Not All New Home Warranty Programs are Created Equal
Progressive New Home Warranty Issues
by Ron Thibeault
I have recently been involved in 2 different transactions where a smaller builder provided their own
"warranty" for defects and then offered a new home warranty from Progressive New Home Warranty.
Where you are acting for a Buyer on a purchase from a Builder, even if your client is prepared to accept the Builder's own
"warranty" there is the question of whether their lender will accept that. In most cases the answer will not be positive:
normally the lender will require some level of third party warranty against structural issues. Part of your role is to ensure
that this issue is addressed within the Offer.
Importantly for your client, most major programs provide coverage for them as well for deficiencies at walkthrough. This is not the case where the Progressive Home Warranty Program is
used. In both of these cases I mentioned the Builder used the Progressive warranty. The clients were lulled into a false sense
of security on the issue as there is a specific exclusion that reads as follows:
"Items requiring repair or not list as acceptable on the following checklist are considered deficiencies and are NOT covered by warranty. These items
or any other items that would be noticed through a reasoanble and prudent inspection at time of Possession, are not defects
and are therefore subject to the terms and conditions of the purchase contract and are not covered by warranty"
Effectively your clients are left with absolutely no recourse should the Builder not complete any
walkthrough deficiencies. Ultimately, this is the main purpose of why people need 3rd party warranties: to protect against the
Builder NOT completing or performing their obligations. The Builder's own warranty is useless because it is the Builder who
has failed to do something!
Ultimately this means that you must be very vigilent when drafting offers for new homes covered by this program. In particular, you have to ensure that there is a reasonable way to employ and enforce
a holdback for deficiencies that covers your client in case they need to hire a 3rd party contractor to complete work that the
Builder is unwilling or unable to complete. The value of that holdback should be determined by a proper inspector who is
familiar with the type of construction involved.
Failing to deal with these matters up front can and will cause serious issues at closing as these type of contracts are usually signed on the standard form Offer to Purchase
which gives very limited rights to the Buyer at closing. Ultimately, a Builder's own "warranty" is worth absolutely nothing.
For your clients, some 3rd party programs may offer little more.
With the coming into force of the New Home Buyer Protection Act in Alberta there will undoubtedly be some changes to each warranty providers new home warranty plan. We will update the information for this Article once we have reviewed the new Warranty Certificate to see how deficiencies are dealt with.
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