Not everyone who buys a house from you will live in it themselves. Investors and real estate investment trusts (REITs) are players in the home-buying game. With single-family-home affordability out of reach for some potential buyers, the prospects of renting a home instead have grown. What does that mean for you as a builder, and how can a structural warranty from 2-10 Home Buyers Warranty (2-10 HBW) help you sell?
What REITs and investors tend to do when purchasing homes
Generally, REITs and investors purchase properties with the ultimate intention of selling them. Many REITs and investors have exit strategies to do this. These exit strategies usually don’t extend past 10 years and often trigger much earlier.
Why does this matter to you, the builder? There are two big reasons:
- Many states have statutes of repose for home construction that can last as long as 10 years.
- Even if an investor or REIT sells the property, you may still be responsible for structural defects that occur within the statute of repose.
These two facts can seriously harm your business if a house you built ever faced structural defects. The cost to address the defect ($42,000–$113,000, on average) is bad enough, and they typically happen in years 5, 6, and 7. Many investors have faster exit strategies. If they sell to consumers, there is more risk for you, the builder. Structural defects can ruin your reputation with REITs, investors, and other potential buyers if you don’t have a solution that covers you.
What can you do to protect yourself when selling to REITs or investors?
There are four major things you can do to protect yourself when selling homes to REITs or investors.
- Draw up different contracts when selling to REITs/investors. REITs and investors usually rent the properties they buy. This means terms and expectations will likely be more complex than a direct sale to a buyer who intends to live in the home.
- Require the investor to do a homeowner transfer if selling the property in the sales contract. This can help keep everyone on the same page regarding obligations and responsibilities. In turn, this makes managing potential problems less confusing.
- Sell the home “as is” for workmanship and distribution systems, or provide a fit-and-finish warranty (check with your local counsel). Sometimes, property managers will try to squeeze as many repairs out of you as they can. This can cost you more time and money than you expect. By selling the home with workmanship and distribution systems “as is,” you can avoid this issue.
- Purchase a structural warranty from 2-10 HBW.
How does a structural warranty from 2-10 HBW help when selling a home to an investor/REIT?
A structural warranty from 2-10 HBW can be extremely valuable when you sell houses to investors or REITs. There are several reasons why.
- A structural warranty from 2-10 HBW is a written, insurance-backed, express limited warranty. This means that if a home you built faced a qualified structural defect, you would not be liable for repair costs. Instead, 2-10 HBW’s insurer (Swiss Re, the second-largest reinsurance company in the world) would cover those costs. That saves you, investors/REITs, or the current owner time and money.
- It clearly defines coverage and expectations. Rather than guessing at who’s responsible for what, a structural warranty lets you objectively define expectations. This can protect you and the property managers you work with from confusion regarding coverage.
- A structural warranty from 2-10 HBW is fully transferable. When (not if) your investors/REITs sell the house they bought from you, the structural warranty transfers to the new owner. This can reduce surprise claims against you from owners you don’t even know, since the warranty transfers responsibility away from you and onto us. It also gives any potential buyers peace of mind that if something goes wrong structurally, you have a solution.
- It includes Supreme Court–backed dispute-resolution language. If the investor/REIT had a dispute about coverage, you’d have protection. Structural warranties from 2-10 HBW include arbitration language that can protect you and your buyers in disputes.
- You get access to the 2-10 HBW Warranty Administration team and Claims Administration support team. These teams make handling claims much easier for you and your buyers. They can answer questions about the claims process and coverage. This gives your buyers a go-to source regarding structural issues, giving you more time to build homes.
When selling to investors, invest in a structural warranty from 2-10 HBW
Providing a solution to expensive structural defects is valuable when selling to investors. When reputations are on the line (yours and your buyers’), it’s crucial to know you’re covered. 2-10 HBW covers 1 in 5 new homes with a structural warranty, more than any other provider. Giving investors/REITs confidence in your quality through a structural warranty can lead to more sales and referrals for everyone. If you have questions on trends in this space, we would love to talk and help you with the best practices we are seeing in the marketplace.
Learn how you can protect your business and add valuable selling points to your new builds with a 2-10 HBW structural warranty.