Home Warranty, Anyone?

There was a time in the real estate business when the law of caveat emptor ruled: Let the buyer beware. No seller’s liability survived the settlement, and the seller was not required to tell you anything about the property. It was your duty to discover any defects and if you didn’t, well then, you just bought a problem.

Today is much different in that we are living in an age of full disclosure. Sellers will tell the prospective buyer, in a written disclosure, everything they know about the home, the age of the roof and furnace, and the last time maintenance was performed on major household components. They are also expected to reveal any and all known defects, so if the house has a wet basement and the seller knows it, they are obligated to tell you. They may not be required to fix any of these items, but they must disclose them.

In addition to the seller’s disclosure, it has also become common practice for a purchaser to obtain a report from a qualified home inspector. The purpose of the inspection is to uncover defects that may not be readily detectable and perhaps even unknown to the homeowner. The home inspection often becomes a point of contention, in that the seller’s disclosure is provided to the purchaser prior to the buyer making his offer, so buyers have the ability to factor in these property conditions when they make the offer to purchase. Home inspections, on the other hand, are performed subsequent to the offer to purchase and often turn up conditions that cause buyers to attempt to renegotiate the previously agreed-upon price. It goes without saying that this is never well-received by the seller. After all, a deal is a deal – right?

Well, no, not when it comes to inspections. If the seller wants to hold the deal together he may have to work through these inspection issues, or lose the buyer, as the transaction is usually made subject to the outcome of these inspections. The seller can’t be required to make the repairs, but he also can’t force the buyer to complete the transaction if he chooses not to go forward.

So let’s say we get beyond all of these potential deal-breaking matters and the property is now yours. What if the water heater blows or the air conditioning fails, the kitchen sink starts leaking, or the furnace doesn’t heat and the garbage disposal blows a gasket? Well, I suppose you could consider suing somebody, or you could just write a check. But what if there was another option? There is – the home warranty.

The warranty, when properly employed, covers most of the issues we have been concerned about so far. Ordinarily, when you think of a warranty, you think of an instrument which would cover problems experienced by a purchaser, and that type of warranty is certainly available; however, it is possible to obtain seller’s coverage as well.

So in the instance mentioned previously, where a home inspection discovered something, seller’s coverage may handle it.

Probably the most common problem uncovered in a home inspection that the seller isn’t aware of is a cracked heat exchanger in the furnace. This potentially dangerous condition must be repaired, and that repair can cost anywhere from several hundred dollars to several thousand if it is determined that the furnace must be replaced. If the seller had a warranty with seller’s coverage, this problem would be handled and the seller would have paid only a small deductible. All of the buyer’s post-settlement problems with plumbing, heating, A/C, etc., are covered by buyer’s coverage (with the same modest deductible).

And all of this fabulous protection is actually very affordable. Basic buyer/seller coverage can probably be purchased for under $500 as a one-time expenditure; buyer-only coverage is less than $450. However, an important additional option is that the level of coverage can be improved. For a modest fee, you can increase coverage to include things like ceiling fans, smoke detectors and garage door openers. Or, include the additional option of protection from undetectable pre-existing conditions and code violations. Even with all of these add-ons, the warranty cost does not exceed $650.

And if that wasn’t enough, you can also add coverage on a ‘per item’ basis, so that if you have a swimming pool or a washer and dryer (regular kitchen appliances are covered under the basic program), you can add them for a nominal fee.

Given all the uncertainties associated with home ownership, not purchasing a warranty most definitely comes under the heading of penny-wise and pound-foolish. I recommend a warranty on every property I list for sale—it is a small cost for the huge peace of mind it provides.

Gary Straub is an independent real estate consultant who has been a real estate professional for 36 years.