This op-ed appeared in The Olympian on March 30, 2009.
Lawmakers in Olympia are debating a bill that would hurt the recovery of the housing market, and would hit small homebuilders particularly hard.
The proposal would create a new way to sue homebuilders and small contractors by mandating, as a matter of law, that all new homes carry a state-imposed warranty that creates liability for builders for up to six years. Under the bill, substantial remodels of existing homes would be included in the definition of “new homes.” The price of new and remodeled homes affects the whole real estate market, so a mandated warranty would artificially push up the price of all housing in Washington.
The proposal comes at a time when the housing market is in serious trouble. Statewide, building permits are down 42% compared to a year ago, and home values have declined by more than 10%, even as property taxes continue to rise.
The proposed warranty would be imposed on every homeowner contract, even if it works against the wishes of the homebuyer. Under the proposal, homebuyers would be barred from choosing a different warranty or voluntarily establishing their own guarantee terms with the builder. The mandated warranty would still apply when the home is sold, even if the new owner doesn’t want it.
The bill has the strong backing of the state’s powerful trial lawyers association, but the threat of more litigation means higher liability insurance premiums for architects, engineers, builders, general contractors and subcontractors. Higher premiums in turn drive up costs for these professionals and make it harder to operate a successful practice in our state.
By making it harder for people to buy a home, the bill would also slow down the recovery of Washington’s housing market, resulting in less work for construction workers, mortgage company employees and real estate agents.
In practice, the bill would do little to help home buyers. The law already provides strong protections for consumers in contract disputes. The Better Business Bureau, the Attorney General and the Department of Labor & Industries all have programs to promote good contractors and weed out bad ones. In addition, builders are required by law to have insurance that pays customers if the company fails to fulfill the terms of its agreements.
By creating a new way to sue, the proposal would discourage voluntary dispute resolution and push more disagreements into court, as lawyers seek litigation in hopes of winning large money awards.
The vast majority of homebuilders are honest and reliable. The complaint rate against them is less than 1.5%. Another group, however, has a much higher rate of complaints. Lawyers have a consumer complaint rate of 7.5%. The Bar Association reports that in 2007 more than 2,000 customer complaints were filed against lawyers. Using the proposal’s logic, it would make a lot more sense to enact a consumer warranty bill directed at attorneys before imposing one on anyone else.
In an effort to police a tiny fraction of contractors, lawmakers want to burden the customers of 98.5% of contractors with higher prices.
Builders should be free to offer, and homeowners should be free to accept, any warranty, whatever its duration or caveats, or no warranty at all. Consumers should determine what sorts of warranties become commonplace and widely accepted. A state-mandated warranty would likely cause many builders to withdraw the voluntary customer guarantees they offer now.
This expensive new regulation would increase costs for all construction businesses, but it would fall especially hard on small businesses. Large, established businesses often have the resources to meet new financial requirements. Small businesses tend to operate on a smaller profit margin and may not be able to meet the costs of the new regulation, and be forced out of business.
With the economy the way it is, state lawmakers should be looking for ways to turn around the housing market, not make it worse.
