The 10-year housing and real estate boom in this country has been a double-edged sword for the construction industry. While the top 100 U.S. homebuilders were reported to have sold an estimated 1,000 new homes a day in 2002, such performance isn’t without a downside.
In the January 2004 issue, Consumer Reports noted that approximately 15 percent of all new homes built each year have serious problems. They place this startling statistic right at the doorstep of the building boom. The construction industry has been bombarded from all sides because of this phenomenon. Building defects have resulted in lawsuits costing the industry millions of dollars, general liability insurance costs are rising, and increasingly knowledgeable consumers are more critical of the finished product and more likely to sue.
On the heels of all of this, comes a survey of quality assurance data tabulated for the construction industry that proves leading construction defects are mostly the result of failure to follow building code requirements or installation instructions. And as if to add insult to injury, the survey goes on to show most of these defects are preventable. The survey completed by Quality Built, a provider in risk management and quality assurance services, used data gathered by their field inspectors during inspections of 31,995 completed homes and condominiums across 27 U.S. states for the 12-month period ending Oct. 1, 2005.
Single-family homes averaged $5,398 in corrected defects per home while multi-family homes and mixed commercial use construction averaged $4,556 in corrected defects. The survey also identified the leading risk items for each housing type. With regards to single-family housing, the top defects included:
- Building paper and house wrap installation flaws
- Improper framing around windows and doors
- Missing structural straps and connectors
Multi-family and mixed commercial use construction were most frequently cited for:
- Unprotected penetrations in life-safety assemblies
- Missing fire-rated materials at electrical device boxes
None of these defects are visible to a homeowner or building owner upon completion, but can lead to serious consequences and legal battles down the road. However, all of them can be easily corrected during construction if identified early through a quality assurance inspection.
Construction firms should take the following precautions to prevent a defect lawsuit:
- Hire a lawyer to get your contracts tightened up.
- Include Right-to-Cure, mediation and arbitration clauses as stopgap measures to prevent lawsuits.
- Find a set of national construction standards that you back and include them up front in your contract.
- Spend time going over the contract with the potential home buyer before they sign to make sure they understand what they’re signing, and agree to the construction standards you’ve specified. If your attorney agrees, consider allowing clients three days to review the contract before signing, or three days after signing to cancel the deal.
- Create a small fact sheet or brochure for your clients that remind them of the key points of the contract – that you have the right to be notified first and granted the opportunity to fix the problem, the acceptable method for repair (included in the construction standards), and that mediation and arbitration are the next opportunities to resolve the issue prior to a lawsuit.