What should I know about New Home Warranty?

No matter what you buy these days, someone tries to sell you a warranty for it. I don’t know why I need a warranty on a pencil from the office supply store, but they will ask if I want one anyway for an extra 25 cents that provides coverage for a year but excludes normal wear and tear.  Okay, joking aside, some warranties offer peace of mind on big-ticket items that you expect to last for at least the honeymoon period. That is the expectation of the Alberta legislation that requires new construction homes to have a minimum level of coverage for a minimum period of time. The expectation is that the coverage ensures that issues that can arise in a home have some level of safety net for the homeowner, who would otherwise be left holding the bill. Let’s take a few minutes to mine out some of the details of the coverage requirements and exemptions; I think you will be surprised about how much you didn’t know about the subject!

What properties are covered?

The New Home Buyer Protection Act requires all new homes built in Alberta to have a new home warranty policy, which will remain in effect for future owners until the policy expires. This warranty includes both condominium and non-condominium properties constructed by licensed builders and requires that the municipality issuing the appropriate permit has confirmed warranty coverage before issuing that permit. The government of Alberta has also established a searchable registry of licensed builders and a searchable registry for properties built since February 2014, as well as the appropriate coverage they carry. Click HERE to access the registry.

What is the minimum warranty coverage?

Contrary to common understanding, there are seven new home warranty providers authorized by the government of Alberta to offer new home warranty under the legislation. The government does not regulate warranty prices but enforces minimum standards, allowing providers to offer additional features or coverages above the minimum they like. The minimum coverage is arranged so that the bigger and more expensive the problem, the longer the coverage lasts for that category. Think 1-2-5-10.

There is a 1-year warranty on the materials and labour in the finishing and construction materials used, such as flooring, cabinets, trim, fixtures, etc., which usually have a lower cost to fix but are more likely to be known defects quickly.

There is a 2-year warranty on systems in the home, such as electrical and plumbing systems, ventilation and heating systems, air conditioning, or similar systems installed in the original build. Since these systems can have a bigger price tag and take more time to expose a defect, the 2 years cover those things.

The 5-year coverage is for the building envelope, and just like it sounds, this is the overall seal of the building to keep the outside on the outside. This would include things like roof sheathing, exterior walls, windows, and doors. In a similar fashion, items related to the building envelope increase in cost, complexity and amount of time required to notice the defect. The building envelope coverage is special because the legislation specifically requires the warranty providers to offer an option to builders to buy an additional 2 years of building envelope coverage if they choose to.

Finally, the 10-year coverage is for the very crucial components of the foundation, the structural integrity of framing, and roof structures. This coverage is the longest because a failure in these areas is dangerous and can potentially make the property uninhabitable.

There is a coverage maximum defined by the legislation as $130,000 for condominiums and $265,000 for single-family homes, which may seem a little on the light side considering the cost of homes today, but remember this coverage is for the house itself, the land, contents, landscaping etc. would be unaffected by a catastrophic failure, or otherwise insured by the homeowner. If the owner wants to top-up the warranty maximums, they can buy additional coverage directly from the warranty provider.

What about Owner Builders?

We are a productive and industrious bunch here in the West, and many Albertans have chosen to build their own properties themselves. You may wonder what happens to home warranty requirements in that case. Owner-builders still need authorization to build from the registrar before the municipality can issue them a permit; however, they are not required to get a warranty if they intend to live on the property themselves. Obviously, all the same construction standards apply in this situation; however, in such cases, the owner builder is prohibited from selling the property for 10 years because they do not have a warranty on the property. In fairness, they could get one after the fact if they needed to sell before the 10-year mark, but it would likely require additional inspections and costs to get the warranty after the fact. It is an option for the owner-builder to buy a warranty at the time of construction as well if they choose, but it is important to note that the warranty for owner-built homes only covers a future owner and not the owner-builder themselves.

REALTOR® requirements

REALTORS® need to be clear that the legislation prohibits the sale or the offer to sell a new home without warranty coverage within the minimum 10-year warranty period. The REALTOR® should check the property address in the property registry (https://residentialprotection.alberta.ca/public-registry/Property) if the property is less than 10 years old to verify warranty coverage is in place. This is especially crucial when the seller mentions or alludes to the idea that they or a previous owner built the property themselves since an owner-built property does not require a warranty to be in place at the time of construction but is required to resell the property within 10 years. REALTORS® and brokerages can be subject to compliance orders, prosecution, and/or fines if they list homes under 10 years old without warranty coverage.

A hot tip on warranty coverage

Within the first few weeks of moving into a new home, the owner often has a bit of a to-do list of fixes for the builder, which is entirely normal. However, after that short period, the owner gets back to living and overlooks other issues that may otherwise require attention within the warranty period. Since the one-year warranty is the one the builder is most engaged in solving themselves, it may be a good idea to hire an independent licensed home inspector to come to the property at the 11-month mark and inspect the property for any potential defects that need to be addressed. This allows an independent professional to create a 3rd party report for the builder, identifying precisely what items need attention before the 1-year warranty coverage lapses and eliminating the game of he-said, she-said.

*This information is produced for members of the Alberta Real Estate Association as best practice. The content may be time, location or situation-specific.