The warranty is important, but it’s no substitute for customer service, says Professional Home Warranty Services’ CEO Jason Wilson. "What we state to builders is [to] establish post-sale customer policies and procedures, understand what they are and why they are in place, and make it clear that everyone that is part of the company has to be part of those policies and procedures,” he says. "If that happens, you will have good customer service at the tail end or understand why you don’t.”

It’s the home warranty, and it allows the builder to provide assurance to the homebuyer that if a defect is discovered in the home, it will be corrected. It’s estimated that 35 percent of all new homes come with insured warranties. Art Chartrand, regulatory counsel for the National Home Service Contract Association, indicates that about half of all home sales include warranty coverage, although he cautions there are no hard data to prove this.

Regardless, there’s good reason for builders to provide this kind of reassurance. Twenty percent of respondents to J.D. Power and Associates’ 2005 New-Home Builder Customer Satisfaction Survey said that the builder’s warranty, along with customer service, was the No. 1 factor contributing to their overall satisfaction, outranking quality of workmanship, design and price.

Unhappy homebuyers don’t just put a stain on a builder’s carefully crafted reputation, they take a bite out of his or her profits. According to Eric Arnum, editor of Warranty Week, Securities and Exchange Commission data show that warranty claims paid by major publicly traded homebuilders came to a hefty $941 million in 2005.

Home Buyers Warranty Corp. points out that over a 10-year period there is a greater occurrence of major structural damage to a home than of major fire damage. In a white paper, the company estimates that about 1 percent, or 10 in 1,000 homes, incur costs of more than $30,000 to correct a structural defect. Major fire damage occurs in 0.9 percent of homes, with repair costs running from $4,900 to $32,000.

A typical 10-year insured warranty covers defects in workmanship and materials in the first year; wiring, piping, heating and air conditioning in the first and second years; and structural defects—including big-ticket items such as a shifting foundation or leaky roof—over the entire 10-year term of the policy. Many warranty providers also offer mediation of disputed warranty claims, followed by arbitration, if needed.

The Residential Warranty Corp., with an enrollment of 2.5 million, is one such company. It provides what it calls a menu of choices for builders, including new-home warranties, remodeler warranties and manufacturer warranties. It also provides a written document for the builder’s reference that outlines specifically what is covered and what is excluded under a warranty.

One builder who likes that aspect of Residential’s coverage is Martha Rose of Martha Rose Construction Inc., in Seattle. "I’ve got a booklet that clarifies what items are considered normal wear and tear and what items are considered warranty issues,” Rose says. "For me, just having that clarification is worth being part of the program.”

Rose signed up with Residential when insurance costs in Washington state went through the roof a few years ago. Residential provides general liability insurance for its builder members, and Rose says that helped her rein in what was beginning to look like a runaway horse.

Her warranty costs her a couple hundred dollars per house, but "for me, that’s affordable,” she says. "When I’m in my selling phase, I think that really grabs people.”

Home Buyers Warranty Corp., which offers builders extensive 10-year structural coverage on their homes as well as arbitration services, launched a new Web-based management system in 2004, the 2-10 HomeProfile System. The system helps builders manage their risk and service their clients more effectively by giving them instant access to information so builders can answer questions, resolve problems or direct inquiries to the appropriate sources 24/7.

The warranty is important, but it’s no substitute for customer service, says Professional Home Warranty Services’ CEO Jason Wilson. "What we state to builders is [to] establish post-sale customer policies and procedures, understand what they are and why they are in place, and make it clear that everyone that is part of the company has to be part of those policies and procedures,” he says. "If that happens, you will have good customer service at the tail end or understand why you don’t.”

Builders hire PHWS to be a third-party warranty administrator, Wilson explains. The company provides complete warranty and customer service solutions for homebuilders in the Western region. For larger builders that have established departments, it handles new-home orientations, quality walk-throughs and third-party dispute resolutions.

"The value is that it’s a third party doing it,” Wilson says. "That neutrality gives builders more control over the process than they can have by doing it in-house.”

The company handles warranty claims that may be filed by the homeowner and secures the builder’s subcontractor to correct the problem.

"The advantage to the builder is we get an independent contractor to handle this stuff,” Wilson says. "It frees up the builder’s time, because we’re handling the customer service follow-through.”