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Garden State ASHI Newsletter

The Garden State Chapter of ASHI publishes a monthly newsletter.  As President of the chapter, Pete Engle wrote a monthly front page column discussing newsworthy issues of the time.  In addition to that, Pete's also published some articles in the newsletter itself, and they're reprinted here.  These articles are written for home inspectors, but we thought others might find them interesting.

One Year Warranty Inspections

Picking up on the subject from my cover article, I thought I’d provide an overview of this specialty inspection for those of you who aren’t providing them right now.  These inspections are very nice work to get: they pay about the same as standard home inspection (or better), but they have less liability.  Your client is already the owner of the property.  Your job is to identify any defects that they may not have recognized yet, and also to document the defects that they have identified but that the builder has not yet corrected. 

All new homes (except owner-builder) in New Jersey must be covered by a new home warranty that covers workmanship defects for 1 year, mechanical and electrical defects for 2 years, and structural defects for 10 years.  The point of the 1-year inspection is to identify any workmanship defects so that the homeowner can submit a claim under their new home warranty.  For an additional fee, you can even help them fill out the claim forms.  This isn’t as easy as it sounds, and it is well worth a healthy fee.

In order to identify defects, you basically do the same inspection you would as a new construction punchlist type inspection.  Since that could be the subject for a 3-day class at least, I’ll just give some highlights.  First, you need to be code-competent.  This doesn’t mean that you need to be a licensed code official, but you need to be able to quote chapter and verse from the codes, and you need to be convincing.  It helps your credibility if you’ve at least passed the IRC exams given by ICC.  You use the codes as reference information, and you avoid calling defects out as “code violations.”  That’s the job of the local muni inspectors.  In addition to code citations, you use manufacturer’s specifications, industry standards, UL standards, ASTM standards, whatever is appropriate to the item in question.  It is important to tie the reference standards to the warranty language in order to establish a clear basis for a warranty claim.

Many of the defects identified by the homeowner will be what we normally consider to be cosmetic in nature.  No problem, you list them anyhow.  I recently had a client who was very unhappy about some rather small chips in the seams of her granite countertops.  Her dissatisfaction resulted in about $10,000 of brand new granite at arbitration.  All defects get listed in terms of workmanship defects as above.

It is also important to read the warranty booklet.  You’ll see that they’re all almost identical.  Defects are identified in two ways.  The first way is the list of specific defects covered by the warranty.  There are about 100 different specific defects listed.  If you can state the defects you find in language that closely resembles one of these, you’re in good shape.  The second way is a catch-all that workmanship must meet established industry standards.  This area is a free-for-all that may include codes, manufacturer’s installation instructions, industry sources, magazine articles, and anything else.  Since it’s not clearly defined, the burden of proof shifts to the homeowner and this is where you can earn your fees.  If you can cite multiple sources for defects it goes a long way towards establishing what the “industry standard” is for that issue. 

You also need to be prepared to argue your position in an arbitration hearing.  Nearly all significant claims are denied by the insurers, and an arbitration is held at your client’s home.  You bring all of your supporting information, you point at the defects, and you explain clearly to the arbitrator why this defect meets the warranty terms.  If you do this well, the warranty company either makes the builder repair it or they pay the homeowner to hire someone to repair it.

New Houses on Old Foundations

As you are probably aware, New Jersey requires new home builders to provide a HomeOwner’s Warranty (HOW) on all new homes constructed in NJ.  These warranties cover all workmanship, materials, systems and structures for the first year after closing.  In year 2, they cover major mechanical and electrical systems along with structural defects, and in years 3-10 they cover only major structural defects.  Making claims under these warranties can be difficult, but the warranties are often the best or only recourse homeowners have to correct deficiencies in new homes, especially homes built by small or insolvent builders.

 There are two major exceptions to the rule requiring HOWs.  The first is when the owner is the builder.  If you build a house for yourself, it would be silly to make you buy yourself an insurance policy.  The second is when the new home is not actually new, but uses some portions of an existing structure.  Both of these exceptions are exploited by builders, and it is useful for home inspectors to know about them so that we can give our customers appropriate advice.

 It has become common practice for small builders to build houses for themselves, using it as their home while they build additional houses, then move to the next one and so on.  By doing so, they can legally avoid the cost and liability of providing the HOW to their buyers.  But buyers should understand that the lack of a warranty is a significant drawback that might affect their purchase decision.  When buying houses directly from the owner/builder, buyers should be cautioned to become fully informed about the existence of any HOW, and make sure that if the builder offers one, it is a real policy as required by the state.

 More disturbing is the case where a builder buys an infill lot, knocks down the existing house leaving only a portion of foundation or wall standing, and then builds a new and much larger house on the site.  These houses are generally sold as new construction.  But they are not required to have a HOW, and in fact, they are not eligible for them.  I have worked on several cases recently where the builders took out a HOW on such a house, and when problems were discovered, the policy was cancelled by the insurer because the house was not really new construction, leaving the owners with no recourse at all.  DCA is very clear on the rules here:  If any portion of the house has been reused, it does not qualify for a HOW. 

 When you are inspecting new houses, especially those on infill lots, have a frank discussion of these issues with your clients.  Urge them to investigate the status of any HOW offered by the builder, even going so far as verifying with the insurer that the HOW is valid.  This conversation takes little time, and it can save your clients from some really big headaches.



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