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Costs Related to Construction Defect Litigation Weigh on Homebuilders Profit Margins

February 11, 2011 — February 11, 2011 Construction Defect Journal Staff

A report yesterday in Bloomberg entitled “Homebuilder Shares Undermined by Creeping Costs of Construction Boom Flaws&rdqou; gives further insight to the continuing wave of construction defect litigation. Interestingly, the report by Peter Robison and Kathleen M. Howley provides some insights and hard numbers relevant to CD related costs incurred by some of the nations most recognized builders.

In the case of DR Horton such expenditures have reportedly increased by orders of magnitude. DR Horton, the second-largest homebuilder, put its net liabilities for construction defects and other claims at $319.8 million on Sept. 30, more than double the $137.2 million on Sept. 30, 2003. The increase was due to the number of homes built, “not any decline in quality,” said Horton spokeswoman Jessica Hansen.

The trends relevant to construction defect litigation have become a national phenomenon, in contrast to years past when the such claims were primarily focused in the Southwest.

PulteGroup Inc., the largest U.S. homebuilder, recorded a one-time expense of $272.2 million in the third quarter, or 25 percent of its revenue in the period, to increase the reserves that cover losses when homeowners demand repairs to new houses. Chief Financial Officer Roger A. Cregg told analysts on a Nov. 3 conference call that there were a “greater frequency of newly reported claims” by people with company-provided warranties against defects.

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Costs Related to Construction Defect Litigation Weigh on Homebuilders Profit Margins