Under Warranty: Managing Product Warranties

Forrest White, director of asset engineering for Alliance Residential Co., has a tight budget for the rehab projects he oversees at the Phoenix-based multifamily developer and third-party manager. A stickler for detail, he keeps a close eye on costs, reviewing line-by-line expenditures for the 10,000 units in Alliance's renovation pipeline. When White saw double payouts for vinyl floors at units less than a year old, he knew something wasn't right; those floors should have been covered by a manufacturer's warranty.

After investigating the problem, he learned that his on-site personnel were doing their jobs, calling in service tickets on the torn floors to make everything sharp and ready for residents to move in. The problem was, they didn't realize those repairs were covered under warranty and could be billed back to the manufacturer.

“If I see a double bill like that, obviously I'm going to question it,” White says. “But the problem with warranties is it takes somebody watching over it to make sure we get reimbursed.” Though White says it's difficult to quantify how much Alliance shells out repairing and replacing items that should be covered under warranty, he suspects it's a sizeable amount. “If you pay to replace all of the vinyl in an apartment, that's $500 right there,” he says. In fact, the average warranty service call costs about $320, according to the National Association of Home Builders.

To combat the problem, White is working with the firm's property management software provider, Santa Barbara, Calif.-based Yardi Systems, to develop a database that will automatically flag items covered under warranty. “It will look at each item based on its age, and then generate a note right on the service ticket indicating the product is under warranty,” White says. “In the end, we think it will save us a lot of heartache—and money.”

Indeed, warranty management is often an overlooked area for multifamily executives, and observers say companies often spend big money repairing or replacing items that should be covered by manufacturers instead.

Specific numbers for apartments are difficult to gauge, but production home builders budget 1 percent of a home's price for warranty expenses, according to Orlando, Fla.-based SMA Consulting. Now, with an array of tools at their disposal, property managers hope they can eliminate the problem altogether.

The hurdle for many multifamily operators is managing information on all the units and equipment they own or oversee. At Alliance, for instance, which manages more than 47,000 units, White says just knowing which products are covered—and then making sure they're serviced in a timely manner when warranty items are identified—is a cumbersome process. It's no surprise his on-site personnel often just try to fix a problem outright: A prompt response time to residents' calls is the strongest determining factor in lease renewals, according to SatisFacts Research, a Lutherville, Md.-based industry research firm. “There is nothing more critical than the work-order process,” says Doug Miller, SatisFacts' president.

Ranjeev Teelock, vice president of property management systems at Carrollton, Texas-based software maker RealPage, says maintaining warranty records and determining who foots repair and replacement bills is tough. “The challenge that multifamily companies face is that when an appliance needs to be repaired, they don't have the warranty information available,” Teelock says. “A lot of times ... it's easier to just go out and fix or replace something themselves than it is to track down the warranty.”

The dilemma illustrates the underlying business model of warranties themselves: While they provide insurance against defects, they're only valuable if you are able to redeem them, and often times, the process of doing so seems more trouble than its worth.

The good news for multifamily operators is that solutions are evolving to help capture more of the benefits of warranties by eliminating the guesswork in record keeping and reimbursement. For instance, Teelock says RealPage's purchasing and document management modules will soon allow managers to track warranty information for specific products. Designed to track an item through its lifecycle, the system will attach warranty information to service tickets generated by residents. “When the maintenance technician looks at the service request, the warranty information [will be] right there.” At the firm's user conference in July, Teelock said RealPage would start offering that function by year's end.

At San Francisco-based OpsTechnology, which provides purchasing software to multifamily clients, chief operating officer Sukhi Singh says warranty information is increasingly paired with products from the 300 or so vendors in the firm's network. “At the point of purchase, you can click a button to expose all purchases made for a unit, or a property,” Singh says. “Connected to that is a separate tab with warranty information.” When replacing an item in a unit, Singh says the system automatically alerts users to warranty coverage via a notice on the work order.

Lehi, Utah-based AxisPointe, which contracts with developers to manage warranty issues through its branded HomeProfile.com resident portal for condominium communities, has compiled a repository of over 125,000 manufacturer warranties. Andrew Smith, AxisPointe's president, says their system also automatically attaches warranty information to service tickets. “When that service request comes in through the HomeProfile system, it gets pre-populated with the product in question,” Smith says. “There's a column on who installed it [with], the contact information, and actual warranty document.”

Corbin Seti, operations coordinator for RMI Management in Las Vegas, has been pleased with the service at the three luxury condominium communities where his firm manages the homeowners associations. “If the faucet that came with your unit breaks, usually, you would have to go back to the developer who built the property to get the contact information for the manufacturer,” Seti explains. “Instead, AxisPointe becomes the middleman. They schedule it and take care of it.”

The system isn't cheap, though. Smith says the service starts at about $300 per door, and it goes up from there. But, he says, it can save money in the long run, while boosting resident satisfaction. That's particularly crucial in condominium communities to avoid the group discontent that can lead to litigation, Smith says.

For White and Alliance, making sure warranties don't fall through the cracks is paramount to staying competitive. “It's just part of the ever-evolving process of professional property management and development,” White says. “We're all looking for those little nooks and crannies where we can save money.”

Joe Bousquin is a freelance writer in Auburn, Calif.