Posted by: The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

51 responses to “State Senate and House Pass “New Home Warranty” Bills”

  1. Scotsman

    Thank goodness government has come to the consumer’s aid again! I’m sure the way the bill is written will force builders to eat the cost of these warranty’s, and that there is no way the cost can be passed on to the eventual buyer. After all, if the home’s price was increased to cover these additional expenses the consumer would lose out at the expense of increased taxable home costs while the state’s tax revenues increased.

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  2. Snigliastic

    There’s a remedy in Washington if it’s grossly defective, but not if it’s mildly defective. And the warranty currently only runs to the first buyer. Home warranties in Washington suck. This bill is needed. Big Time.

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  3. Ray Pepper

    Good God Tim!! Its a great plan. Anything to get these homes sold!! Just like Hyundai or Kia –doesn’t one of them give a 10 year warranty to unload their metal? Home buyers need every reason in the world now to jump in and purchase. Rates are fine. Declines are great. Now upkeep is diminshed. Lets see what happens with property taxes….HAAAAAAAAA.. Maybe a 10 year moratorium like they did in downtown Tacoma 7 years ago to induce Buying.

    I know I know. I’d have a better chance of picking up matchsticks with my butt cheeks then a 10 year no property tax bill………but hey………….Its on someones list of possibilities…….

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  4. Snigliastic

    RE: The Tim @ 3

    That’s what you would expect, and may be happening in some instances.

    I’m just saying from a lawyer’s perspective, the home warranty law in WA sucks.

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  5. MacAttack

    Tim, in reality this fight over customers via warranty won’t happen. In reality, dealing with a defect (which may take YEARS to reveal itself) is a royal pain that the builder fights tooth and nail. Once they have your money, they have no incentive to do ANYTHING. That’s the first rule of contracting, after all.

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  6. Kary L. Krismer

    RE: The Tim @ 3 – That was a good explanation of the problem with the current implied warranty offered at common law.

    I’m not sure I understand what your concern is. If there’s a defect in a house one of two parties is going to suffer the loss. The person who bought the house or the entity that is responsible for the defect. Why should the loss fall on the owner as opposed to the entity making money in the process?

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  7. Kary L. Krismer

    By Snigliastic @ 5:

    I’m just saying from a lawyer’s perspective, the home warranty law in WA sucks.

    Actually it’s from the home owner’s perspective.

    Maybe what we should do is go the other way. If a plane crashes and they can’t determine the cause, the dead peoples’ families get nothing. If someone dies of smoking, their family gets nothing. Let’s protect the entities that are involved simply to make money, and screw the consumer.

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  8. jon

    Politicians are looking for ways to prop up the price of housing in order to bail out banks. One way to do that would be to hand out money to buyers to encourage demand. With a surplus of inventory, encouraging more building is not the thing. Driving down the supply of new houses by increasing their cost through regulation doesn’t impact taxpayers directly. In the sense that consumers will be getting better houses because builders won’t be building junk, it isn’t costing them anything either. The only downside is the cost of bogus lawsuits to try to extort money from builders. That cost will get passed on to buyers. I don’t know how that is or will be dealt with. Loser pays maybe?

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  9. Scotsman

    I think the state should enact a new special tax on contractors and lawyers to fund the bailout of home owners experiencing home defects. Why should already stressed home owners have to deal with the results of profit-driven shoddy construction while builders and lawyers vacation in Hawaii and Cabo, safe from the effects of mold and moss? Remember, there are children living in many of these dangerously decrepit homes, and they are our future!

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  10. Kary L. Krismer

    RE: The Tim @ 10 – I haven’t read the bill for months, so I’m not sure how small of defects it covers. I doubt it’s drippy faucets. At the other extreme, the current common law warranty requires the house to be practically worthless to provide protection. I’d say something in the middle is best.

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  11. Kary L. Krismer

    RE: jon @ 11 – I think the banks are holding down the supply of new houses fairly well at this point. ;-)

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  12. jon

    RE: Kary L. Krismer @ 14 – True enough. But potential buyers would be very interested in knowing that if they do buy, the builders won’t start flooding the market again the minute things turn around. As long as the government is there to bailout anyone who stubs their toe, the root cause of the current mess has not been fixed, and in fact the mechanisms that lead to the bubble are now even than it was during the bubble.

