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Managing Warranty Costs After Closing


Managing the warranty process for any builder’s homeowners during the first year after closing can be tricky. What does managing this process include? What does it cost? Answering that question is also tricky, but let’s outline some of the things that builders need to do in that first year:

  • Create a warranty document or book that is in compliance with NAHB standards.
  • Perform the pre-closing new home orientation walkthrough (often called the punch walk or blue tape walk).
  • Perform the term walkthroughs after closing, often referred to as the 90-day walk and the 11-month walk.
  • Inspect all items at the term walks.
  • Determine which term walk items are warrantable and which are not.
  • Schedule your trades to go back and perform warranty and non-warranty repairs.
  • Coordinate and schedule work days with the homeowner.
  • Get homeowner sign-offs on all repairs.
  • Respond to homeowners’ 24/7 emergency calls.
  • Document everything for liability protection.
  • Hire, train or manage personnel to take homeowner and subcontractor phone calls.

This is just an overview of what builders may be asked to do, as there are subparts to each of these—oh, joy.

RELATED: What to Look for in Subcontractor Warranty Endorsements

Now, what does all this cost? There are the soft costs, which most people either don’t see or just ignore: personnel time, involvement and brain drain. What do you fix? Warranty items, non-warranty items, everything?

Then there are the hard costs—studs and nails, etc. Based on financials, the average warranty costs for the median top five home builders nationwide is between $2,300 and $3,400 per unit sold.

Let’s talk about homeowners’ perception of builders because this lays heavily on your ability to manage anything. As consumers, all of us are used to dealing with third parties in nearly everything we purchase. For example, you don’t buy your new car from the guy who put it together; you buy it from a third-party dealer. In that capacity, when you wear out the tires in 15,000 miles and you complain to the dealer, there is nothing they will do about it except sell you another set, and you accept that.

What about when your homeowner calls you because of soil erosion and settling when they leave their gutter downspouts up? They expect you to fill it back in and make it perfect. How can you say anything but yes when you are the one who took their money? Their perception is that it is your fault, even though it is clearly operator error. Selling directly to the buyer puts you, the builder, in a sticky situation. Long live third-party insulation and management! Consider it.


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