REAL ESTATE TOPICS:  BUILDER WARRANTIES

New Construction

Purchasing a newly constructed home can be an exciting process – so enjoy the excitement.  Choosing the location of the development, the lot that you want, the floor plan, the style of construction, all of the options and upgrades, and colors, etc. - oh my, it’s tiring just writing about it – but it can be fun and exciting.

However, it can be easy to get carried away with thinking about all of the cosmetics and forgetting about some very basic important information.  All of the fun needs to be tempered with some reality and little common sense.

With all new construction there can be some issues.  Many of the builders in business today are very reputable and really make an effort to ensure that their houses are built properly and with care.  However, mistakes still do happen and sometimes somebody just does a poor job.  And, there are some builders that are not so great and are knowingly taking shortcuts and letting poor workmanship continue.  Generally speaking, there just seems to be a real shortage of “pride of workmanship” with many of the contractors and sub-contractors employed by the developers.  Bottom line is that for whatever reason, defects and poor workmanship in construction do occur.  Be aware of it and try to keep it in check.

So before your excitement and that “new smell” overwhelms you, you must first and foremost ensure yourself that the builder/developer that you have chosen is currently licensed by the Arizona Registrar of Contractors (ROC) (http://www.azroc.gov/). To check on the status of a licensee, inquiry may be made directly to the ROC at http://www.azroc.gov/clsc/AZROCLicenseQuery

• A contractor's license status (current, suspended, revoked, inactive, cancelled, expired) may change very quickly so you should recheck license status of the contractor you have chosen on the day you enter into a contract. If you contract with a contractor whose license is not current, you will not be eligible to receive funds from the Residential Contractors' Recovery Fund.

Only after confirming proper licensing and current good standing should you consider entering into a contract for purchase with any developer or builder.  Of course that is no guarantee that you won’t have any problems – but it is a step in the right direction and it does offer some legal and monetary protection.  Poor workmanship, defective construction, or irresponsible management and operation sometimes go undetected for long periods of time.

An article about potential problems with home builders appearing in the Arizona Daily Star on Saturday, May 5, 2007 illustrates the concern: http://www.azstarnet.com/allheadlines/181635.php.

Express or Implied?

Home builders may, and often do, offer an “express” warranty on their product.  It is called an “express” warranty because it is expressed – either verbally or in writing.  Of course, without it being in writing it is going to be very difficult to enforce.  So, virtually all express warranties will be written and they will be for specific things for a specific amount of time.  Many new home builders will offer a one-year express warranty on all of the home’s components – except appliances (which would be covered under separate warranty provided by the appliance manufacturer).

In addition to that, homeowners should be aware that there is an “implied” warranty for two years on any new construction.  It is provided for by law.  Specifically, the Arizona Revised Statutes (ARS) as follows:

32-1155. Filing of complaint; resolution of complaint; service of notice; failure to answer

A. Upon the filing of a written complaint with the registrar charging a licensee with the commission, within two years prior to the date of filing the complaint, of an act that is cause for suspension or revocation of a license, the registrar after investigation may issue a citation or upon written request of the complainant may issue a citation directing the licensee, within ten days after service of the citation upon the licensee, to appear by filing with the registrar the licensee's written answer to the citation and complaint showing cause, if any, why the licensee's license should not be suspended or revoked. Service of citation upon the licensee shall be fully effected by personal service or by mailing a true copy thereof, together with a true copy of the complaint, by registered mail in a sealed envelope with postage prepaid and addressed to the licensee at the licensee's latest address of record in the registrar's office. Service of the citation and complaint shall be complete at the time of personal service or five days after deposit in the mail.

B. Failure of the licensee to answer within ten days after service shall be deemed an admission by the licensee of the licensee's commission of the act or acts charged in the complaint and the registrar may then suspend or revoke the licensee's license.

So if that is the case, why doesn’t the builder just go ahead and offer a two-year express warranty?  Great question – ask them. 

Another Implied Warranty

In addition to the two-year implied warranty provided for by statute, there is an implied warranty of proper construction by the builder for up to eight years after completion of the home.  Though this statute is about as clear as mud, it does provide consumer protection for major construction defects for up to eight years.

12-552. Actions involving development of real property design, engineering and construction of improvements

A. Notwithstanding any other statute, no action or arbitration based in contract may be instituted or maintained against a person who develops or develops and sells real property, or performs or furnishes the design, specifications, surveying, planning, supervision, testing, construction or observation of construction of an improvement to real property more than eight years after substantial completion of the improvement to real property.

