The home warranty used to be a common aspect of the real estate transactions and it was considered worthwhile by both buyers and sellers. Now, getting a home warranty is seldom mentioned, let alone recommended, when putting together an offer. Perhaps agents think that the house inspection has supplanted warranties and/or rendered them obsolete. But in my mind, there is good reason to bring them back, particularly for transactions involving foreclosures and short sales, quite prevalent today, in that surprises not apparent at the snapshot time of an inspection are more likely to crop up in the coming months.
A home warranty is not a substitute for a house inspection and should not be thought of as such. It is not really a form of insurance either, but a service contract to perform repairs and replacements. The policies are available not just for single-family homes but also for all kinds of property. Coverage varies somewhat from policy to policy, but essentially extends to main systems and components, including appliances.
With finances extraordinarily tight today for most people, an important consideration is whether a home warranty policy is worthwhile. The best way to answer this question is to compare its cost against expected costs in absence of the policy.
I have been in transactions where it was split evenly between buyer and seller, and only when the buyer requested its inclusion in escrow. Now I encourage the seller to just bite the bullet and purchase the policy, promoting it as an asset. Sellers’ agents should even consider purchasing the policy if their clients balk at the idea. They will both recoup more than the cost in higher-priced offers and more rapid closings.
Buyers are looking for peace of mind. They often stretch to buy the house and cannot afford anything additional. The home warranty will bring an extra level of security, covering items not covered by their homeowner’s insurance. Eighty percent of buyers prefer to buy a house that comes with a home warranty.
The benefit to the seller is that homes with warranties sell 50% faster and at a 3% higher price. Sellers may believe that having a warranty sends a signal that the house has problems. But this is a fallacy; buyers understand that many problems are unforeseeable and they appreciate the candor and disclosure. And some policies offer an optional ‘listing period’ clause that protects the house while it is on the market.
Before the policy expires, the owner might consider hiring an inspector to help identify all claims. Warranty claims are easily processed. The owner contacts the policy issuer, who confirms coverage. The issuer then arranges for a service provider to diagnose the problem and obtain authorization upon reporting back. The provider either repairs or replaces the malfunctioning item. Some policy terms require a service fee, similar to a deductible.
Here are some questions to ask if trying to decide whether purchasing a home warranty is right for you;
Are the systems or appliances new enough to be covered already by manufacturer warranties? If so, are those warranties transferable to the new owner?
Can you afford to self-insure?
Is the issuer reputable?
Are there exclusions and, if so, are excluded items of concern to you?
You also try to quantify the value you place on peace of mind and then compare it to the warranty’s cost.
