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Home Warranties Useful For Some, Not All

Written by on Wednesday, 29 May 2013 7:00 pm
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Home warranties for resale homes are on the rise as the housing market recovers and more homes hit the market for sale.

So says the Service Contract Industry Council (SCIC) , a trade group comprised of most of the nation's home warranty purveyors.

"Securing your home with an extended warranty is a great way to set yourself apart from other sellers," said Tim Meenan, SCIC's executive director.

"Buyers seek out homes that are covered by an extended warranty because it can potentially save them thousands of dollars in post-sale home repairs."

But there are two sides to the story.

Home warranty pros

The council says sellers get an edge by attracting cash-drained buyers who can use the warranties to save on both the fear of and cost of some unexpected repairs on major appliances; electrical wiring; plumbing; water heater, and (HVAC) heating and air conditioning systems.

The council also claims the contracts can help boost the sales price. Homes with warranties return a sales price that is 3 percent higher, on average, than homes without the contracts, the council says.

"Offering a home that is under warranty sends a message to prospective buyers," Meenan said.

"It says that you care about the product you are selling and that the buyer can have confidence in what they are buying," he adds.

Chances are, however, unless you are selling a distressed property or fixer upper, you may not need to shoulder the extra selling cost burden of a home warranty - $400 to $500.

Today's housing market demand exceeds the supply by a wide margin and in most cases a warranty won't make the difference between a sale and no sale.

The housing downturn also left buyers wary and skeptical. A home warranty could send the wrong message - that something is wrong with the home.

Home warranty cons

Consumer Reports and other critics say the $400 to $500 annual cost of home warranty could be better spent on an interest-bearing, home-maintenance savings account.

Not to be confused with homeowners insurance, an annual home warranty covers the repair or replacement of major appliances, due to normal wear and tear. Pre-existing conditions and improper installation generally aren't covered.

The warrant company gets to decide if the condition was pre-existing or is covered. It also determines if something will be repaired or replaced.

Some 32 states require home-warranty company licensing to help ensure that contracts are honored if the company fails. If you live in a state without licensing, proceed at your own risk.

Read the small print

Consumer Reports says the warranty company contracts with local service companies, which means you can't choose your own. Most companies have a 24-hour call service to handle requests. Covered service calls average about $65.

However, if a company you need doesn't offer emergency service and you call another company, you might not be reimbursed for work completed.

"Peace of mind isn't worth the price. The exception: someone who's selling a house and wants to boost the buyer's confidence," Consumer Reports advises.

Again, that could backfire.

Also, if the home comes with newer major appliances that are still under warranty, a home warranty is unnecessary.

If you do buy a home warranty-covered home, just make sure the warranty is fully paid and read the contract.

The council says many companies offer coverage regardless of age, make or model.

However, take time to understand your responsibilities and the contract's limitations (say for older systems), caps and exclusions and check on the contractors the company uses, Consumer Reports says.

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  About the author, Broderick Perkins

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.