Home warranties can provide peace of mind for sellers, buyers and their brokers. And they can put a little extra change in brokers' pockets while reducing liability and speeding closings.
Brokers with one-stop-shop services such as New Jersey-based Weichert Realtors are offering co-branded versions of home warranty products with every home listed and every buyer represented. Weichert Realtors offers home warranties by HMS National under the name "Weichert's Home Protection Plan" at about $400 per customer. When a service call is needed, the buyer of the warranty makes the call, a service provider is assigned to do the work, and the buyer pays a small deductible of about $50 to $100, depending on the area.
In exchange for such an enthusiastic sales force, HMS pays about $60 to the brokerage, but for regulatory purposes, the revenue sharing is not called a commission but a "processing fee."
According to Howard Wolk, president of HMS, Weichert joins a long list of broker partners, including Keller Williams, and many Prudential and RE/MAX affiliates, among others, about half of whom share their home warranty revenues with their agents. "We have over 20,000 brokers nationally," says Wolk. "In terms of ancillary income, it works best when they encouarge the use of the warranty on all listings. Weichert has been progressive in making sure they put a warranty on all listings."
Wolk says that the brokers use the warranties as listings tools. Home warranties can guarantee up to 3 percent higher prices for homes, a benefit for sellers, according to a Gallop Poll, he quotes from the 1990's. Buyers benefit with less risk of expensive repairs on mechanical products in the home. Relocation buyers don't have to worry about finding service people in a strange new town.
"An average service call will cost a consumer about $500 in parts and labor," explains Wolk. "We can leverage our network of providers and suppliers to get better rates and do the same call for half."
But home warranties aren't the answer to every problem. They aren't a substitute for property casualty insurance, or for broker risk management solutions, points out Wolk. One way to avoid misunderstandings by consumers is to make it clear who is issuing the contract and who is responsible for paying claims.
"How far you can private label and cobrand depends on the state and its laws," says Wolk. "Weichert is cobranded so that Weichert gets some benefit in customer satisfaction, and that is why is it okay to put brokers logos on the contract, but it is clear on their Web site and on the contract that we are the ones responsible for paying the claims."
While HMS says it honors about 95 percent of its calls, some calls such as roofing, termites or damage due to acts of God are not covered by the warranty. Other items such as pools and spas are covered in certain states or available as an add-on. Some items may be excluded because they aren't built to code specifications, which could disallow some large ticket repairs such as air-conditioning in which codes change every few years.
"Everybody gets a copy of the contract, with details of the coverage," says Wolk. "In some states we do an inspection, or we'll ask for a copy of the inspection report. Typically our applications include a copy of the brokerage contract, with the sellers' disclosure.
"We do have challenges and that is why it is important to work a program like Weichert does, because it is systematic. Sometimes Realtors will forget to explain the details of the coverage."
Not Weichert Realtors, says Bill McMahon, vice president of Weichert Gold Services, the division that oversees affinity sales. While Weichert doesn't share revenues with individual agents, it does break out warranty sales by office. Each office manager can take the proceeds from the processing fees and use them according to the office needs.
Says McMahon. "Our agents are highly motivated because we have created an awareness campaign so that customers are asking for it. It makes sense. You wouldn't buy a used car without a warranty if one were available, and a home is the largest purchase you're likely to make. A home warranty isn't much to pay for to protect yourself from unknowns."