Should you take on the risk of a structural failure or offload it to a third party?
It’s a question all home builders face at some point. There are arguments for both sides. For example, advocates of a self-insured solution might cite:
- Perceived low risk of a structural claim (statistically equivalent to a major house fire).
- Years of builder experience without facing a structural claim.
- Direct, hands-on control and management of any structural claim.
- Upfront cost savings of a self-insured approach
What’s best for your business? It depends on your appetite for risk (reputation as well as financial) and what helps sell more homes faster. Here are a few facts to keep in mind, based on a review of 10,000 structural claims:
- 25% of all U.S. homes will experience some structural distress during their lifetime with 5% representing a major structural issue.
- Most structural claims are foundation-related, with framing failures as the next largest cause.
- Expanding/swelling soil causes more U.S. property damage than all floods, earthquakes, hurricanes and tornadoes combined
- Most structural claims are received four to seven years after the close.
- The average cost to repair a structural claim is $70,000, not including internal resources spent to manage the investigation and execution of repairs.
Libby Snead understands the temptation to go it alone. “Builders face compressed margins. Every dollar counts in today’s challenging housing market,” explains the general manager and vice president of 2-10 Home Buyers Warranty, a leader in structural warranties for builders.
She admits it’s tough to understand the impact a structural failure presents until you’ve been through it. Yet the hard truth is her company has seen hundreds of millions of dollars paid to address structural warranty claims across its decades of administering builder warranties. The risk is real and can wait silently to strike years after the closing. It’s a heartbreaking reckoning no builder ever wants to face.
Snead suggests builders ask themselves several questions as they weigh alternatives:
- “What’s best for the future health of my business?” Builders are never off the hook from warranting a structural calamity. All states enforce implied warranties with some mandating warranties that prescribe specific buyer protections. “It’s easy to underestimate the long tail these claims have. It’s not about frequency. It’s about severity,” Snead says. “The builders we work with want to move on to the next project with fewer post-close worries.”
- “What kind of warranty support is best for me and my homeowners?” “Our builders get the extra layer of support through our team of dedicated and trained warranty professionals.” Snead added. Warranty complaints involve distinctly different issues than building and selling homes. Warranty companies offer a neutral, third-party perspective on disagreements, to help everyone involved better understand the scope and application of the warranty coverage. “With 2-10 Home Buyer’s Warranty, builders also get access to our team of administrators, conciliators, claim experts, and engineers – providing third-party expertise to support warranty processes and outcomes instead of builders needing to communicate and justify each decision on their own.”
- “How can I be certain I won’t have a structural claim?” You can’t. Soil conditions may shift, especially in a time of extreme weather events. A better approach is to offload the risk. “Our engineers and claims mitigation experts proactively work with the builder to limit risk and worry,” Snead affirms. “There’s nothing like confidently moving on to the next project knowing you’ve done everything you can to earn the buyer’s trust.”
A “should-I-or-shouldn’t-I?” question merits careful thought. As you investigate your structural warranty options, think about what’s in the best long-term interests of your buyers and business. Ending structural claim uncertainty may be one of the wisest moves you can make.
Learn more about how a structural warranty can advance your business and provide more buyer peace of mind.