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  13. Nell Plotts

    Dripping faucets aren’t worth the bother to deal with a warranty. The big, almost common risk, is the building envelope leaking: improper install of siding and flashing is what I see the most. The homes on my street are expensive, yet a builder installed siding with the wrong side out on the neighbor’s house. When it started to leak DH brought over photos he had taken during the home’s construction to help the buyer negotiate with the builder.

    The building code does not cover these issues.

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  14. Kary L. Krismer

    Installing siding must have somehow gone from being a simple task to involving complex thinking, especially on Snohomish County condos. It’s amazing how many of those things built since 2000 need to be resided.

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  15. mukoh

    The bill does only one thing, is that a builder in buying the land will back out the costs. Builders will still build just bump up with their prices to match the rates depending on how long they have been building and amount of claims on their license.

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  16. Jordo

    I understand the spirit of the law.. Especially with home builders being in such trouble right now, they may be tempted to cut corners… But they will pass on the “savings” to the consumer..

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  17. Herman

    If we’re going to drive up construction costs, then I’d prefer we focus on improvements that favor neighborhood character and quality. Where I live, developers have been building crap houses in cool neighborhoods. They extract the value at the expense of the public. Bulldoze the bungalow, cut down the trees, subdivide the lot, and slap up some McMansions.

    I’d also favor more public view rights. Also where I live, many nice sound & mountain views now have buildings blocking them. The public view has been privatized for the benefit of the developer and his customer, at the expense of the public.

    Although if I can’t have either of those, I’ll accept this.

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  18. David Losh

    Home building is a catch all phrase for a long list of people.

    There is the developer, site prep, foundation, framing, sheet rock, sheathing, siding, windows, roof, flashing, insulation, finish, floors, fixtures, cabinets, and hardware.

    What happens in a dispute is that every body points the finger at every one else. It’s a lawyers dream and the home owner is stuck waiting for blame to be established.

    Even if you are the best builder in the world you can not watch every action of every sub contractor. You may have bad site work, the story about the siding being applied upside down is a good example. The siding needs to be put on a certain way to work effectively.

    You may have the greatest sub contractors in the world, but something can happen. I had a plumber I used for over ten years and after his wife had the fifth child, and more, he was never the same.

    The warranty takes the home owner out of the loop. Good builders do provide warranties and some do not. Some price points are higher so the warranty cost is absorbed more easily.

    This is a case where the home owner needs protection. The current laws on the books heavily favor the builder, they have a lobby.

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  19. Kary L. Krismer

    By David Losh @ 21:

    What happens in a dispute is that every body points the finger at every one else.

    Yep. I once had a roofer client accused of having his workers walk on new concrete, thereby damaging it. The thing was, some of the damaged surfaces were vertical walls! He eventually was dismissed, but it was expensive.

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  20. jon

    RE: Scotsman @ 36 – In the same way that food regulation benefit reputable food producers, and advertising laws benefit reputable businesses, strong enforcement of building standards helps builders by making it harder for low quality builders to take business away and leave the buyer with junk. This also lowers risk to banks and insurance companies, which also make it easier for good builders by making it easier to get buyers.

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  21. vermillionsky

    By Kary L. Krismer @ 9:

    If someone dies of smoking, their family gets nothing.

    Absolutely. the risks of smoking are well-known, and they are significant. If someone chooses to smoke and dies from complications due to smoking, the smoker’s family should get nothing. If someone chooses to smoke, exposes others to second-hand smoke, and makes those people sick, the smoker should be responsible for restitution to the injured parties. The folks who a) started smoking before all the data about its harmful effects were revealed, b) stopped smoking after they knew the dangers, and c) still contracted a smoking-related illness deserve restitution, but anyone else does not. However, there are few folks left who fit those criteria.

    There’s a big difference between buying a home and buying a known carcinogen. With the first, you should expect to find a reasonably safe and sound building of a quality that depends on the price you pay. With the second, you should expect to get cancer.

