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Home Warranties and the Value of Arbitration, Part 1

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Arbitration is a form of alternative dispute resolution (ADR) utilized in such widely dissimilar fields as professional sports and international trade to resolve disputes outside the courts. For our purposes at 2-10 HBW, binding arbitration is the final method of resolution provided for disputes or controversies arising from or related to the warranty. It is one of the pillars on which the New Home Warranty Program is built, and is central in bringing closure to issues which otherwise could not be settled. Its importance is illustrated by the fact it is explicitly included on the builder/seller application for enrollment, which the homeowner and builder must agree to with their signature in order for the enrollment to become active.

Why is the arbitration provision so important?

For our purposes today, I am considering arbitration between a builder and a homeowner, and rather than a nuts and bolts discussion of the arbitration process, I want to frame the discussion around an underlying principle of the provision, which is fairness. Providing a method of resolution outside the courts is the primary advantage of including an arbitration provision, and on the surface, providing an avenue to resolve disputes outside a courtroom is definitely a benefit for a builder. But take a closer look, and it can also be one for the homeowner.

Consider the following:

  • Without an arbitration provision, often the only option available for a homeowner to seek relief from a dispute is in court, which is not always financially feasible, and can be a complicated path to navigate alone and without legal training.
  • Arbitration provides the homeowner a cheaper, less-formal process that is designed to be more accessible to the layperson.
  • Arbitration is typically a much faster method of resolution, which benefits all the parties involved.

2-10 HBW’s arbitration provision strives for fairness in payment of fees and choice of arbitration services

Two additional examples of how the 2-10 HBW arbitration provision strives for fairness is in the payment of fees and the choice of arbitration services. Firstly, most arbitration services require the requesting party pay the initial arbitration fee, but the rules of 2-10 HBW require the cost of the initial hearing be split evenly between the parties. The arbitrator is a neutral third party, but 2-10 HBW takes the additional step to also remain neutral by requiring equal payment from both parties, thereby avoiding the appearance of favoring one side or the other. The second, less-obvious example of fairness are the arbitration services listed in the Warranty. Both of the programs are ones that deal exclusively with the construction industry, and as such, both offer arbitrators who have professional experience in the business. At first glance, this also appears to favor the builder, who may see the arbitrator as a peer, and who they trust will understand what they are talking about. But a closer examination demonstrates it is just as much a benefit to the homeowner. By having an arbitrator with a construction background, the homeowner can take solace in the arbitrator knowing if what the builder is telling them is on the level, as opposed to an arbitrator without a relevant background giving the builder’s opinion more weight because the builder is the professional.

Many builders already recognize the advantages of arbitration, which is why most include their own provisions in their sales contracts. By also offering a New Home Warranty from 2-10 HBW, they are providing the homeowner with a warranty program whose final method of resolution is one that places a premium not only on the outcome, but on the fairness of the process.

*In New Jersey, arbitration fees are paid solely by the builder, per state law.