Buyers Can Request Home Warranty

If you are a home buyer looking for homes for sale, the last thing you want to worry about is what could go wrong after the closing and after moving in. A home warranty can help expedite the sale of a home and put both the buyers and sellers at ease about the inherent uncertainties of buying a new home or existing home.

A home warranty — also known as a home protection plan — is a kind of elective insurance in the form of a contract that typically covers major systems and major appliances within the home for a specified period of time (usually for one year, but sometimes they can be extended). If those systems malfunction or the appliances break, the new owners only need pay a nominal service fee (in most cases) to get everything right, including repair or replacement (if necessary) of the broken system or appliance.

Depending on the circumstances of the sale, the seller may offer and pay for a home warranty as an enticement to the buyer. Or the buyer may request the home warranty if the seller does not offer one. Sometimes the real estate agent will offer a home warranty as an enticement to a potential buyer to complete the sale.

For the peace of mind of both the buyer and the seller, a home warranty is a good idea, especially if the buyer is not skilled at home maintenance and home appliance repair. Not everyone needs a home warranty, but in many cases a home warranty can save time, money and aggravation, as the home warranty is often less expensive than the cost of replacing just one major appliance.

Obtaining a Home Warranty

Although you can consult the Internet or the Yellow Pages to find a company that offers home warranties, the companies that specialize in home warranties typically market them exclusively to real estate agents and don’t do much advertising. Builders of brand new homes almost always offer home warranties as well. Ask your real estate agent what types of home warranties are available. Compare the various options, as different companies offer varying coverage at variable costs (generally between $250 and $500).

What is covered by a Home Warranty?

A typical home warranty will cover:

• Structural elements, including roof rafters, joists and trusses, support beams, wall framing
• Air conditioning system and ductwork
• Furnace and/or heating system
• Electrical system
• Indoor plumbing system
• Major kitchen appliances, such as stove/range, oven, dishwasher, garbage disposal, etc. (Refrigerators, washing machines and clothes dryers may or may not be covered, depending on the policy.)
• Additional appliances, including hot water heater, ceiling fans, doorbells, etc.

A home warranty on a new home will also typically cover defects in materials and workmanship, such as faulty installation of fixtures, peeling paint or poor craftsmanship.

Some things a home warranty will not typically cover:

• The roof
• The foundation
• Natural disasters or accidents typically covered by homeowners insurance policies, such as fire, flood, earthquake, hurricane or storm damage
• Outdoor fixtures, such as sprinkler systems, decks and storage sheds
• Garage door openers (sometimes covered)
• Driveways, sidewalks, landscaping, etc.
• Water faucets
• Spas and/or pools (unless coverage of these items is specified, usually for an additional initial fee)
• Disposal of old appliances, etc.

How a Home Warranty Works

Once a home warranty is in place, the owner of a new home will be supplied with information on how to contact the home warranty provider. If service is required, the homeowner contacts the provider, who then dispatches a technician of its choice to the home. In addition to the initial cost of the home warranty, a nominal service fee (usually $100 or less) is assessed each time a technician is dispatched.

If a home system or appliance breaks down, the technician will first attempt to repair the system or appliance. If it cannot be repaired, a new part or appliance will be ordered and installed without additional cost, depending on the terms of the home warranty contract. Your policy should spell out what kind of replacement appliance will be installed; it should be comparable in cost and function to the broken appliance.

Cost-Benefit Analysis

Weigh the costs of a home warranty against the potential benefits. Home warranty plans differ, so you should know specifically what is and is not covered. If everything is new, you may not need a home warranty because nothing is likely to break within the first year or two. If the home is 10 years old or more and everything is used, a home warranty is probably a good idea. Like any insurance policy, a home warranty is a form of risk management, so you should conduct a cost-benefit analysis to determine whether a home warranty is sound option for you.

Disputes

Occasionally, a service provider will deny a claim by a home owner who is covered by a home warranty. If the service provider balks at covering the breakdown or if their service is not satisfactory, you should contact your real estate agent — even months after the sale closes — who may be able to smooth over the dispute. The agent’s company presumably has a working relationship with the service provider and it is in the best interest of prolonging that relationship that the agent will be able to apply pressure on the provider to rectify the problem.

A few things that can cause denial of a claim include improper maintenance, improper installation, code violations and excessive wear and tear.

Extending a Home Warranty

Sometimes, home warranties can be extended beyond the initial coverage period for an additional fee. Ask your home warranty service provider about the possibility and cost of extending coverage for an additional period of time before you sign the initial contract.

In our previous installment in this series, we discussed home inspections. In our next post, we’ll discuss homeowners insurance.

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