B. Notwithstanding subsection A of this section, in the case of injury to real property or an improvement to real property, if the injury occurred during the eighth year after the substantial completion, or, in the case of a latent defect, was not discovered until the eighth year after substantial completion, an action to recover damages for injury to the real property may be brought within one year after the date on which the injury to real property or an improvement to real property occurred or a latent defect was discovered, but in no event may an action be brought more than nine years after the substantial completion of the improvement.

C. The limitations in subsections A and B of this section include any action based on implied warranty arising out of the contract or the construction, including implied warranties of habitability, fitness or workmanship.

D. Nothing in this section applies to actions for personal injury or death nor shall this section operate to shorten the period of warranty provided in an express written warranty.

E. For the purposes of subsections A, B and C of this section, an improvement to real property is considered substantially complete when any of the following first occurs:

1. It is first used by the owner or occupant of the improvement.

2. It is first available for use after having been completed according to the contract or agreement covering the improvement, including agreed changes to the contract or agreement.

3. Final inspection, if required, by the governmental body which issued the building permit for the improvement.

F. In this section an action based in contract is an action based on a written real estate contract, sales agreement, construction agreement, conveyance or written agreement for construction or for the services set forth in subsection A of this section. This section shall not be construed to extend the period prescribed by the laws of this state for bringing any action. If a shorter period of limitation is prescribed for a specific action, the shorter period governs.

G. With respect to an improvement to real property that was substantially complete on or before September 15, 1989, the eight and nine-year periods established in subsections A and B of this section shall begin to run on September 15, 1989. Notwithstanding the provisions of subsection E of this section and section 12-505, subsection A, this subsection applies to claims that accrued before the effective date of this amendment to this section.

Disputes / Non-responsiveness

If the builder is not cooperating and responding to requests for repairs in an acceptable manner, and all reasonable efforts have been exhausted, it may be time to turn them in.  To file any specific complaint with the ROC, their form must be used.  It is available on the internet at:  http://www.azroc.gov/Acrobat/Inspect/RC-C-099Web.pdf.

In fact, make sure all communications are documented in writing.  If you have a phone conversation, be sure to make detailed notes about the conversation and include the time and date of the call.

Recovery Fund

And, as a last resort, be aware that a Residential Contractor’s Recovery Fund was established in 1981 to assist homeowners injured by licensed residential contractors in the recovery of damages of up to $30,000.  However, there is maximum limit of $200,000 total in claims paid per each residential license.  So, if you suspect a generic problem attributable to a builder, perhaps in the same subdivision, take action early or the $200,000 could evaporate quickly.

The Recovery Fund compensates homeowners only for actual damages caused by the conduct of a duly licensed contractor.

Final Walkthrough Inspection vs. Professional Home Inspection

It is hard to understand how one might read this article and not give every possible consideration to hiring a professional home inspector to conduct their final walkthrough inspection with them.  For a fee normally ranging from $300 to $500, the peace of mind and additional assurance that things are as they should be, is money well spent.

Anticipate possible resistance from the builder when you bring in the “outsider”, but stand your ground.  You have every right to have a professional home inspector go through the property with you.  In fact, it may be prudent to identify that intention prior to signing the contract and put it in writing.

DISCLAIMER

John P. Hale is owner and Designated Broker of Touchstone Residential Realty, Inc., 2485 West Tom Watson Drive, Tucson, Arizona 85745.  He has been a residential real estate agent in the greater Tucson Metropolitan area since 2000.  In addition to being licensed as a Broker rather than a salesperson, John holds the following designations awarded by the National Association of REALTORS^®:  ABR – Accredited Buyer Representative, ASR – Accredited Seller Representative, CRS – Certified Residential Specialist, and GRI – Graduate Realtor Institute.  And, John is among the very few that have been named, MRE – Master of Real Estate by the Arizona Association of Real Estate.

Please note that this article was written by him to reflect the author’s opinion of good practice at the time of its’ writing for the general benefit of those considering sale or purchase of residential real estate, it is not intended as definitive legal advice and you should not act upon it as such without seeking independent legal counsel.  Frequent changes in the law and standards of practice may cause this information to become outdated and no longer applicable or even incorrect.