Searching for a Safety Net: How Architects Reduce Risk and Reap Rewards in the Condo Market (Practice‪)‬

Throughout the recent economic downturn, residential construction has been a bright spot, a boom that overshot all predictions. As low interest rates fueled the speculative housing market, condominium projects have dominated the construction scene in thriving metropolitan areas. While the NAHB has no statistics on the proliferation of apartment-to-condo conversions, its numbers show that 120,000 new for-sale condos or cooperatives were built in 2004 alone. The dark side to all this activity is that after every construction boom comes a rush of claims, with condos as the top target. Although California's court system is particularly notorious for its runaway construction-defect litigation, statistics show that condos are a problem everywhere. Chevy Chase, Md.-based Victor O. Schinnerer & Co., a leading insurer of design and engineering firms, reports that in the past five years, the multifamily billings of its clients represented less than 4.5 percent of their total revenues, yet lawsuits from those projects accounted for 20 percent of all claims. And as housing prices seem to defy gravity, the stakes are higher than ever. The average condo claim paid by the insurance company was about $190,000, with the top 10 percent averaging more than $820,000. Small architecture firms aren't immune, either. Of the top 25 paid claims, seven were on behalf of small firms, averaging $670,000 apiece.