    I agree with Tim, to some extent the buyer should be responsible for their choice of builder. The laws should just make it easier to identify the good companies from the bad (e.g., license builders with the state, have a public registry for complaints and actions against builders, strengthen the consumer protection laws covering fraud and defective properties if they are too weak, etc.).

    Give people access to the information they need to make an informed decision. If they still want to choose the cheaper guy with a dozen actions against him and no home warranty over the more expensive guy with no complaints and warranty included, just to save some $$, then caveat emptor.

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  22. Kary L. Krismer

    RE: vermillionsky @ 23 – So I guess large multi-national corporations get a break when they advertise addictive products to children? Makes sense to me.

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  23. Groundhogday

    RE: Snigliastic @ 2

    The only problem is that a warranty isn’t worth squat if the builder or contractor goes out of business.

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  24. David Losh

    RE: Groundhogday @ 25RE: vermillionsky @ 23

    There are many variables and a warranty should be a separate thing. There are warranty companies that just do warranty repairs. They can do anything but the contractors they use are most of the time separate from the builders.

    You can be the best builder in the world and have an architectural defect. One of those was on a down town building. Great builder, perfect record, good architect, lousy structural concept, approved plans by the city. It was in court for years. The home owners were stuck telling potential buyers that a law suit is pending.

    I really have way too many stories of good guys gone bad for no fault of their own.

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  25. vermillionsky

    RE: Kary L. Krismer @ 24

    Targeting children in tobacco advertising is not the same thing as what you said (someone dies of smoking), and it is illegal. If they break that law, they pay a penalty. That doesn’t seem like a break to me. Likewise, stores who sell tobacco to kids, or tobacco companies who send kids tobacco via the internet are breaking an existing law, and should be penalized for that. I’m not saying these laws should be removed or ignored.

    It is not illegal for adults to smoke. No adult who chooses to smoke should ever be compensated for complications that arise from that choice. It is illegal for a child to smoke. If a child smokes because he’s imitating something he saw on an advertisement, or lights his hair on fire trying to imitate some idiot prank on MTV, or gets bitten by a prairie dog trying to catch them to sell as pets in Japan because he saw on the Discovery Channel that they sell for big $$ there (that one happened to my cousin), that child’s legal guardian is responsible for the actions of that child. If my child steals from his teacher’s purse, he is breaking the law and I am responsible for that, the same as if he breaks the law by smoking.

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  26. Mikal

    My understanding is that if the contractor is out of business then the plaintive goes after the contractors insurance company that insured at that time.

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  27. mukoh

    RE: The Tim @ 26 – Tim, it has to do with builders GC license. He can only have one name :). I do know a builder of pretty good size I.E. an actual builder of 100+ homes a year, who operates under his two brothers licenses.

    Mikal, the attorneys go after the builder who is insured. The insurance company pays the claim amount up to its insured amount, the rest is passed to builder.

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  28. EconE

    Let’s say a home has a one year warranty instead of a four year warranty.

    Skip to year 3 of ownership assuming there is a one year warranty.

    Something goes wrong with the plumbing and there is water damage to the house.

    Guess who gets to pay?

    The insurance companies.

    Follow the money.

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  29. Snigliastic

    RE: The Tim @ 26
    Very true. I imagine a bunch of these cardboard cookie cutter houses are going to turn out not so hot in a few years.

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  30. David Losh

    RE: mukoh @ 30RE: The Tim @ 26

    Perfect reason for the warranty.

    The way it works is the developer has the LLC and hires the builder. It gets real messy when the contracting begins. The developer who is supposed to mind his own business can start hiring contractors onto a job to get the job done when the builder gets behind. The builder typically has a superintendent who actually does the hands on day to day stuff. That super can, in some cases, end up doing a lot of the work to keep on schedule.

    The General Contracting License can also get messy. It carries a set of insurance that covers the job, but the insurance company is actually some farm belt source of funds that will refuse to pay. Don’t even discuss it, they will refuse to pay.

    The builder’s political lobby is one of the most powerful.

    The home owner needs protection.

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  31. Kary L. Krismer

    I’m not sure this law requires a separate warranty, as opposed to just that the builder warrants the construction. I haven’t had time to re-read the bill in detail.

