Extended warranties are becoming increasingly popular with construction firms and the customers they’re trying to attract, but legal professionals warn both buyers and builders to avoid falling victim to big promises with little payoff.
“I give a lot of speeches to various trade groups and these guys are telling me they are giving longer warranties of five to 10 years on work that would normally only require one,” said Matthew Rosek, an attorney for McCoy Law Group SC, Waukesha. “I’ve also heard of them giving lifetime warranties, or warranties for as long as they are in their house.”
But when competition drives contractors to take risks, there’s the chance of committing to unreasonable terms, he said.
“You can only give so much warranty; anything more than a few years is probably not worth the paper it’s written on,” Rosek said.
Thomas Binger, an attorney for Racine-based DeMark, Kolbe & Brodek SC, said he believes more companies are offering extended warranties as a way to increase business.
“Most of the construction companies we work with are fairly idle now – both the generals and the subs are trying to drum up any work they can,” he said.
Chad Wuebben, president of Encore Construction Inc. in Madison, said he’s only seen a few companies advertising extended warranties, and believes it’s just a sign of the times.
Home owners should be wary of being sucked into deals with questionable companies, however, he said.
“In this day in age, fiscal stability of a company is more important than a two- versus three-year warranty,” Wuebben said. “Consumers need to look at longevity and staying power more than how long they say their warranty is.”
And sometimes, homeowners might be paying for a service that will never be available to them, said Mark Hinkston, an attorney for Racine-based firm Dye, Foley, Krohn & Shannon SC. “Sometimes you get the fly-by-the-night contractor who might induce a homeowner to an unreasonable warranty,” he said. “Unbeknownst to the homeowner, the contractor has no intent of fulfilling it. And some just want to make the deal, appease the customer; they are in the honeymoon period and think nothing is going to go wrong.”
The state Department of Agriculture, Trade and Consumer Protection enforces such agreements through the Home Improvement Trade Practices Act.
According to the state law, warranties must clearly stipulate all conditions or exclusions, any limitations in scope and the duration for which the seller will honor the agreement. No seller can agree to a warranty he or she does not intend to honor for the entire time period, a rule that is still broken regardless of the statutory requirement, Hinkston said.
“If a contractor is going to put in an extended warranty, they need to understand they need to honor it,” he said. “Some think they might just dangle that as a carrot, that down the road they don’t need to honor it, or down the road, even though they might have good intentions of honoring it, their business may go under, which is kind of an unforeseen situation.”
When a warranty is not honored, the homeowner can sue for monetary damages, while the seller can also be fined up to $10,000 by the state for each home improvement code violation, Hinkston said.
But even with a signed judgment, relief is not always a sure thing, Binger said.
“So many of these construction companies have folded in the last few years, and the industry is so vulnerable, that remedy might not be available,” Binger said. “A judgment is still only a piece of paper, and then you have to go find somebody.”
Wuebben said his company only signs one-year warranties on work completed, but that doesn’t stop him from coming back a few years later if real issues arise for home owners.
“If something was not right in the first place and comes up three years later, we take care of it,” he said. “Generally the cutoff would be that if something wasn’t properly maintained, then that would be the cutoff, but if something was an issue from Day 1, then we take care of it.”
But even though Encore will honor legitimate problems beyond the one year, Wuebben said, he’s decided against marketing extended warranties to obtain more business.
“We don’t see much point in it; past customers understand that it’s all about reputation,” he said. “It doesn’t matter if the warranty expires, and five years after putting the house in, the customer calls back. I don’t want anybody saying that we didn’t come back and fix something that was wrong from the beginning.”