Do you have your own agent??? Hope you do, because that agent will advise you as to the efficacy of this and whether or not you should seek further legal counsel or just walk away.
So, this brings up another point that I've been posting about A LOT lately. If you don't have your own agent, why not???? The commission is paid by the seller/builder, not the buyer, so I'm not sure why more buyers aren't seeking the aid of an agent BEFORE they enter in to a real estate transaction.
So sorry this quandary has come up for you.
I am assuming you are talking about 327A.02. I honestly did not even think it was possible for a builder to substitute this, because I have never come across someone trying to do it. That in itself would give me pause, but I am hoping other realtors on here have maybe come across this. I would need to go to my legal team with your contract and see what is going on.
Bottom line the MN statutory warranties are pretty easy to understand. My question is why? Why is the 3rd party warranty needed?
You asked previously about using a buyer's agent and we all told you reasons for doing it. This is one example you are now experiencing on why it is important to have representation and someone watching your back.
I hear it all the time "Oh but the listing agent/builder said I could get a discount by going directly through them!". How they want to advertise is their business I guess. That does not mean much if you still get into a bad contract now does it. They are in the business to make money...and the most money from the buyer which is you.
In my latest new construction project we did not do arbitration, and I did not even have to say anything because the builder did not even bring it up. I don't believe arbitration is wise in a new construction scenario, but I am sure there are other realtors that may be just fine wit it. To me the warranties and buyer's rights (in case they find something after completion) are very important and need to be preserved. It is non-negotiable in my opinion.
So I sure do agree with Mike. I am not quick to judge without the evidence i.e contract the builder has given you. I am wondering is this a national builder you are working with or a big company? This does not seem like something a small builder would do.
Regardless you SHOULD NOT proceed with this contract based off the information given on Trulia by us realtors. That is also a pretty bad idea. You have 2 options:
1) Continue to work directly with builder and ask for clarification. If what they say makes sense, and it coincides with what you are reading in the contract it is your call. THIS IS WHAT IT MEANS TO WORK DIRECTLY WITH THE BUILDER! You are trusting them to have your best interests. We can talk until we are blue in the face that contractually it is impossible to achieve this, but only you can decide. You need to understand this contract and what you are BUYING. Basically continue at your own risk.
2) Tell the builder that you do not feel comfortable negotiating the contract un-represented. Many times buyer's come to me once they realize the reality of contracts and new construction. It can be a confusing thing if this is your first time through. The builder cannot deny this option to you, and if they threaten to take $10,000 off the purchase price that is a sleezy tactic in my mind. They are basically trying to bribe you.
Either way you need to make a decision. Trulia is a great resource for advice, but boy it is a poor substitute for a realtor and representation. You can't base your contract decisions off of what advice you get on Trulia.
Good Luck to you
Realtor North/NE Suburbs
You need unbiased advice about these things. A lot depends on the specifics of the actual language in the purchase agreement. If you don't have a Realtor representing you (only you, not you and the builder), then you might want to get legal advice before signing the P/A. If you have not entered into an agreement for representation (right to represent buyer agreement), then perhaps you could get your own Realtor who could provide advice and assist you in negotiating the terms of the P/A or at least assist you by helping you avoid pitfalls. Having your own Realtor is probably more important on new construction than on existing housing, in my opinion.
If you do nothing else, check the builder out. Google the builder's name and the words "complaint", "scam", or "beware" and see if anything comes up. Ask the builder for a list of the homes or homeowners they've sold homes to in the last 3 years and talk to those homeowners. Sometimes small local builders are better to deal with than the huge national builders, but not always.
Whatever you do, get some good advice. You might find that here, but it'll be hard without knowing all of the details, specific language, etc.
If you decide to proceed, don't close on the home if the builder has not completed 100% of the work to your satisfaction without requiring the builder to escrow funds for the remaining work. Don't let the calendar and a circled closing date cause you to accept less than you are paying for.