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Saturday, October 13, 2007

Home warranties

A home warranty is an insurance policy that covers the repairs of some of the major systems and appliances in the home, usually for the first year that you own the home. Even newer homes can have problems with plumbing, or the heating and cooling system or some other system. Many of those problems may not be covered by the builders warranty or the appliance warranty, so even with a new-build, getting a home warranty may be a good thing.

The way they work is that you call the company that has your policy whenever anything that is covered goes wrong and they handle sending out a service/repair technician to look at the problem. There is an initial deductible on all of these policies of between $50-100. That deductible covers the initial service call, but is normally returned if the service person ends up diagnosing a problem that is covered under the policy.

The normal policy of these companies it to try to repair the system or appliance; however, if repair parts are not available they will replace the item with a similar unit. In the case of units that have new federally mandated standards, like the new coolant requirements on air conditioning units, there may be no alternative than to replace, rather than repair. Some home warranties cover this “upgrade” to the current standards and some don’t.

For service oriented work, like unstopping plugged up plumbing; different companies have different policies about what is covered; such as if the problem turns out to be something like tree roots in the sewer line. These policies don’t cover things like a roof leak caused by ice damming (that should be covered under your homeowner’s insurance policy); however, they do have a “limited coverage” for normal roof leaks due to normal wear and tear. You really need to read the policies closely to understand what is covered and what is not.

As with all insurance policies there are advocates and detractors for these policies. The detractors seem to be the same people who have trouble with anything that asks them to follow a set of rules. They claim that having to use the companies’ assigned repairmen is too restrictive. In some cases, that may be the case and these policies don’t cover certain areas because they just don’t have the contractors in place to cover them.

The insurance companies also don’t cover pre-existing conditions and may ask you to prove that the system was in good working order prior to closing (a home inspection report to that affect is usually enough proof). Advocates say that having the peace of mind that you aren’t going to get hit with a major bill of your heater or hot water tank goes out is worth the effort to use the company repairmen. After all, few of us have a relative or a friend in all of the building trades that we might need to get home repairs done, especially in an emergency.

The company that we tend to use is First American, which has a fairly inclusive policy, covering most of the major stuff that can go wrong in a house. All of these policies have extra things that you can get covered, for more money, of course; including swimming pools, well pumps and other things not covered in the “standard” policy. As with all insurance policies, by almost any company in the business, there are lots of exclusions and fine print, so the buyer is advised to really read the policy before calling for repairs.

While these policies are set up to provide limited coverage to the sellers during the listing period, I normally advise sellers to wait until the buyer asks for a policy. Having a home protection warranty doesn’t seem to be a major selling point, and throwing one in as part of the negotiations is a nice little kicker to have in reserve. The cost is fairly nominal at about $400, which the seller pays at closing. On balance, I think these policies are a good thing for buyers and I always advise my buyer clients to ask for them. In the overall scheme of things they are relatively inexpensive; so, if the home seller refuses to buy one the buyer might be well advised to go ahead and buy it him/herself.

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