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  32. mukoh

    Ummm David, are you confused again? Or are you in the wrong state?

    Can you name a developer who has the LLC and has hired a builder in this state? Just curious where you have seen this here. I have been around commercial area all my life and haven’t seen it work that way. LOL

    Typically in our area what we have is a developer buys a property, develops it i.e. he is referred to as DEVELOPER then he sells it to a builder thus who is referred to as BUILDER (if he builds more then 50+ a year). BUILDER sells the house to family.

    There are a few companies that are good at doing both developing and building, but they still operate as one entity, i.e. GC license which is held by the owner. Just look it up if you have access.

    General contracting license as you refer to it as messy, is the first set of documents that the insurance company providing coverage to the BUILDER looks at. Thus a friend of mine who built a 40 unit for himself paid $8k per unit in just insurance coverage.
    Haven’t seen a builder without insurance BTW since probably late 80s. Just FYI an insurance company recently paid out $2.5M on a project in S. Everett.

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  33. Scotsman

    An aftermarket insurance policy, much like an extended warranty for a car, covers all of these contingencies without involving the state. The consumer can pick the deductible, term, what gets covered, etc. But hey, a market solution that relies on individual initiative and responsibility probably won’t sit well with the statists.

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  34. Mikal

    RE: Scotsman @ 37 – You have got to be kidding. So it is the homeowners responsiblity to get coverage in case the construction done was shoddy. So the contractor has absolutely no reason to care. You will be wandering the desert with the rest of the republicans for many years.

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  35. what goes up must come down

    mikal now that was funny.

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  36. Scotsman

    Mikal, not true. The contractors will come to realize that they have to do a great job, or the insurance companies won’t underwrite the policy. Whether by reputation, bond, or on-site inspection, the quality of the contractor’s work will be a factor, priced into the cost of the policy. And magically, the market will work it out- cheap policies and high home prices for the good guys, expensive policies and compensating low home prices for shoddy work.

    Why is the state always presumed to be more efficient, or more accurate, or lower cost than a competitive market that has to earn and retain consumers? With each passing day the state shows itself to be incompetent, not only at initially writing the laws, but also at enforcing them.

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  37. what goes up must come down

    So scotsman how about we remove laws against murder or theft, see if someone goes around killing people eventually someone will kill that person and the “Market” will work it out. Like you said the state is incompetent in writing laws and enforcing them so let’s get rid of all the laws.

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  38. David Losh

    RE: mukoh @ 36

    You are quite right most developers sell off the interest to a builder these days. Buiders in the past needed financial help, in the past few years almost anyone could get financing which again is a problem.

    There are a few hundred or thousand developers who hire the builder. It just makes financial sense to see a project through. There are also builder developers like Murray Franklin, Bennet, Glover, and a host of others. It is an in house thing.

    Yes insurance companies pay out. It is as rare as getting a judgement against a doctor or hospital, but it is the thing that makes head lines. It is usually for many millions of dollars because that makes it worth the hassle of going after the insurance company. Again that is another reason for the warranty.

    You are trying to defend the Master Builders Association lobby. I appreciate that, but still new construction is a very serious problem. You can ask builders and they will tell you that as there have been way too many Real Estate agents, and loan officers, there have been way to many people playing builder lately.

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  39. David Losh

    RE: Scotsman @ 40

    Home Warranty is already an industry. Yes the home owner can buy it at closing. New construction can participate, but they don’t. We have a one year warranty in this State. That’s it and builders whine about the cost of that.

    What mukoh was eluding to and I responded is that the laws provide for you to be a General Contractor. You buy a bond and insurance and you are a General Contractor. Of course you need a license and you have to agree to pay your taxes and then you are a General Contractor.

    You hire an engineer to sign off on a set of plans and you start buiding. Never mind that you have never done it before there is money to be made. Not only that, but if you have a Real Estate license you get the listing commissions to boot.

    You hire people and watch them. The first few projects may be a little sketchy but hey, that’s what insurance is for. Remember the one year rule, you are only on the hook for one year and your insurance company knows that.

