Warranty lures homebuyers

April 14, 1991|By James M. Woodard | James M. Woodard,Copley News Service

Home sales activity is picking up in markets throughout the country. But buyers are still bargaining hard for the best possible deal -- including home warranty coverage.

A home warranty protection plan is becoming increasingly common, according to a recent survey conducted by the Gallup Organization Inc. Nationally, 16.5 percent of sales last year included warranty coverage for a specified period after the sale (usually one year).

A home warranty plan typically covers the electrical and mechanical elements in a residential property. The plumbing, electrical, central heating and air-conditioning systems, along with built-in components, are normally covered.

The warranty is obtained for a one-time premium (usually $210 to $300). This is normally paid by the seller, but in some cases the cost is shared by the buyer or broker.

Most plans exclude coverage of structural elements in the house and pre-existing conditions. Some plans will even cover these items for an extra fee.

Nearly eight out of 10 homeowners polled in the Gallup survey said they likely would purchase a home warranty for the buyer of their home when they plan to sell it. Another significant finding of the survey revealed that 89 percent of all consumers would likely recommend a home warranty to another homebuyer.

"Consumer demand has been reflected by a significant rise in home warranty sales across the nation, affirming the independent Gallup findings," said John M. Kinker, president of the National Home Warranty Association.

It should be noted that the Gallup study was commissioned by the National Home Warranty Association at a cost of about $25,000.

A record 535,000 home warranties were sold nationwide last year, compared with 516,358 warranties sold in 1989, according to the NHWA. Sales of home warranties nationally have increased more than 84 percent over the past five years.

A home warranty plan provides the seller with a marketing tool, regardless of market conditions, Mr. Kinker said. Particularly in a competitive market, a home warranty distinguishes a home for sale from other homes on the market without warranty coverage and enhances the buyer's perceived value of the property. In addition, a warranty can provide sellers with added negotiating leverage.

The Gallup survey found that nearly 64 percent of homeowners nationwide would find a home on the market more attractive if it had a warranty.

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