What Conway decision means for Realtors®

Yesterday’s Just Listed article by attorney Marsico, Court Holds Implied Warranty of Habitability Does Not Apply, provides a synopsis of this very important decision that pertains to warranties owed by a residential contractor. This article discusses the practical implications for you, the Realtor®.

We are all somewhat familiar with warranties and guarantees. Generally, they provide that the item or service purchased will perform as expected and will satisfy certain standards. Many warranties are written and many contain limitations as to what is covered and for how long (e.g., a car warranty that may apply to the drive-train only and for only so many miles).

Not all warranties are written. In some situations, and for compelling reasons, courts and/or legislatures have determined that warranties are essential and are therefore “implied.” The sale of a newly constructed residence by a builder is one such area. Regardless of whether the builder provides a written warranty (they usually do and they usually contain numerous limitations), the contractor impliedly warrants that the property was built in a workmanlike manner. The implied warranty of habitability has been a blessing for many purchasers since it was created by case law in 1972.

The Pennsylvania Supreme Court again has addressed the issue of the implied warranty of habitability. It recently ruled that the warranty it established in 1972, does not apply to purchasers other than the original home buyers of new construction. If the original home buyer sells the property shortly after they purchase it, the subsequent purchaser is probably without a warranty. I say “probably” because it is possible that the builder provided a written warranty that permits assignment to a subsequent purchaser for a limited period of time. This is the exception rather than the rule.

For Realtors®, the issue rears its head when a recently constructed home is offered for sale by anyone other than the builder. The fact that the property and its appliances and systems are all very new is a selling point. In these situations we frequently read that “warranties are included.”

Buyer and buyer agent beware! Warranties are included if the warranties so provide. That the house was built in a workmanlike manner (the implied warranty of habitability) is not such a warranty that will extend to the new purchaser. Thus, the old familiar ways of assessing a property’s soundness need to be employed. I’m talking about inspections.

I am a strong believer that even new construction should be inspected by professionals before purchase. I am aware, however, that the inspection of new homes is the exception and not the rule. But new construction that is changing hands shortly after acquisition will not carry the implied warranty and therefore should run the gauntlet of assessments. Further, if the home has not been standing all that long, it is unlikely that all of its weaknesses will have become evident. Purchasers of new construction should consider engaging engineers and other highly qualified professionals in addition to the home inspector.

Further, buyers will appreciate understanding that they will have no recourse against the builder for defects that come to light shortly after purchase. Of course, nothing relieves the sellers of a newly constructed home from revealing defects and honestly answering questions on the seller’s property disclosure form. While each situation is governed by the facts, it tends to be more difficult to show that short-term homeowners had knowledge of latent defects that surfaced weeks or months later.

Purchasing a new home can be most gratifying. They’re super clean everywhere. There are no marks that mar the appearance; the appliances are brand new and so on. The downside is that they are not time-tested and the new paint and shiny appearance may hide one from seeing the bones of the property. Go into the basement of a 60-year old home with exposed block walls and you will quickly ascertain whether there is a water problem. New homes not be so revealing.

Finally, there are many highly qualified builders in Pennsylvania. Determining whether the builder will allow assignment of the remaining term of a written warranty is particularly important.