FTC FACTS for Consumers

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F or many people, a home is the most expensive purchase they ever make. It’s no wonder, then, that buyers of newly built homes are interested in warranties, 

which promise to repair or replace certain elements of the home, if necessary, within a 

certain time. According to the Federal Trade Commission, the nation’s consumer protection 

agency, if you’re considering a home warranty it’s important to understand what it covers, 

how to make a claim, and the process for resolving disputes that may arise between you and 

the builder or warranty company. 

Many home warranties are backed by the builder; others are purchased by the builder 

from an independent company that assumes responsibility for certain claims. Some home 

owners purchase additional coverage on their own from third-party warranty companies 

to supplement the coverage their builder provides. These add-on service contracts are 

commonly called warranties. The Federal Housing Authority (FHA) and the Department 

of Veterans’ Affairs (VA) require builders to purchase a third-party warranty as a way to 

protect buyers of newly built homes with FHA or VA loans. 

Warranties for

Newly Built Homes: 
Facts for Consumers 

COVERAGE

Warranties for newly built homes generally offer 

limited coverage on workmanship and materials 

relating to various components of the home, 

such as windows, heating, ventilation and air 

conditioning (HVAC), plumbing, and electrical 

systems for specific periods. Warranties also 

typically define how repairs will be made. 

The duration of coverage varies depending 

on the component of the house. Coverage is 

provided for workmanship and materials on most 

components during the first year. For example, 

most warranties on new construction cover siding 

and stucco, doors and trim, and drywall and 

paint during the first year. Coverage for HVAC, 

plumbing, and electrical systems is generally 

two years. Some builders provide coverage for 

up to 10 years for “major structural defects,” 

sometimes defined as problems that make a home 

unsafe and put the owner in danger. For example, 

a roof that could collapse is a “major structural 

defect.” 

Most warranties for newly built homes, however, 

do not cover expenses an owner may incur as a 

consequence of a major construction defect or 

warranty repair, like the cost of having to move 

out of one’s home while repairs are being made. 

Nor do they typically cover: 

• household appliances 

• small cracks in brick, tile, cement or drywall

• components covered under a manufacturer’s 

warranty

MAKING A WARRANTY CLAIM

What should you do if you have a defect in your 

home that may be covered by your warranty? 

First, read the warranty or service contract 

carefully to make sure that your problem is 

covered. Pay particular attention to the duration of 

specific types of coverage. Next, file your claim 

according to the instructions in your warranty, 

and put your request for repair in writing, even 

if the company provides a hotline for urgent 

requests. Request a return receipt, and keep a 

record of your correspondence and conversations 

with the company. Chances are your claim will 

be handled amicably and to your satisfaction, but 

if a dispute arises, it’s good to have a record of 

your dealings with the builder and the warranty 

company.

RESOLVING YOUR DISPUTE

Occasionally, a dispute arises between a home 

owner and a builder or third-party company over 

whether a defect is covered or whether repair 

work was done properly. Many warranties on 

newly built homes provide for mediation of 

disputed warranty claims, followed by mandatory 

binding arbitration. In mediation, a neutral third 

party — a mediator — helps the home owner and 

the company resolve the problem by facilitating 

discussion between both parties. It is up to 

the home owner and the company to reach an 

agreement. 

If mediation fails to resolve the dispute, it is likely 

that the home owner would be required to submit 

any claim to arbitration, instead of going to court. 

In this process, an “arbitrator” or panel makes a 

decision or award once the participants presents 

their cases. Some warranties allow home owners 

to pick an arbitrator from a list acceptable to the 

builder or the third-party warranty company. 

Arbitration is less formal than court, although the 

home owner and warranty company may appear 

at hearings, have legal representation, obtain 

documents from one another, present evidence, 

and call and question each other’s witnesses. Most 

warranties require that both parties abide by the 

arbitrator’s decision, without appeal. If your loan 

is financed through the FHA or VA and you file 

a claim against the third-party warranty company, 

you can choose between arbitration or going to 

court. If you choose arbitration, be aware that 

you are bound by the decision. More details are 

available from the FHA or VA.
Facts for Consumers

COSTS

Although arbitration is generally less expensive 

than going to court, home owners can expect 

to pay up to several thousand dollars to take 

their claim through the process, depending on 

the complexity of the arbitration. Read your 

warranties carefully to determine what arbitration 

costs or expenses the homeowner is responsible 

for and what costs or expenses the builder must 

pay.

A few companies offer home owners the choice 

of arbitration or going to court. Sometimes 

builders pay all costs associated with arbitration to 

encourage a homeowner to agree not to take the 

matter to court. 

FOR MORE INFORMATION

To learn more about warranties on newly built 

homes, contact your state or local builders’ board. 

If you have a loan insured by FHA, contact the 

closest U.S. Department of Housing and Urban 

Development field office for more information, 

or visit www.hud.gov. If you have a VA loan, 

you can contact the nearest VA office, or visit 

www.homeloans.va.gov. You can find the phone 

number for either agency in the blue pages of 

your telephone directory.

The FTC works for the consumer to prevent 

fraudulent, deceptive, and unfair business 

practices in the marketplace and to provide 

information to help consumers spot, stop, and 

avoid them. To file a complaint or to get free 

information on consumer issues, visit ftc.gov or 

call toll-free, 1-877-FTC-HELP 

(1-877-382-4357); TTY: 1-866-653-4261. The 

FTC enters Internet, telemarketing, identity theft, 

and other fraud-related complaints into Consumer 

Sentinel, a secure, online database available to 

hundreds of civil and criminal law enforcement 

agencies in the U.S. and abroad.
Facts for Consumers

1-877-FTC-HELP FOR THE CONSUMER

FEDERAL TRADE COMMISSION ftc.gov

July 2005

Federal Trade Commission

Bureau of Consumer Protection

Office of Consumer and Business Education