Issue Date: April 1, 2007

Home Warranties Gain Popularity, Reduce Risks

By Jody Zink
Licensed Realtor in Ohio & Michigan

If you're buying or selling a home, you may have heard the term “home warranty.” It's like buying an extended warranty for your phone at Best Buy or the new fridge from Sears. Make no mistake, home warranties are insurance. Except everything's bundled together. This can be handy when you don't know what's going to break or when.

For a yearly fee of $250 to $400, a protection plan typically covers repair or replacement of of basic home systems such as plumbing, heating and major appliances. If the repair or replacement is covered by the contract, the homeowner just pays for the service visit, usually $50 -$100 a pop. Of course, with everything in life, there are limits. It's very important to read the policy and know exactly what's covered. Every contract has its list of exclusions, from ice makers to doorbells. For an additional premium, (usually $50 or $100) coverage can be bought to cut out some of those exclusions. And you can buy reasonable “a la carte” coverage for specials like swimming pools and garage door openers.

The popularity of home warranties seems to be on the rise and can reduce risk for everyone involved.

A seller can make his home more attractive to buyers, especially if it's an older home. If the seller offers one, he typically doesn't pay anything out of pocket until the home sells. And coverage usually starts the moment he signs the contract. So, if a covered dishwasher leaks during the listing period, for a service fee, it can be repaired or replaced, with the actual one-year period for the buyer not kicking in until after closing. Seller calls the company service number. They send a technician. Seller pays a minimal service fee.

A home warranty can promote a faster sale, for more money, with fewer number of after-sale problems, for seller, buyer, and real estate agent. Some 60 percent of litigation following residential home sales could be avoided if home sellers had purchased a home warranty plan, according to David Medley, National Account Manager for First American Home Buyers Protection Corp. Additionally, two out of three lawsuits involving real estate agents might also be prevented, since these claims involve failed mechanical systems, he added.

For buyers, a home warranty can give peace of mind. They've just made a major purchase and can be strapped for cash. Facing unexpected repairs can be a burden. A warranty can alleviate that worry. It's one stop shopping, no need dig through the phone book, and can save you money on large or persistent failures. Nowadays anyone can buy a home warranty for any home at any time.

On the down side, costs can match or exceed repair or appliance replacement costs and exclusions can burn you. You typically cannot choose your contractor. But when you consider homeowners spend an average of $900 each year to repair home systems and appliances, it may be worth it.

Jody Zink is a licensed REALTOR in Ohio and Michigan with the Loss Realty Group. Her column appears every other week in the Toledo Free Press. She can be reached at jody@jodyzinkrealtor.com or 419-725-1881.