10 ways to reduce new-home hassles

Buying a brand new home? Be prepared for less than perfection.

About 15% of the 2 million dwellings constructed each year in the United States have at least one construction defect that demands repair, says Alan Mooney, president of Criterium Engineers, an engineering firm with offices in 35 states. Criterium’s primary business is new-home inspection.

“Buying a new home is a scary process,” says Mooney.

Shoddy construction, however, is getting a lot of public attention and some people think the situation is getting better, thanks in part to warranties and other kinds of insurance that builders must carry.

“It’s an economic issue. The insurance industry is pushing the home-building industry to adopt quality standards, otherwise the costs are just enormous,” says Mooney.

If you’re considering buying a brand new house, here are 10 ways to make sure it comes closer to being your dream home rather than a repair nightmare.

1. Deal with a reputable builder
There’s no national rating service, but marketing information firm J.D. Powers does compile homebuyer opinions on the quality of the nation’s largest builders (35% of all homes are built by the top 10 largest builders). It’s also wise to talk to people who have bought new homes built by the same builder, particularly those who’ve lived in houses two or three years. “That’s when problems are likely to surface,” Mooney says.

But don’t be surprised if people aren’t very forthcoming about a builder’s shortcomings, warns Lee Seglem, executive assistant to the New Jersey State Commission of Investigation, which examined construction defects in that state. Out-of-court settlements and arbitration agreements routinely prevent litigants from talking about the outcome of their cases. And in any event, “People fear that revealing defects will have an impact on their home’s resale value,” Seglem says.

2. Check into warranty coverage
Ask the builder if he provides a builder’s warranty backed by a third-party insurer. If he says no, that may be a good reason to look elsewhere.

3. If there is a warranty, find out who backs it
Some large home builders offer their own 10-year warranties. As a rule, this type of warranty is not as good as an independent warranty because the builder has more at stake financially. If the builder is faced with multiple defects, a likely scenario when every house in a development is built the same way, he’ll have to spend a lot of money to make the repairs, says Bruce K. Packard, litigation trial and appellate lawyer for Davis Munck in Dallas.

4. Opt for the expensive policy
If you have a choice of policies, choose the more-expensive one if it will replace faulty equipment, give you a choice of repair people or allow you to transfer the warranty to someone who purchases your home. Packard says these are all features worth paying extra for.

5. Understand how disputes will be resolved
A contract provision requiring that any disputed claim go to binding arbitration is common. Arbitration has drawbacks — it’s a process of compromise — but it costs much less and takes less time than hiring a lawyer and going to court. If you are opposed to the arbitration process and the builder or warranty company won’t take the arbitration clause out of the contract, the activist group Homeowners Against Deficient Dwellings (HADD) suggests you note that on the contract in case somewhere down the road, you want to appeal an arbitration decision.

6. Have the home inspected
Hire a knowledgeable third party, preferably an engineer, midway through the construction process and again just before you go to settlement. If there are defects, at settlement withhold money that will be paid once they are repaired. HADD also advises putting all requests for repairs in a separate document and mailing them to the builder, the warranty company and your lawyer to document your attempts to purchase a well-built home.

7. Document all problems
After you move in, photograph and document any and all problems. You may need this evidence later. Be particularly aware of the 11-month anniversary of your homeownership; at one year, the builder is often out of the picture. Take stock of any problems and send the warranty company and the home builder written notification before the first year passes.

8. Read the warranty policy carefully
Understand what’s covered so you avoid making repair requests that the warranty company will deny. If you call your warranty company and it sends out an investigator, there will be a $50 to $75 charge if the problem you called about is deemed outside the warranty — and the problem won’t be repaired. So you’ll be faced with finding a repair person and paying for both the repair and the warranty company’s fee.

If you think you’re right and the warranty company is wrong, don’t be afraid to stand your ground. First, ask to speak to the supervisor or the underwriter. If you don’t get satisfaction, hire a licensed engineer to analyze the problem. It will cost you $100 to $150 per hour, but for a major problem, that’s small change.

9. Consider going to court
If you don’t have a warranty, but you do have problems that the builder won’t repair, Packard suggests that you consider small claims court. He says that’s often the most expedient way to get some satisfaction. Because small claims courts handle so many of these cases, mediators understand the most common problems and handle them expertly.

10. File complaints.
Let everyone know that you are unhappy with your builder, including state building and regulatory authorities, the contractor-licensing board, the Better Business Bureau, state and local consumer-affairs departments and your state attorney general’s office. The squeaky wheel gets the grease.