New-Home Buyers and Federal Agencies Benefit From Improved Warranty Protection

GAO reviewed the private and State warranty programs that were developed to protect home buyers from construction defects in new houses. The review was made to assess the growth of these warranty programs and the protection that they provided through federally assisted housing programs.

Until recently, new-home buyer's protection from construction defects was limited to that described in the purchase contract. This has generally been replaced with warranties that define the builder's responsibility to correct construction defects. However, enforcing these warranties is difficult when builders refuse to or cannot make repairs. To help alleviate this problem, the insured warranty concept was developed. These new warranties: (1) protect the home buyer during the builder warranty period if the builder cannot or will not stand behind the warranty; (2) provide 10-year insurance against certain major stuctural defects; and (3) include an inexpensive and independent process to settle claims. Federal agencies have taken initial steps to use insured warranties in their housing programs. Several benefits are derived from using insured warranties on federally assisted houses, including: (1) furthering the desire to encourage improved home warranty protection; (2) providing home buyers with improved warranty protection; (3) reducing Federal expenses for correcting structural defects; and (4) reducing Federal construction inspections.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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