Facts about Home Warranties – by Janet Wickell
Home warranties insure against repair and replacement costs for appliances and other components of a home that quit working. They can be purchased for any home, no matter what its age. Home warranties are a plus for any property, but sellers sometimes offer them for residences with older components, especially if a home inspector has red-flagged an item as past its prime. A warranty helps assure the buyer that he won’t have to buy new appliances or other covered items if they fail a month after closing. Warranties are often purchased at closing but can be acquired at any time.
Standard home warranty coverage differs quite a bit by the provider, so you should study each policy carefully before selecting the one that’s best for your needs. Many standard policies cover plumbing and appliances. If heating and cooling units are not covered by the basic policy, you can include them by paying an additional fee. Some home-warranty policies cover the roof. Coverage for private wells and septic systems must usually be tacked on to the basic policy.
Home warranties that are ordered while a house is for sale can be used to make repairs for the current owner, but coverage for the owner and future buyers might differ. A standard policy might not pay a seller’s repair bill if the furnace quits working before the house is sold, but it will cover the buyer if that happens after the property changes hands. Read the fine print to determine how each party is covered. Many policies cover the seller, without payment, for up to 180 days while the property is listed. Payment is due at closing.
What’s the difference between a home warranty and hazard insurance?
A home warranty replaces items that fail on their own, while hazard insurance replaces items damaged or destroyed in fires, by wind, or during other covered events.
When you call to report a problem, the home-warranty provider sends out a local repair person who is licensed to represent them. The warranty company pays the repair person a fee, and you pay the person a co-payment for your portion of the repair. Co-payments vary but often range from $35 to $55 per visit.
One complaint that real-estate agents hear is that warranty providers sometimes send out a repair person more times than necessary, attempting to have the person repair an item that should have probably been replaced on the first visit. Talk to each warranty company about their policies to verify how they determine when replacement should be made.
Evaluating Coverage and Companies
The cost of a home-warranty policy varies. A basic policy is similar among the major providers, even though the items covered sometimes differ. Evaluate coverage by jotting down covered items in a column on the left side of a blank sheet of paper. To the right, make a separate column for each policy, and check off the items that are covered by each provider’s basic policy. If you must purchase coverage for some systems separately, jot down the price. Doing this side-by-side comparison will help you determine which policy covers the most components for the best price. Other items you should consider are how long the company has been in business and how easy it is to reach its customer service department.
Most home warranty policies are effective for one year, with an option to renew coverage when they expire. Be aware that the renewal cost is often higher than the fee paid for the initial policy.
Warranties Help Sellers Sell
A home warranty is a good marketing tool, and it also offers sellers a little more peace of mind that buyers won’t come knocking on their door if a system fails after closing. Offering a home warranty for a home with older components helps put potential buyers at ease about possible breakdowns. The price of a home warranty is minimal, and since the policy can be paid for at closing, you’re not out any cash until the home sells. Home warranties are a relatively inexpensive way for a seller to add value to a property.
Benefits to Buyers
Buyers are often short of cash after coming up with the funds required for closing. Replacing an appliance or making repairs to major systems a short time later can be devastating. Ask your seller to pay for a home warranty at closing, or negotiate a deal where both of you kick in funds to pay for the policy.