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  40. mukoh

    RE: David Losh @ 42 – David, you are not able to name a single developer that huyers a builder, simply because you are misinformed. That is your consistant ammo is to make statements that are not true and are drawn out of thin are. In my reply earlier I in layman’s terms described how it works. Figure it out first, if you know Murray Franklin you should be able to get in touch with Art and ask him about this. The stat is simply 80% of the “BUILDERS” as you refer are buying lots from “DEVELOPERS”. And there is not a thousand developers in this state.

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  41. David Losh

    RE: mukoh @ 44

    How can I phrase this more clearly, ask Art. He should be able to explain this to you.

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  42. David Losh

    RE: mukoh @ 44

    OK, I have a few minutes.

    This law is too little too late. Every body is a Real Estate agent, loan originator, builder, developer, investor, or speculator.

    How many Real Estate agents work with builders? How many Real Estate agents are developers? How many people who own dirt are developers, and how many handy man carpenters became builders? How many Real Estate agents hire builders? How many Real Estate agents are builders?

    Thousands.

    For the past ten years every body thought Real Estate was easy. it was a no brainer. Doing bad Real Estate transactions is one thing but building? That’s dangerous.

    We haven’t even touched the plans approved sellers who lied during permit application.

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  43. mukoh

    Trust me don’t bring up development/builders since your knowledge of who does what is even based out of a 70s era, where every builder was a developer.

    There is probably no more then 100-150 DEVELOPERS out there.

    There is probably no more then 200+ BUILDERS out there.

    Talking about this state.

    Unless you call a guy who plats away two lots on his grandpa’s property and starts building houses on them a developer and a builder, which is what I think you have in mind. Thats called SPECULATOR.

    Stop talking out of your you know what and just get back to cleaning.

    Once again proving that knowledge from the sidelines is always USELESS

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  44. David Losh

    RE: mukoh @ 47

    You’re interesting. You are trolling for something but I don’t know what.

    This is very simple, yet you have some ego tied up in it. You want to name drop for some reason, but the end result is for nothing.

    New construction is a problem. it’s getting to be a very large problem for the consumers. New construction is a high volume low margin business. I don’t do it. I can do dirt. My area of interest is in wet land preservation.

    Builders have become a driving force in Real Estate. You continually refer to the Sterling Bank buyer incentive program. That indicates an interest you have in South Everett. Did you invest? Yes that is where my short sale is, and the dirt deal I referred out. Madison Court is where my last short sale was.

    It is a waste land of new construction homes.

    As in city homes become more affordable there will be no reason for those cracker boxes to sell for more than $150K maybe less. I know that many of those homes are falling apart as we write back and forth. It is crappy construction at it’s worst.

    I go out there because of the high number of people of Hispanic descent that were swindled by builders, loan originators, and agents of questionable reputation.

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  45. David Losh

    RE: mukoh @ 47

    Yes we do need to regulate builders more closely. This legislation is only one step, we need more laws to protect consumers. We need more land use legislation that the Master Builders Association has circumvented and gutted. The consumer needs protection. There are good builders, but there are many more, thousands who are crooks.

    The same as there are crooks that are Real Estate agents there are crooks who are builders. A Real Estate transaction is only about money. Builders can create products that are dangerous.

    Bad land use can damage every body.

    Tax payers pay to prop up the building industry every day. no one says anything about the amount of infra structure tax payers have to pay for to accommodate the construction industry. We all forget that the Growth Management Act was a direct result of the Master Builders Association refusing to regulate itself.

    We need more laws to protect consumers from builders. More laws, many less builders.

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  46. mukoh

    David,
    I own land and investments. And have developed multi unit properties for myself, and have also developed 50+ lots in about 3 subdivisions, sold them to BUILDERS. So I know a thing or two.

    I know of Madison Court, have seen it from an agent of mine I think.

    Builders do not need to be more regulated. To your crooks comment, there are crooks everywhere, even in house cleaning there are crooks.

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  47. David Losh

    There are good builders, but they are few and far between. There again many good builders get run out of the business by bigger fish so we are left with more cracker boxes.

    Is there money in building? You betcha, but it’s not what I do.

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