Budgeting can be a difficult task for a homebuilder and the warranty accrual calculation is a critical part of a builder’s budget management process. Accurately calculating your warranty reserves can make or break your budget so anything you can do to both reduce and better predict warranty claims will improve the overall financial health of your business. From a homeowner perspective, dealing with warranty claims can detract from the overall enjoyment of homeownership. Proactive home maintenance kills two birds with one stone: it allows builders to improve their warranty reserve function and accuracy and it keeps new homebuyers happy by reducing the severity and frequency of issues that might otherwise be submitted through the warranty process.
Challenges in Calculating Warranty Accruals
Accurately predicting your prospective warranty costs is difficult. Although there are some patterns to typical claims, warranty accruals are ultimately a prediction. It’s easy to set aside too much or too little to cover the warranty claims in a given time period. Both overestimating and underestimating have financial implications.
How much you actually need in a given time period is also dependent on your buyers: how well they comply with routine maintenance, how early they spot and report problems, and when and how they go through the warranty claim process.
Calculating warranty accruals has been even more difficult throughout the COVID-19 pandemic. Changes in the ways people live and work have had a drastic impact on homebuilders’ revenues and warranty claims, making accrual predictions less certain than ever. The fluctuations in claims don’t even necessarily correspond to the waves of the pandemic in predictable ways. In the second quarter of 2020, for example, when the lockdown was in its fullest force, one would expect claims to have bottomed out as maintenance professionals adhered to lockdown protocols preventing them from entering clients’ homes. However, the lowest percentage of claims actually occurred in July and August of that year, during the brief reprieve between waves of the infections.
With such unpredictability, anything that can give builders a leg up in the process is a step toward better financial health and overall profits. Regular, proactive home maintenance after handing over the keys can play a key role in helping both the homebuilder and homeowner.
Recent Warranty Trends
From an industry perspective, there has been a noticeable downtrend in recent warranty claims. Although new homes are being built at increasing rates, warranty accruals have not necessarily followed suit. Whether they’re calculated as a percentage of revenue or as a dollar-per-build average, accruals in the third quarter of 2020, following the onset of the pandemic, dropped by nearly a fifth compared to the previous year’s statistics, while homebuilding revenue jumped up a little more than 9% for the year.
While the drop in accruals might be indicative of improvements in the overall quality of new construction projects of late, the more likely case is that homeowners are unable to complete their warranty-covered repairs due to issues such as pandemic-related challenges and lockdowns. While this might seem like a good thing — fewer warranty claims can contribute to higher builder profits – this can also lead to dissatisfied homeowners as problems arise in their new homes but don’t get fixed in a timely manner. A good way to mitigate that dissatisfaction is to preemptively avoid the need for repairs and claims with a scheduled maintenance plan that catches and prevents issues before they turn into problems.
Predicting Post-Pandemic Trends
It’s unclear whether the new construction trends will continue as the pandemic abates and work reverts to pre-pandemic protocols. If remote work is once again the exception rather than the rule, will people continue to buy large homes in the suburbs or rural areas? The same issue also applies to the warranty accruals. Once maintenance professionals and other tradespeople return to regular work schedules, it’s possible that those warranty payments will start going up again — maybe even higher than pre-COVID-19 rates — due to homeowners finally resolving their mid-pandemic claims. It’s important to mitigate those potential claims while you can by encouraging regular maintenance so that a sudden spike in post-pandemic warranty claims do not negatively affect your reserves.
Taking Control of Warranty Expenses
Taking control of your warranty expenses, whether it’s by lowering them or by finding ways to better estimate your accruals, can be highly beneficial to your business’s overall financial health. While predicting your warranty expenses can be a challenge, aggregated repair and maintenance records across new home developments can indicate recurring problems, making warranty predictions easier.
When it comes to lowering costs, the best way to reduce your overall expenses is to find ways to proactively prevent claims from arising in the first place. Helping your buyer schedule regular maintenance to keep their new home in prime shape can stop problems before they start. Even if routine maintenance uncovers something that does warrant a claim, catching these things early can lower the cost of those claims and repairs.
A Simple Solution for Reducing Claims
Brand-new homeowners are often busy and stressed while trying to move all of their things, get settled in, and transition to their new lives. Things are bound to be forgotten and pushed to the wayside. That’s where home maintenance service apps like HomeKeep come in. Having all of the maintenance tasks for the home organized through a simple automated scheduling system can take a lot of the human error and forgetfulness out of the equation.
