Home Warranties Can Help Both Buyers And Sellers

Although written disclosure of known property defects by home sellers and real estate professionals is practiced in many states on a voluntary or mandated basis, disclosure itself does not guarantee that problems won't be present after the sale is closed.

If problems do arise after a sale is final, the buyer may become frustrated and even feel that the seller and/or his or her real estate agent should be liable for any repair or replacement costs incurred. Increasingly, sellers and real estate professionals are responding to these concerns by buyers through the purchase of home warranties - one-year service contracts that cover the repair or replacement of major home systems and appliances that break down due to normal wear and tear.

While these policies are popular as selling tools in today's real estate market, just how much protection they can actually provide often depends on a number of factors consumers need to consider.

Typically, a home warranty is purchased by a buyer, seller or sales professional for a one-time premium that can range from $300 to $500. The policy generally covers major home systems, such as electrical, air conditioning, heating and plumbing. It also covers most built-in appliances. Under most policies, the only additional cost to the home owner is a service charge to cover the cost of the repair visit.

A good home warranty policy can provide buyers with protection from high repair costs, while it provides sellers with a sense of security that they won't be held liable if a system fails after the home is purchased. But, don't take it for granted that a home warranty will cover small repairs and damages.

To be sure the home warranty you choose is right for your needs, be sure to understand exactly what the policy covers. The coverage provided is spelled out in the contract portion of the agreement and should be read carefully.

Before signing on the dotted line, consumers should consider the following aspects of the home warranty policy they have in mind:

• Regulations that govern these policies vary from state to state and thus can cause consumers confusion about what the policy can and does cover. Take time to find out the laws in your state that govern home warranties.
• Check the financial status and service record of the home warranty company. Especially important - try to obtain recommendations from other consumers and real estate professionals who have worked with the firm.
• Make sure the policy covers the home systems most common to the area where the home is located. For example, warranties written in warmer states should cover air conditioning and pool systems, while those written in rural areas should cover well pumps.

Consumers need to remember that home warranties are not a catch-all tool to cover problems existing prior to the time a warranty is placed on a home.

Since selecting a reputable home warranty company is crucial to ensuring good service, consumers should check with their real estate professional for recommended names of home warranty companies.

A real estate professional also can help you determine whether the company is a member of a professional association which monitors business practices.

While a home warranty has benefits, consumers should not consider it a replacement for a pre-sale home inspection, even if the warranty itself doesn't require a pre-inspection.

Reprinted with permission of NATIONAL ASSOCIATION OF REALTORS®