Home Warranty Plans
Frequently in the home buying or selling process, buyers encounter homes whose sellers are offering home warranties. Both buyers and seller (and some agents) are frequently under the impression that these warranties cover most, if not all, costs to repair or replace things that fail in the home.
A home warranty is a contractual agreement provided to an owner of a house by any of a number of different types of entities. In the case of this article, I am referring to “home warranty” companies. The home warranty industry was founded in 1971 by American Home Shield. In the strictest legal sense a warranty of any kind must adhere to guidelines set at the states' and federal government's levels. But the word “warranty” is not always used explicitly to mean a legal warranty is being conveyed. Usually, a home warranty is not a warranty at all but rather a home service contract that covers the repair and/or replacement costs of home appliances, plumbing, heating and cooling and electrical systems, and possibly other components. Coverage and costs vary significantly across home warranty companies and home warranty contracts do not cover all home repairs.
Some home plans are more expensive and cover more items while others are more limited. Most require that you pay a service fee, around $50 to $100 per incident and also have a maximum amount that they will pay per covered item and a limit on what they will pay in total. Be sure that you are aware of what the coverage exclusions are and if the company pays the full cost of replacing an item or its depreciated value.
Some common complaints that home warranty clients have about warranty companies are: 1. Deny the claim citing homeowner's maintenance negligence or “pre-existing problem”
2. Repair the equipment even when it is in such bad shape as to be replaced (which may keep it running until your warranty ends)
3. Utilize sub-standard service providers (the warranty company chooses the provider), this issue is often attributed to the fact that they have negotiated lower rates from these providers
Most warranty companies have a “Sample” Coverage Terms document that outlines what is included and excluded as well as some other terms. These generally look pretty good. Many have fine (miniscule) print that references a cover/front page that details specific coverage on the particular home. Make sure you have all information before making a decision.
One of the best preventive measures you can take to reduce the risk of nasty equipment failure surprise after closing is to schedule a thorough home inspection (by a reputable, knowledgeable company). Your purchase contract should allow for an inspection and have a date by which you must complete and report any issues to the seller. If their response is that the home warranty will cover it, look over the coverage terms AND make a call to the warranty company to verify this.
A great resource for home warranty information and reviews of existing companies as well as a list of ones no longer in business (some reportedly still selling warranties). www.HomeWarrantyReviews.com Reports I have read state that around 20 companies went out of business between 2013 and 2014.
A home warranty can be a great asset, you just need to do a little homework to make sure you know as a seller what you are offering and as a buyer what you are receiving.
Michael has been selling real estate at Lake of the Ozarks since 1981. He is one of the most respected brokers in the area. If you would like a detailed sales report and value for your specific property type or neighborhood, or would like information on the best buys at the lake, contact C. Michael Elliott & Associates at 573.365.SOLD. You can also view each month’s article, ask questions and offer your opinion on his blog at www.AsTheLakeChurns.com