The Big Secret About Buying New Construction.


By William Decker, CMI, Decker Inspection Services


(NOTE:  Some of the details of this article only apply in the state of Illinois.  Readers are asked to consult lawyers in their own state)


OK, you are buying a brand-spanking new house, all shiny and full of hardwood floors, granite counter tops and new appliances.  What could go wrong?  The house is new, was built by a company with a great reputation and the local code inspector signed off on all of it.  Nothing could go wrong, right?


BTW:  Did you get a guarantee, a warranty on the house, didn't you.  The builder promised that everything would be taken care of and that he would come back and fix anything that comes up.  Well, here are some interesting facts that you probably weren't aware of.


By default, without any other legal contracts, a new construction homeowner, in Illinois, has an implied 10 year warranty of habitability.  This means that the builder is on the hook for any defects that make the house unable to be lived in (water intrusion, mold, Radon or just poor construction).  You are completely covered for 10 years and have nothing to worry about, right.  So how come many people and leaving their houses because they can't live there, or are spending hundreds of thousands of dollars out of their own pocket to fix problems in houses that are just 3 - 4 years old?  The builder didn't help and lawyers told these people that there was nothing that could be done.  Where was this warranty?


The answer:  The home buyer signed their right to this warranty away!


In 1979, the Illinois Appellate Court decided that there was an implied warranty of habitability for all new residential construction (See Petersen v. Hubschman Const. Co., Inc., 76 Ill.2d 31 (Ill., 1979).  The name of this warranty may be misleading because it deals not only with construction defects and code violations, but also latent defects that may not show up for many years.  The home buyer can expect that their reasonable expectations of habitability for the houses intended use.  So, you say, this should make everything OK, right?


No, because you, most probably, signed your right to this protection away when you signed the contract of sale.


Builders get around this warranty by one of two means:



The builder constructed the house as an LLC corporation.  You signed a contract with the LLC and not the builder, personally.  Once the house is completed and the sale is closed, the builder simply dissolves the LLC corporation, so the legal entity that built your house no longer exists.  No builder, so no warranty.


The builder, explicitly, puts language in the contract or sale that says that you disclaim this warranty or bait-and-switch the buyer with a limited one year "express" warranty.  Typical language for this disclaimer would read something like this:


Effective and Consequences of this Waiver-Disclaimer. Purchaser
acknowledges and understands that if a dispute arises with Seller and the dispute
results in a lawsuit, Purchaser will not be able to rely on the Implied Warranty of
Habitability described above, as a basis for suing the Seller or as a basis of a defense
if Seller sues the Purchaser."


This language, effectively, says that you have waived any right you had to a warranty by agreeing to this clause.  Case law has stated that this waiver must be clear and it must be explained to you (by your lawyer), but who actually reads the entire contract or sale for a house.  Your lawyer may have explained it to you (they should!) but did you really understand it.  Additionally, all builders will simply just not sell the house to you if you do not agree to this stipulation.


So, what can you do?  The answer is, probably nothing.  But, you can get an independent evaluation of the house by a state licensed and professional home inspector prior to your purchase.  Home inspectors are the only party that is part of a house sale that is completely unbiased.  We don't care if the house is the greatest and best constructed house ever built, or it is a real POS (the reader is free to derive their own meaning to this abbreviation).  The house is what the house is and its level of workmanship, method of construction and quality of materials are clear.  Our job is to "inspect and describe" the house and report on any observable defects.  We CAN NOT rip out drywall and look at the pipes in the walls or exhaustively test every single system and component, but a professional inspector, with experience inspecting new construction, knows where to look and what to check.


Frankly, since the boom of new construction during the late 90s and early 2000s, the quality of new construction has gone down and there are many inexperienced builders and sub-contractors building houses.  Remember, the local building codes are the only standard that the builder must meet.  That a house "passed" a local code inspection is like saying that a person passed high school with a D grade point average.  It is a bare minimum standard and not a reliable standard of quality.


So, when buying a new house, of if you need a complete report of all the defects that already exist in your house (as well as advice about what to do about them) call a professional and certified home inspector who is also a member of the National Association of Certified Home Inspectors.  It's what we do.


Hope this helps;