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Why a Home Warranty is a Must for Buyers and Sellers

It doesn’t matter whether you’re the buyer or seller. A home warranty can protect your interests if something goes wrong with the property.

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Home warranties give buyers peace of mind, knowing that if one of the covered systems fails, they will only have to pay a small fee to have it replaced or repaired. But, it has benefits for the seller, too. Here’s why you want to have a home warranty in place during the transaction.

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Sellers typically purchase home warranties, also known as home service plans, when they put their home on the market to reassure the buyer that they won’t be faced with a major repair within the first year of owning a house.

It can be an effective marketing tool. It’s basically saying to the buyer, ‘Everything is good here, but we will provide a warranty just so you don’t have to worry after closing.'

But, home warranty can also protect the buyer because you never know when a system or appliance might fail. If you don’t have a home warranty and the HVAC unit goes out during escrow, you would be responsible for the expense of having it repaired. On the other hand, if you had a home warranty in place, you’d only have to pay a nominal fee, typically about $100, for the repair.

Know what a home warranty does.

One of the most important things to know about a home warranty is what it is and what it isn’t, says attorney Art Chartrand, who serves as legal counsel for the National Home Service Contract Association. A home warranty is a contract. You pay an annual fee to cover the service, repair, or replacement of specifically named appliances and systems that fail due to normal wear and tear.

It is not homeowners’ insurance, which was designed to protect you against “fortuitous events,” like fire, theft, and hurricanes. Anything and everything is covered unless it is specifically excluded by the policy. With a home warranty, only specified items are covered and only under certain circumstances.

The two actually complement each other since they cover different events, Chartrand says. When you own a home, especially one you are putting on the market, you should have both homeowners’ insurance and a home warranty. If you are a potential buyer, you want to look for homes that protect against both seen and unforeseen events.

Know what it covers and doesn’t.

“Home warranties cover major system component and appliances when they break down,” says Alison Boyle with The ServiceMaster Company, which issues warranties under the American Home Shield brand. A typical warranty would cover HVAC units, plumbing, electrical wiring, hot water heaters, washing machines, refrigerators, ovens, cook tops, garbage disposals, and built-in kitchen appliances such as microwaves.

Polices can be customized, she adds, to include an additional refrigerator, pool and spa equipment, septic systems, pest control, sprinkler systems, garage door openers, smoke detectors, door bells, ceiling fans, and more.

Even if an item is listed in the policy, it won’t be covered if it has been abused, not properly maintained, or has pre- existing conditions, such as shoddy repair work. And, Boyle points out, not all components are necessarily covered. Typically, coverage is limited to essential components, so while the built-in microwave is covered, its clock might not be. Other components that might not be covered include the rotisserie, racks, handles, knobs, and meat probe assembly.

Know how it works.

It doesn’t matter whether you are a seller with a home on the market or the new homeowner after close of escrow— taking advantage of a home warranty is simple. When a covered item stops working, you contact the warranty company, either by calling the customer service line or placing a service request online.

The company then dispatches a licensed contractor to diagnose the problem, usually within 24 hours if it’s an essential component like a HVAC unit or water heater and within a few days for a less essential item like a dishwasher. After assessment, the contractor will either make the necessary repairs or replace the item with a new, brand-name product with comparable features.

Although the home warranty covers the expense of the repair or replacement, you will be responsible for paying each contractor of a different trade that visits a service call fee of between $35 and $100, depending on where you live, according to the NHSCA. You may also have to pay for components that are not covered by the home warranty.

Know the advantages.

“Buyers get peace of mind,” Chartrand says, adding that it can be such an effective marketing tool that some real estate agents won’t sell a property unless the seller agrees to purchase a home warranty.

Sellers have a harder time seeing the advantages, though, says Grossman. After all, it can be expensive, with the typical home warranty costing an average of $400 to $500 annually, according to the NHSCA. Plus, some warranty providers require a home inspection, and some sellers fear it will turn up additional issues they will need to address.

Grossman points out that most of these issues would probably be uncovered during escrow anyway, so it’s actually to the seller’s advantage to deal with them upfront. That’s not to mention that a home warranty can reassure a buyer on a fence and can protect the seller if anything goes wrong with major components while the house is on the market.

Know where to buy a good home warranty.

“Home warranties are not created equal,” says Boyle. “It’s important to do your homework before you buy.”

She recommends visiting the NHSCA website, www.homeservicecontract.org, for a list of home warranty providers that adhere to the association’s strict code of ethics. Representatives from these companies can help you decide on the warranty that will best meet your needs.

You can also consult with a real estate agent who should also be able to suggest how much coverage you need, according to Chartrand. “They’re the ones dealing with this every day,” he says.