Home Warranty Basics
Wednesday, February 24, 2010
When something breaks down in your home, wouldn’t it be wonderful if you could pick up the phone, request a service call, pay a nominal service charge and have the problem fixed? In theory, this is how a home protection plan works.
A home protection plan, also called a home warranty, is an insurance policy that insures homeowners against defects in the major systems of their home. Most policies cover the heating, plumbing and electrical systems as well as built-in appliances like the stove, dishwasher and garbage disposal. Some companies will cover movable appliances like the refrigerator, washer and dryer for an extra charge. And some policies even include roof coverage-if you pay an additional fee. The basic warranty plan costs about $300. per year.
Home protection plans are popular in the real estate industry because they provide a relatively inexpensive way to take care of home defects that develop soon after the home sale closes. For example, let’s say the water heater quits working the day after closing. That could be a fairly high expense for a new homeowner; however, if there is a home warranty in place, the hot water heater will probably be replaced for the nominal cost of a service charge…about $45 per call.
Some sellers offer to pay for a home protection plan to cover the home for the buyer for one year. If problems arise during that year, the buyers simply call the warranty company and pay the service charge. The warranty company pays for the repair or replacement.
Seller coverage is also available to cover the home during the listing and sale period. Seller coverage works the same as buyer coverage except that there are usually more limitations on the coverage. For example, the furnace is usually covered under both buyer and seller coverage. But, the amount of coverage offered under seller coverage is often less than the amount that’s available to the buyer if the furnace breaks down after closing.
One seller who had signed up for seller coverage was able to have some of the defects that were discovered during the buyer’s inspections fixed by the home protection plan company for the cost of a service charge. This was a great deal for the seller because it saved him money and he didn’t have to pay the policy premium until closing. Seller coverage is usually charged by the day.
If the seller of a home you’re buying does not offer to pay for a home protection plan, you can pay for one. Be sure to order it before the closing date.
~ Barry Ripp
Information was obtained in part by the CAR & Dian Hymer (who is a nationally syndicated real estate columnist.)