of a potential recession, and its severity, still looms.
Predicting what will happen next in the housing market is a challenge.
The economic ambiguity has builders looking for ways to gain clarity and control over costs. A valuable, but often underappreciated strategy, is within the builder warranty. When it comes to predicting costs today and minimizing future expenses, the warranty has you covered.
- Transfer the Financial Liability
According to research presented to the National Association of Homebuilders, one in every four newly constructed homes will experience a structural defect. Most issues are latent occurring in years four through seven with an average price tag of $50,000 each.
The cost of those defects adds up. For the first three quarters of 2022, U.S. homebuilders paid more than $600 million in warranty claims. This is a double-digit percentage increase from the year prior. Warranty reserves currently exceed $1.7 billion.
That is a lot of builder capital tied up in problems much better used for new construction.
Insured structural warranties transfer the financial liability for major structural defects to the insurer. When homeowners file viable claims, the warranty funds the repair costs, mitigating financial risk for the builder.
Costs also become more predictable with no deductible or a standard deductible per claim. The home’s sale price sets the warranty cost, which typically ranges between 0.25% and 0.5% across 10 years of coverage.
- Accurately Budget for Warranty Administration
For some, self-insuring is not an issue. Where costs add up is in the warranty administration. More homes mean more claims. This creates pressure to increase headcount, boost training, and design systems all just to process claims effectively and efficiently. Third-party warranty administration services prevent those costs from getting out of control. A team of experts manage claims, collect required information, assess damages, and schedule repairs for the builder. The service cost is predictable, high quality, and designed to meet strict customer service requirements.
- Manage to the Building Standards
Builders want to stand behind their product and keep homeowners happy. That makes saying “yes” to every claim understandable, but not financially practical. A builder warranty from PWSC comes with construction standards written to meet each state’s requirements. Every submitted claim is assessed against the standards to decide if a fix is warranted. The standards offer clear guidelines to both the homeowner and builder ensuring only true defects receive repairs. The process offers builders significant savings by simply having clear guidelines to use in accepting or rejecting repair requests.
- Avoid Litigation
Disputes between homeowners and builders happen. The last place you want them to end up is in court. Attorney’s fees alone can add between $100,000 and $500,000 to a litigated case. The right warranty can help builders avoid lawyer fees altogether. PWSC warranties offer a clear process for claims disputes. All claims are assessed against the construction standards. If needed, a construction industry expert inspects the defect firsthand and makes a recommendation. Should mediation not produce a resolution, both parties enter into binding arbitration. The multi-step process is fair to both the builder and homeowner while keeping the claim out of the courtroom—and from racking up six-figure fees.
If you are looking to get control of costs, start with the home warranty. PWSC offers a variety of warranties and corresponding services to meet the diverse needs of builders. In an uncertain economy, PWSC brings confidence to construction claims costs.
