Why a Home Warranty is a Must for Buyers and Sellers

It doesn’t matter whether you’re the buyer or seller. A home warranty can
protect your interests if something goes wrong with the property.
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Home warranties give buyers peace of mind, knowing that if one of the covered systems fails,
they will only have to pay a small fee to have it replaced or repaired. But, it has benefits for the
seller, too. Here’s why you want to have a home warranty in place during the transaction.
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Sellers typically purchase home warranties, also known as home service plans, when they put
their home on the market to reassure the buyer that they won’t be faced with a major repair
within the first year of owning a house.
It can be an effective marketing tool. It’s basically saying to the buyer, ‘Everything is good here,
but we will provide a warranty just so you don’t have to worry after closing.’
But, home warranty can also protect the buyer because you never know when a system or
appliance might fail. If you don’t have a home warranty and the HVAC unit goes out during
escrow, you would be responsible for the expense of having it repaired. On the other hand, if
you had a home warranty in place, you’d only have to pay a nominal fee, typically about $100,
for the repair.
Know what a home warranty does.
One of the most important things to know about a home warranty is what it is and what it isn’t,
says attorney Art Chartrand, who serves as legal counsel for the National Home Service
Contract Association. A home warranty is a contract. You pay an annual fee to cover the service,
repair, or replacement of specifically named appliances and systems that fail due to normal
wear and tear.
It is not homeowners’ insurance, which was designed to protect you against “fortuitous events,”
like fire, theft, and hurricanes. Anything and everything is covered unless it is specifically
excluded by the policy. With a home warranty, only specified items are covered and only under
certain circumstances.
The two actually complement each other since they cover different events, Chartrand says.
When you own a home, especially one you are putting on the market, you should have both
homeowners’ insurance and a home warranty. If you are a potential buyer, you want to look for
homes that protect against both seen and unforeseen events.
Know what it covers and doesn’t.
“Home warranties cover major system component and appliances when they break down,” says
Alison Boyle with The ServiceMaster Company, which issues warranties under the American
Home Shield brand. A typical warranty would cover HVAC units, plumbing, electrical wiring, hot water heaters, washing machines, refrigerators, ovens, cook tops, garbage disposals, and builtin
kitchen appliances such as microwaves.
Polices can be customized, she adds, to include an additional refrigerator, pool and spa
equipment, septic systems, pest control, sprinkler systems, garage door openers, smoke
detectors, door bells, ceiling fans, and more.
Even if an item is listed in the policy, it won’t be covered if it has been abused, not properly
maintained, or has pre-existing conditions, such as shoddy repair work. And, Boyle points out,
not all components are necessarily covered. Typically, coverage is limited to essential
components, so while the built-in microwave is covered, its clock might not be. Other
components that might not be covered include the rotisserie, racks, handles, knobs, and meat
probe assembly.
Know how it works.
It doesn’t matter whether you are a seller with a home on the market or the new homeowner
after close of escrow—taking advantage of a home warranty is simple. When a covered item
stops working, you contact the warranty company, either by calling the customer service line or
placing a service request online.
The company then dispatches a licensed contractor to diagnose the problem, usually within 24
hours if it’s an essential component like a HVAC unit or water heater and within a few days for a
less essential item like a dishwasher. After assessment, the contractor will either make the
necessary repairs or replace the item with a new, brand-name product with comparable
features.
Although the home warranty covers the expense of the repair or replacement, you will be
responsible for paying each contractor of a different trade that visits a service call fee of
between $35 and $100, depending on where you live, according to the NHSCA. You may also
have to pay for components that are not covered by the home warranty.
Know the advantages.
“Buyers get peace of mind,” Chartrand says, adding that it can be such an effective marketing
tool that some real estate agents won’t sell a property unless the seller agrees to purchase a
home warranty.
Sellers have a harder time seeing the advantages, though, says Grossman. After all, it can be
expensive, with the typical home warranty costing an average of $400 to $500 annually,
according to the NHSCA. Plus, some warranty providers require a home inspection, and some
sellers fear it will turn up additional issues they will need to address.
Grossman points out that most of these issues would probably be uncovered during escrow
anyway, so it’s actually to the seller’s advantage to deal with them upfront. That’s not to mention
that a home warranty can reassure a buyer on a fence and can protect the seller if anything
goes wrong with major components while the house is on the market.
Know where to buy a good home warranty.“Home warranties are not created equal,” says Boyle. “It’s important to do your homework
before you buy.”
She recommends visiting the NHSCA website, www.homeservicecontract.org, for a list of home
warranty providers that adhere to the association’s strict code of ethics. Representatives from
these companies can help you decide on the warranty that will best meet your needs.
You can also consult with a real estate agent who should also be able to suggest how much
coverage you need, according to Chartrand. “They’re the ones dealing with this every day,” he
says.

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