For a large number of buyers, the warranty that comes with a new home is a major selling feature. A recent survey by "Professional Builder," a trade magazine, showed that 79 percent of all buyers thought warranties were a "very important" consideration in the purchase of a new home.
Some consumer representative maintain, however, that by their nature, formal but voluntary warranty programs fail to cover the houses that really need coverage because the most "consumer-mindea" builders tend to join the program.
One of the largest warranty plans in the Washington area is the Home Owners Warranty plans in the Washingto is affiliated with a natinal program created by the National Association of Home Builders. Established by builder organizations here three years ago, the HOW plan currently covers 8,500 homes in the metropolitan area, according to William C. Zeller Jr., administrative director of the program in Northern Virginia.
Both the Northern Virginia Builders Association and the Suburban Maryland Home Builders Association have HOW affiliates. Gail Edwards, executive director of the D.C. Builders Association, says a similar program is being set up in the District.
The HOW program places a 10-year limited warranty on new houses built by companies that subscribe to the plan. There are five important features, including a conciliation and arbitration system to handle disputes.
Under the plan, the policy automatically transfers to new owners if the house is sold and there is no initial or deductable cost to the home buyer. There are also clearly stated building standards.
The builders' obligations during the first year are shown in a book of standards each home buyer receives.
For example, is the is backed by an insurance company.
For example, is the builder responsible for repairing a cement a garage slab which has cracked? Yes, but only if the crack is at least a quarter of an inch wide.
Or what happens if a water pipe freezes? Such pipes should adequately insulated and are the responsibility of the builder.
There are 160,000 enrolled houses in various HOW programs nationally, says Richard J, Caamavan, who resigned this week as president of the national HOW Corp. Canavan said that since August 1974, his organization has settled 174 claims where builders did not, or could not, pay arbitration awards.
So far there have been "quite a few" cases of conciliation and arbitration in NOrthern Virginia, Zeller said. There have been none in the smaller and younger Suburban Maryland program, said Brenda Page, the HOW administrator there.
The largest arbitration award against a Virginia builder so far was $11,250 and the biggest local HOW insurance payment where a builder did not pay was more than $7,000. Both cases involved flooded basements where structural work was required.
However, arbitration is usually unncessary.
For instance, when Dina and Gary Workman purchases a $60,000 detached house at Hamilton Knolls of Leesburg they assumed the house had a baseboard heating system and a heat pump since both systems seemed in place.
In fact, the builder, Tri-State Associated, Inc, a division of U.S. Steel, had originally built the baseboard system and then switched to a heat pump. The baseboard system was not hooked up.
system. This involved extensive wiring and the installation of a new fuse box at a cost of more than $1,000. Both parties agreed that there was no problem working through the warranty program.
Approximately 110 builders in the metropolitan area have joined the HOW programs and more than 80 of those are associated with the Virginia group-Zeller said "nine or 10" builders have withdrawn from the Virginia program.
Testifying before the Senate Banking, Housing, and Urban Affairs Committee last October, Thomas H. Stanton said the voluntary nature of the program amounts to "a reverse selection process that leaves uncovered precisely those builders whose buyers most need warranty protection.
"The more consumer-minded home builders will tend to join HOW," said Stanton, who then represented the Housing Research Group associated with Ralph Nader and who is now with the Federal Trade Commission." . . . The less consumer-minded, who give rise to much of the concern in the first place, will not."
Steven C. Silcox, a housing specialist with the Montgomery County Office of Consumer Affairs, said the program does not protect the public against one-shot builders.
"In the past you have had trouble with builders who formed a corporation for each project they developed and then go out of business," he said. "In those cases even the one-year warranty means very little to people because the builder is gone."
"In the 10-year warranty at least if the builder is gone you have the insurance company there. The kicker is that only the reputable builders sign up for the HOW program anyway. So you still end up having the fly-by-nighters out there causing problems."
Aside from the HOW program, most individual builders offer their own warranties. These guarantees vary in length and coverage and their value is closely related to the integrity of the builder.They must all meet the criteria of the Magnuson-Moss Warranty Act, which establishes certain standards. Basically, such warranties must be clearly written and show whetherthey are "full" or "limited" obligations.
Written guarantees are important to builders because they offer protection against the unlimited liability found in the legal doctrine of "implied" warranties. An implied warranty suggests that a product will fullfill its intended role.
If a conflict arises and a suit develops, a court will decide what obligations were implied when there are no written guarantees and what settlement is due. While the implied warranty doctrine is a general concept in the District and Virginia, it is specifically included in Maryland's real estate code. A Maryland must be "free from faulty materials," constructed in a "workmanlike manner" and "according to sound engineering standards," and it must be "fit for habitation," the code states.
In cases of dispute, the local builder associations may work informally with builders and buyers to achieve a conciliation. Builders who belong to the Suburban maryland Home Builders Association must join either the HOW program or an arbitration plan called the Registered Builders Program.
Under the latter, an arbitration panel of four builders and three outside experts will hear a dispute Silcox, who is a member of the panel, said the group averages about one case each month.
"The professional organizations are responsible because they think it's good for business," said Albert Wynn, executive director of the Prince George's Consumer Protection Commission. "It's not the dead end it might seem.