Builder Warranties For New Homes - What You're Getting, and What You Are Not

Question: I am considering buying my first new home. I have heard there is a "statutory builder's warranty" which I will receive at closing from my builder/seller. What is this warranty, and what does it do for me?

Answer: Contrary to popular belief, there is no such animal as a "statutory builder's warranty." There are, however, common law warranties (meaning that they stem from Colorado case law rather than state statute) which protect buyers of new homes. These common law warranties are:

  • The warranty that the home has been built according to local building codes and laws;
  • The warranty that the home is fit for its "particular purpose" (which is a residence); and
  • The warranty that the home has been built in a workmanlike manner.

These warranties only apply to the sale of a new home from the person or entity who constructed it (even if that person or entity isn't regularly engaged in the construction business), to a new owner occupant. The term "new home" also applies when a builder has temporarily moved into the home, pending sale to a buyer, or when the builder has repurchased it from the original buyer because of alleged defects. It also includes a first purchaser who the builder knew was simply planning to re-sell it, without living there. (This, of course, also prevents the builder from "selling" it to a shell entity in order to avoid the warranties.) But it is unavailable to a buyer if any other intervening buyers have used the home as a residence - the implied warranties are not transferrable to the second buyer of the property, even if it is re-sold quickly.

The time period within which to bring a lawsuit for breach of the implied warranties is two years from the date the defect either was or should have been discovered (by the "exercise of reasonable diligence"), or six years after closing, whichever is sooner. Any defects first discovered after that initial six year period are not covered by the implied warranties.

So if there are such good implied warranties available to buyers in Colorado, then why do builders usually offer an express warranty covering their products? There are several reasons, some of which benefit the buyer and some of which do not. These reasons include the following:

  • Reputable builders are, naturally, proud of their work and want their buyers to feel comfortable that they won't be abandoned after closing, when it's common for minor defects to pop up;
  • Buyers have come to expect an express warranty (something they can hold onto and read!), and builders want to remain competitive by meeting those expectations;
  • Some builders like to set rules for how the express warranty works, so that there are no misunderstandings. For example, the warranty may specify the hours and days during which the builder will be available to address the issues. That way the owner can't cry foul when the builder refuses to drop other pending work immediately, only to address non-emergency warranty claims;
  • Most builder's warranties will carefully exclude certain items from the warranty coverage. Examples of these items are appliances, normal "settling" of the residence, soil conditions, drainage problems caused by the owner's landscaping, and normal wear and tear. Although most of these items probably aren't covered by the implied warranties anyway, it's helpful to both the owner and the builder when the limits of the express warranty are clear;
  • On the hidden side, however, most builder's written warranty agreements (which are usually called "express 1-year limited warranties") will cover defects only during the first year after closing. This, of course, gives the buyer a considerably shorter time period to bring a claim than under the implied warranty statute of limitations.

Why can't a buyer rely on both the implied warranties under Colorado law, in addition to the express warranty offered by the builder? Ah, there's the rub - it's because most builders, and particularly those with good attorneys, will "disclaim" the implied warranties, and will require as part of the contracting process that the buyer waive them. The disclaimer and waiver, if written correctly, will be binding on the buyer.

Such a disclaimer and waiver will, however, be strictly construed against the builder. In order to be valid, the language must clearly show the intent of the builder to disclaim the common law warranties, and the intent of the buyer to accept the express limited warranty in return. These paragraphs are usually in "bold and all capital" print, and sometimes have a line next to them which the buyer will be asked to initial. If the disclaimer and waiver are not clear and noticeable, then the builder is in danger of it being determined ineffective by a court. Beware of builders who try to disclaim, and who ask the buyer to waive, the implied warranties after the contracting process is complete - the buyer is not required to agree to this "amendment" to the contract.

Does this mean that builders who require buyers to waive the implied warranties are to be avoided? Of course not; builders are entitled to utilize and to rely on the case law regarding valid disclaimers and waivers, so long as they provide a substitute warranty which is useful to an owner. But there's also no need to avoid builders who don't offer express warranties; the common law warranties they are (by default) providing are both adequate and longer-lasting anyway. The bottom line is that both buyers and builders need to be aware of the status of the law regarding warranties issues, so that they both act knowledgeably.

Karen J. Radakovich is of counsel with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm.   Her practice areas include Real Estate, Bankruptcy, Finance, and General Law.   She can be reached at contact Karen Radakovich.

Disclaimer -- Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.