How Warranty Programs Work?
Warranty Programs for new homes provide important protection for the Purchaser, the Builder, and the Bank. They provide protection for the Purchaser throughout the entire building process, from purchase to possession. They also provide clear guidelines and rules for how potential problems or changes in the home are dealt with after the Purchaser has moved in.
Here is how Warranty Programs work. Home Builders apply to become Members of specific Warranty Programs. As a result, your choice of home Builder will often determine which Warranty Program you will be offered. In some instances, Warranty Programs are applied at the very end of construction, once the property has sold and upon request from the Purchaser or the Purchaser’s lender prior to approving financing.
Starting the fall of 2013, new legislation in Alberta (The New Home Buyer Protection Act) takes effect requiring all Builders to provide Home Warranty coverage for all new homes built in the province. In advance of this law coming into effect, some banks now require a Home Warranty before financing can be approved. All Warranty Programs must be CMHC approved.
After completing the application process with the Warranty Program, the Purchaser receives a Warranty Certificate with Terms and Conditions. Not all programs offer the same protections or guarantees.
The most recognized Warranty Programs in the industry are Alberta New Home Warranty Program (ANHWP) & National Home Warranty Program (NHWP). They offer varying degrees of coverage and requirements from home Builders for eligibility. Alternative Warranty Programs, such as Progressive Home Warranty Program and Blanket Home Warranty Program, also offer varying degrees of coverage for Purchasers and membership flexibility for Builders.
The first phase of the Warranty is protection of the Purchasers deposits with the Builder. Some Warranty Programs will cover up to 20% of the purchase price, up to $100,000, in the rare event of a default by the Builder. Deposit requirements vary from Builder to Builder and are negotiable.
Some but not all Warranty Programs cover the Purchaser during the construction phase for up to $50,000 towards completion costs in the rare event that the Builder fails to complete the home as contracted. Under the new Alberta legislation, all Warranty Programs will cover the first year of labour and materials, two years for defects in labour and materials, and five years of structural integrity protection. Some Warranty Programs provide an option to purchase an extension to ten years coverage for major structural components.
Other features of Warranty Programs may include coverage of the building inspection costs, dispute resolution costs, and living out expenses (with a limit), should the homeowner be required to leave the home for major repairs.