One of the biggest headaches for most small-volume and custom builders is taking care of the inevitable warranty and service calls after closing. After six years on the national speaking circuit, I find that warranty work is the bane of most builders large and small. In my presentations, I always ask for a show of hands from the builders who have built a perfect, defect-free home. Invariably, no one will raise his or her hand. Perfection -- in home building at least -- is not possible on this planet. For that reason, all of us are saddled with warranty work, which none of us likes to do. The reasons are many:
By changing the way we think about and approach warranty work, much of the pain and aggravation can be eliminated.
In my view, we do warranty work for three reasons. First, itÆs what we promised them, and in many cases our contracts spell out a warranty period. Second, itÆs the law. Many states have implied warranty statutes that require "habitability" and sometimes more stringent performance standards. Finally, and most important, itÆs the best marketing tool we have!
The first two reasons are generally known and understood by most builders, but the last one is often overlooked. HereÆs how a small-volume or custom builder can create an effective and efficient marketing tool disguised as a warranty program.
Create a system
It all starts with your contract or agreement with the client. Make sure your warranty policy is spelled out and that you back it up with performance guidelines. The NAHBÆs Residential Construction Performance Guidelines for Professional Builders and Remodelers is an excellent starting point.
Then, make sure the procedure for requesting service is in place and followed. Require your client to request all warranty work in writing and do it on a schedule based on anniversary dates of 30 days, 90 days, 180 days and one year after closing or move-in, for example.
Establish a reserve
To overcome warranty aversion, create a "Warranty Reserve Fund" by taking 1% to 1.5% of each homeÆs price and depositing it into a separate account, controlled by you. To ease the bite a little, deposit a portion of each construction loan draw as you receive it. Then, when warranty work raises its ugly head, you have the funds to pay for the labor, material and supervision that it requires over and above a subcontractor's or supplierÆs contribution to fixing the problem.
You can also establish a policy for you and your employees to split any funds remaining in the account as each home goes out of warranty. Another incentive to "do it right the first time!"
Assign someone to the job
ItÆs one thing to set up the program and fund it, and itÆs another thing to actually get the job done. You must assign someone in your organization to take on this important responsibility or sub it out. As a small builder with few employees, I prefer the "sub it out" method. Find a part-time handyman, retired carpenter or anyone who enjoys small, varied construction tasks. Make sure they like people and are competent. Then pay them to make your customers happy while you get on to new projects.
For large problems, of course, you and the related sub or supplier will need to be involved, but most warranty problems are small and can be handled this way. And itÆs the little stuff that really counts!
An added benefit is that you can help your subs and suppliers be more efficient by relieving them of irritating and time-consuming minor warranty issues. But watch out! Make sure you donÆt become their crutch when it comes to fixing what theyÆve been paid to do. Set limits and monitor performance on a continuing basis. Effective communication is key.
No one I know considers warranty work his or her favorite part of the construction process. But not only do our clients expect service after the sale, it is our duty as providers of shelter to deliver it. So change the way you look at warranty work. Getting it done with a smile will go a long way to turning your warranty headaches into marketing opportunities!
Tom Stephani is president of Rosenthal Company Inc. in Crystal Lake, Ill. RCI develops commercial and residential land and constructs light commercial projects. RCIÆs William Thomas Homes Division builds custom homes and traditional neighborhood infill projects.
In addition to his construction business, Tom is a nationally recognized speaker and trainer on issues relating to the residential construction industry. Through the Custom Construction Concepts Inc. division of RCI, Tom draws on his 25 years of industry experience to give "meat-and-potato presentations designed to improve the bottom line of small-volume and custom builders."
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Please the Homeowner