Better Visibility on Homeowner Complaints
Never get blindsided by homeowner complaints again. Home maintenance apps track all of the repairs, maintenance, and other issues buyers experience, so when issues come up, all of the home’s maintenance history has been carefully recorded.
Knowing when your buyers are having issues can help you more accurately predict what kinds of warranty claims you might need to budget for. Seeing particular patterns of problems or homeowner complaints can help you work with subcontractors and system manufacturers proactively to avoid problems with future projects and communities. Having a record of past repairs and maintenance can also make the warranty claim process much smoother, reducing pain for both you and the buyer.
Routine Maintenance to Avoid Claims
Even the highest-quality products and materials will break down over time if they aren’t properly cared for, potentially leading to expensive repairs and warranty claims. Often, all it takes to keep a home in prime condition is proper preventive maintenance. Staying on top of this type of maintenance can be difficult, however, as there are many tasks that need to be completed at different frequencies and times throughout the year. While you could put together a comprehensive to-do list for your buyer, data shows that 38% of Americans are unable to fix common household maintenance issues (without the internet, that is).
A home maintenance scheduling app can automatically create a digital calendar that includes all of the necessary maintenance tasks at just the right times. New homeowners can even book a verified maintenance professional through the app and store any necessary contact information to contact the professional for visits or follow-up. Once all of the home’s systems and appliances are set up, the app will create a customized maintenance schedule and send reminders and easy-to-follow instructions right to the buyer’s phone, making them much more likely to remember and complete the tasks.
Home maintenance apps like HomeKeep also provide a comprehensive filing system to help buyers keep track of everything they need for their new home. They can use the app to store paperwork such as contracts and warranties, routine maintenance to-do lists and schedules, and contact information for their builder, Realtor, and maintenance professionals. These apps will also automatically add manuals, user guides, and warranty information for their appliances to ensure that they are all in one place for easy reference. They can upload work orders and receipts for completed maintenance and repairs. Having all of this information in one place creates a comprehensive digital record of the home making it much easier to know if a maintenance task has been completed or missed. It also provides easy access to all of the necessary documentation in the event that a claim is necessary, smoothing the claim process and improving homebuyer satisfaction.
Homeowners also love being able to consolidate all of their covered maintenance and repair costs into a single monthly fee so they don’t have to worry about budgeting and paying for maintenance out of pocket. Failure to budget can decrease the chances that home upkeep is actually taken care of, so having maintenance and repair costs covered by a monthly fee can make scheduling and completing those tasks much easier and less stressful for homeowners.
Buyer Satisfaction Improves With Home Health Checks
Dealing with expensive repairs and warranty claims is a real pain. No new homeowner wants to take the time and energy to navigate those processes. Helping your buyer avoid these repairs through regular maintenance can increase their overall satisfaction with the new home.
Any inconvenience to the buyer is going to be perceived as low-quality work on the home, even if your work was top-notch. No matter how careful and thorough you are, issues may arise and new homeowners often perceive small or simple issues as problems that are bigger than they actually are. Routine maintenance is often the key to heading off these types of issues and misperceptions altogether. This results in a happy, informed homeowner who is much more likely to refer and recommend you to future buyers.
Educating Homeowners Mitigates Warranty Claims
Most new homeowners have no idea about what kind of maintenance a brand-new build requires. This can lead to costly warranty claims simply out of human error or omission. Educating your buyer on how to properly care for their new home can help them better enjoy their space and reduce the need for repairs or warranty calls down the line.
Often, warranty claims come from misuse or neglect, so many of these claims can be avoided through simple education. HomeKeep provides easy step-by-step instructions on how to schedule and complete important maintenance tasks, along with simple tutorials, making new home buyers informed and educated homeowners
Reduce Warranty Costs and Improve Homeowner Satisfaction With Maintenance Checklists From HomeKeep
Warranty accruals are difficult to predict, but preventive maintenance can lower overall costs and help you predict when warranty claims will be made. And the fewer repairs and warranty claims that are necessary, the happier the homeowner will be, leading to good reviews and easier future sales.
If you’re a homebuilder who’s interested in lowering your warranty accruals and increasing your buyer’s satisfaction, check out HomeKeep’s services for builders.