The majority of construction deficiencies occur in new condominium developments compared to townhomes and single family homes, according to a new study released today by Community Associations Institute (CAI), the leading authority in community association education, governance, and management.
The report, titled, “Protecting Homebuyers and Homeowners from Construction Deficiencies in Condominiums and Preserving Property Values Survey” examines the scale of construction deficiencies, litigation surrounding those claims, and the national impact on homeowners and community associations.
According to the report, 81 percent of respondents claim poor workmanship is the most common type of deficiency, resulting in plumbing leaks, electrical or mechanical problems, and cracks in foundation walls. In addition, the research found that 35 percent reported construction deficiencies negatively impact a homeowner’s property value and the ability to re-sell the home.
For years, community associations have been under attack in state legislatures and municipalities by legislation and ordinances aimed at stripping associations’ ability to seek relief from damages due to legitimate deficiencies found in the construction of homes, units, or common areas.
“There exists identifiable trends in the legislation,” says Dawn M. Bauman, CAI senior vice president, Government & Public Affairs. “Most of what we see in the declaration or preamble of the bills cite the need for more affordable housing.” Proponents of these bills argue that frivolous lawsuits filed by associations and the costs associated with them make building affordable condominiums too risky. The bills create additional obstacles associations must face before filing a lawsuit or limiting the definition of a construction defect to those only causing physical, bodily harm.
Ross Feinberg, Esq., and Ron Perl, Esq. describe the complexities of construction deficiencies in the introduction to their book, Construction Defect Litigation, published by CAI, which include:
- “Developers and contractors are professionals whose businesses are challenging under even the most ideal conditions. Residential development and construction are made all the more complex by fierce competition for resources, a shortage of qualified labor, an erratic economy, and incessant market demands.”
- “Developers and contractors dislike construction defect litigation as much as homeowners do, and most will make genuine efforts to resolve problems quickly and efficiently — if you let them.”
- “For the homeowner, understandably, all defects are serious; but, from a practical standpoint, most probably aren’t serious enough to require a lawsuit. Constructive negotiations with the developer, builder, or contractor nearly always lead to resolution. In fact, most construction defects are resolved without legal action — and for good reason. Litigation is extremely costly.”
The 2017 CAI study found the vast majority of the claims (44%) were resolved outside of the courthouse. Most being resolved with direct negotiation.
“The process for associations to recover damages from a building deficiency is far more complex than filing a lawsuit,” Bauman adds. “Associations must determine whether the cost and time to pursue claims outweigh the repair costs.” The report found it took more than a year for nearly two-thirds of the communities to recover damages, and only one-third reported the damages paid were enough to cover the repair.
“Market forces are dictating whether condominiums are being built,” Bauman further added, “not warranties. Laws are present in the states that make associations weigh the breadth of filing a warranty claim before doing so. Reducing consumer protections by watering down the statutory warranties will not reduce purchase prices, but will increase the post-sale cost of home ownership.”