Warranty Whirl

Offering coverage for home's systems can be a buying incentive in this tough real estate market

January 25, 2009|By Nancy Jones Bonbrest | Nancy Jones Bonbrest,Special to The Baltimore Sun

When Wayne Williams listed his Carney home for sale last summer, he decided to add a home warranty plan as an incentive to prospective buyers.

Although he had maintained the house well during his 26 years of ownership, it still had the original furnace and heat pump. Williams knew a home warranty would not only elevate the house in a tough real estate market, but would protect the buyers during the first year. The warranty also shielded Williams from covered repairs during the listing period.

"We thought it would be a good incentive," he said.

Before the house sold, the unit went out. The home warranty company determined it couldn't be repaired and would need to be replaced. The cost for Williams was $50.

"The timing was unbelievable," he said. "If we didn't have [the home warranty], we would have been stuck with a $3,000 bill and with something we couldn't use."

Home warranty companies say unexpected home repairs and replacement costs can quickly add up and take a financial toll. With a down real estate market and slumping economy, warranties can also make homes on the market more attractive and offer peace of mind to existing and prospective homeowners.

"There's the cost-saving aspect with homeowners looking for protection against unexpected repair costs," said Douglas Stein, general manager of HMS Home Warranty. "That need is even more pronounced in economic times like these."

Home warranties are service contracts for existing homes that cover the cost of certain repairs on operational systems and appliances. An average warranty costs $300 to $600 a year.

A house is "the largest purchase of your life. Shouldn't it come with a warranty?" says Carl Knighten, HMS Home Warranty's chief executive officer for the region that includes Maryland.

Traditionally, home warranties are often used as incentives when purchasing or selling a home, but they are available to any homeowner and are renewable. They typically cover air conditioning and heating systems, appliances, plumbing and electrical systems.

When a repair is needed, the homeowner must contact the home warranty company to schedule a service contractor to come out, assess the problem and make the repair. A deductible that ranges from about $50 to $100 is required for each service call.

Real estate agents often recommend sellers offer a home warranty because they say statistics point to a quicker sale. For buyers, it can offer comfort in knowing that many major appliances and repairs are covered.

A study conducted in 2007 and 2008 by American Home Shield in conjunction with a national real estate firm found homes with an American Home Shield warranty sold an average of 23 days faster. The homes also sold on average for 4 percent more than homes without the warranty.

Vito Simone, president of the Greater Baltimore Board of Realtors, agrees they can give buyers an added confidence level when purchasing a home.

"In general, people who are buying houses that are not brand new do feel some value with a home warranty," said Simone, a real estate agent with Yerman, Witman, Gaines and Conklin Realty. "Offering a home warranty is one more thing the seller can do to give the buyer some peace of mind."

A home warranty was offered as an incentive when Dan and Courtney Bickish bought their Hampden home last October. Although Courtney Bickish didn't expect to use it, she quickly put it to the test after a leaky toilet was discovered. A few weeks later, the furnace failed to turn on.

The items were fixed and Bickishes were only out a $50 deductible for each repair.

"Our house is almost 100 years old, and that's one of the things we love about it," said Bickish. "But there was the concern repairs would come up we wouldn't know how to deal with."

When the warranty period ends, Bickish says she'll renew.

"If it wasn't offered as an incentive, I wouldn't have thought to buy it," she said. "I'm glad it was there."

Jennifer Bayne, a real estate agent with Coldwell Banker Residential Brokerage in the Village of Cross Keys, said she routinely recommends home warranties to clients including Williams and Bickish.

"It gives them peace of mind," she said. "It's hard when you have that unexpected break. You never know what can happen."

However, experts agree that anyone thinking about purchasing a home warranty should read the fine print and know exactly what is and isn't covered. Home warranties, they caution, should never be used in place of a home inspection.

"To evaluate a service contract, it is important to weigh the costs of the contract against the cost of possible repairs of the product," according to Angie Barnett, president and chief executive officer of the Better Business Bureau (BBB) of Greater Maryland.

She suggests comparing the service contract to the manufacturer's warranty to make sure coverage does not overlap.

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