A model home is your company’s representation of the home you build—an optimized, idealized space that proves your skill at building quality homes. Naturally, some buyers will be drawn to your model homes for purchase. What are some best practices for selling model homes, and what can you expect at the sale? Let’s answer some of these questions to help you protect yourself when selling a model home.
2 best practices to always follow before selling a model home
There are two best practices many builders follow before selling a model home. Many builders do each of these tasks upon receiving a Certificate of Occupancy (CO) for the model home.
- Transfer the home to a second LLC. This is a legal action that protects your building company. Sometimes, builders will transfer homes that they haven’t sold after obtaining a CO within three months (spec homes). By transferring the home to a different LLC upon obtaining a CO, you remove that home from your building company. In many cases, the owner of the company or a family member owns the second LLC.
- Protect the home with a structural warranty. Purchasing structural warranty coverage upon obtaining a CO starts the liability clock. This protects you against qualified structural defects and starts your coverage period right away. So, even if you sell three years later, there are seven years of structural coverage left.
Taking these actions can help protect you against unexpected litigation or structural defects.
It’s important to note that you can wait until the date of sale to protect the home with a structural warranty. However, there are pitfalls to this strategy. In addition to increasing your exposure should a structural defect occur, you must also obtain a new final inspection if your model house is over one year old.
What to do upon selling a model home
Once a buyer has expressed interest in purchasing your model home, there are a few things related to warranty coverage you must consider. Here are your options.
- Transfer the structural warranty from your separate LLC to the homeowner. This is the safest way to transfer coverage. Once the buyer owns the home, you can transfer the structural warranty to them. Then, if the homeowner had any qualified issues, they would contract the warranty administrator rather than you. This process includes the buyer agreeing to the structural warranty terms and coverage, which can help you avoid disputes.
- Put an extended systems and appliances home warranty on the house itself. Your model home is likely to be older and more well-worn than your other homes, given how many people likely walked through it. Adding a systems and appliances warranty can give buyers peace of mind that if a system or appliance breaks down, they have a solution that won’t break their budget. That not only provides extra value but also helps you build trust and bolster your reputation.
- Sell the home as-is. Choosing this option will require you to draft a separate sales contract. Though this option is fairly straightforward, it also may put you at risk.
Remember: All 50 states recognize implied warranties. So, even if you choose not to cover the home with a structural warranty administered by 2-10 Home Buyers Warranty (2-10 HBW), you may still be responsible for addressing structural defects, among other problems. And structural defects often occur in bunches, which can create a long tail of liability that goes beyond just one house.
Why 2-10 HBW for structural warranty administration and a systems and appliances warranty on your model home?
As the industry leader in structural warranty administration, 2-10 HBW is a smart choice for warranty coverage. We help protect your reputation and bottom line, and give your buyers something they really want. After all, buyers value an insurance-backed, third-party structural warranty.
A structural warranty administered by 2-10 HBW can also help you overcome common misconceptions about model homes. Some buyers worry that a model home may not be as high quality as other homes. Protecting your model home with a structural warranty administered by 2-10 HBW, along with a systems and appliances warranty from 2-10 HBW, can put those fears to rest.
Learn how you can protect your business and add valuable selling points to your new builds with a 2-10 HBW structural warranty.
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