Addressing the liability challenges of being a home builder
Home builders have existed for thousands of years and still face major and repetitive challenges. Though many of these challenges are outside of your direct control, you’ll often find that you’re still liable for them. Today, we’ll run down why these challenges still exist and what you can do to address them successfully.
The challenges of being a home builder
Being a home builder is challenging, partially because it’s an ancient art in a modern world. In fact, the very first recorded building code was written way back in 2200 BC by Hammurabi. Though many aspects of home building have changed since then (e.g., structural issues are no longer punishable by death), the core of home building is still quite similar.
For example, most homes are still built primarily by hand, rather than using primarily robotics. Unlike building a car, you can’t build a house using an automatic, constantly monitored assembly line. This makes room for plenty of human error throughout the building process.
Additionally, you know how much conditions can vary when you build a home. From different kinds of soils, groundwater considerations, land gradients and more, builders rarely build under the exact same conditions twice. And yet, governments, homeowners and legal professionals expect you to have solutions when these variations cause construction defects.
Finally, despite everything that’s outside your control, building codes and standards demand high-quality construction with as few problems as possible. The statistics flesh out just how challenging it can be for you to meet those standards. According to the International Code Council, 51% of building department inspections fail the first time.
The many moving parts of home building
On top of the outside conditions that make home building a challenge, the actual process of home building has hundreds of thousands of moving parts. And we aren’t just talking about literal parts and materials. According to Walt Keaveny—Risk Manager and Principal Engineer with 2-10 Home Buyers Warranty (2-10 HBW)—here are some of the professionals you’ll work with before you even begin building:
- A geotechnical engineer, who will examine subsurface conditions
- A civil engineer and surveyor, who will plan and lay out any site improvements
- An architect, who will design the home itself
- A structural engineer, who will design the foundation and framing of the home
Then, after the initial design phase comes a new flood of moving parts. According to the National Association of Home Builders (NAHB), here’s what it typically takes to build the average home:
- 22 subcontractors
- 250 people on site among subcontractors and materials providers
- 100,000+ physical parts and materials
- 3–6 months from ground breaking to completion
That’s a lot of people and even more physical parts, all with the goal of building a safe, structurally sound home over a relatively short period of time. Any mistakes or oversights by any one of those people, or any defects within those hundreds of thousands of parts, can quickly elevate your liability as a builder.
Why isn’t the building inspector responsible for finding these flaws?
It might seem that the building inspector, rather than the builder, should be responsible for catching these flaws. However, according to Keaveny, building inspectors tend to focus on safety issues that can lead directly to death, such as electrical shocks, fire hazards and potential natural gas leaks. High-liability risks—like engineering design, foundation and frame design, soil condition, improperly compacted structural fill and water penetration—aren’t things inspectors generally concentrate on.
Additionally, in the book Warranties for Builders and Remodelers, Second Edition, David S. Jaffe et al. wrote, “A house can pass all code requirements and still have latent defects that are subject to liability under implied warranties.” It’s the implied warranty that can bring your liability to the forefront. Fortunately, there’s a solution.
Addressing the issue of implied warranties
First, it may be helpful to define what an implied warranty is. An implied warranty is a guarantee that is neither written nor orally agreed to that sets certain expectations for a work product. In other words, it’s a standard that builders must follow—regarding the workmanship and habitability of the homes they build—even though it’s neither written nor orally agreed to.
The extremely challenging part of implied warranties is that although all 50 states recognize implied warranties for new homes, those implied warranties are not standardized. Implied warranties are subject to vague and unpredictable interpretations by various court decisions. Essentially, builders (and everyone and everything they work with) are bound by implied warranties, and those implied warranties can be difficult to parse.
However, there is an alternative to implied warranties—a written express limited warranty. This kind of warranty takes much of the guesswork out of the equation. That’s because written express limited warranties clearly define the performance standards of the homes you build. This includes standards for workmanship, key systems and the home’s structure. (Performance standards are different from building code standards.)
A builders warranty from 2-10 HBW includes these performance standards so that you and your buyers are working with the same expectations. This insurance-backed warranty relieves you of your financial liabilities when there’s a structural defect in the homes you build during the Statute of Repose. With structural issues costing between $42,000 and $113,000 per claim on average, that’s valuable coverage to have.
A 2-10 HBW builders warranty also includes 2-10 HBW-administered arbitration, which takes disputes out of court, saving you time and money. Most importantly, it protects you and your buyers from unforeseen defects.
There are so many challenges to home building, but it’s an essential undertaking. With so many moving parts it’s likely that unforeseen problems will pop up, leaving you vulnerable to liabilities. But with an industry-leading builders warranty from 2-10 HBW, you can manage and minimize those risks. That can protect you and your buyers from the unexpected.
Learn how you can protect your business and add valuable selling points to your new builds with a 2-10 HBW structural warranty.
Special thanks to Walt Keaveny, whose expertise inspired this article.