Home warranties gain in popularity

April 18, 1993|By James M. Woodard | James M. Woodard,Copley News Service

Sales of warranty plans for homes being resold are picking u dramatically throughout the country.

"At least 75 percent of homes we sell are covered by a home protection plan," said Nancy Amorteguy, a branch manager for Coldwell Banker Residential Real Estate Services.

"About a year ago, we started recommending the coverage strongly. We really think all previously owned homes sold today should have warranty coverage. It benefits everyone."

The coverage is usually purchased by the seller, with the one-time fee paid at the time the sale is closed. A plan typically covers costs related to repairing or replacing the "working parts" of a home -- the mechanical, nonstructural systems -- including plumbing, electrical and heating systems. Some plans include kitchen appliances, garage door openers, spas and swimming pools.

"Things have a way of going wrong soon after a sale," Ms. Amorteguy said. "With warranty coverage, everyone feels more secure about a sale transaction -- the buyer, seller and broker. The buyer will often pay for extended years of coverage."

In some cases, the initial fee is split between the buyer and seller, she noted. "We feel so strongly about the value of home warranties our firm sometimes pays for the coverage. It's an extra service for clients."

Warranty sales have increased dramatically in some areas in the past year, while sales of existing homes have risen only slightly in those areas.

Nearly 60 percent of all existing single-family homes sold in California last year included home warranty coverage, up from 40 percent the previous year, a recent survey revealed. Home warranty sales also were more than 10 percent higher during the second half of last year compared with the first half.

Nationally, 16 percent of sales of existing homes include warranty coverage, said John Kinker, president of the National Home Warranty Association. That also reflects a substantial increase.

Warranty sales nationwide have climbed 85 percent in the past five years. Last year, 535,000 warranty contracts were sold, generating about $250 million in revenues.

According to a Gallup poll, 79 percent of homebuyers and sellers rate warranties as one of the most important considerations in buying or selling a home.

"Even though coverage rates are going up, the demand for and sales of warranty plans are growing," Mr. Kinker said. "An increasing number of brokers are advertising that all their listed homes are covered with warranties. They have found this effectively promotes contacts from prospective homebuyers, as well as sellers."

The initial one-year fee typically ranges from $350 to $450 nationally, Mr. Kinker noted. The cost is lower in California, from $245 to $300.

About 60 percent of fees are paid out in claims.

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