Defect Repair Cost and Home Warranty Deposit, Korea

Abstract

Defects in the home cause inconvenience to homeowners and loss to the developer or builder due to cost and damage to reputation. A home warranty deposit exists to protect consumers from home defects. However, it is unclear how much it costs to repair a defect and whether the standard for calculating the warranty deposit is reasonable. This study analyzed the litigation details of 290 home complexes in Korea to investigate defect repair costs and factors affecting them. According to the analysis results, the defect repair cost was 0.538% of the construction cost on average. This is far below 3% of the construction cost, the prevailing standard in the relevant acts. Additionally, there was no case where the defect repair cost ratio exceeded 3%. The actual repair cost for defects was considerably lower than the warranty deposit standard stipulated by the Act. Therefore, this study proposes a method to adjust the warranty deposit collectively and a means to apply it differentially according to the size of the construction cost. This proposal benefits everyone because it protects homeowners and keeps the costs affordable. In addition, it is expected that the warranty deposit can be used as a standard for home construction and post-quality improvement. After analyzing the factors affecting the repair cost, it was found that there was a difference in the repair cost according to the home construction implementor and the construction purchase order method. The warranty deposit system prepares for the possibility that a project owner or builder, who is the project implementor, becomes insolvent. It was found that there was no difference in the repair cost for defects depending on whether the project owner was insolvent. Nonetheless, the possibility of insolvency in the case of a developer was far higher than in the case of a builder.

Keywords

• defect repair cost
• home warranty deposit
• quality management