Home Warranty Plans are very popular in other parts of the country (most notably California and Florida), yet by comparison, are purchased infrequently in the greater-Boston area – if not throughout the entire Commonwealth of Massachusetts. This is because few local buyers and sellers know what they are, or are familiar with the peace of mind this kind of pre-paid coverage can provide for a relatively nominal fee.
On the other hand, folks relocating from other parts of the country increasingly expect to have this coverage made available to them by local home sellers, and/or real estate marketing agents. At the very least, they count on their Buyer Agents to be familiar enough with these products and services to raise the subject as a self-pay option at closing, or by making an Offer to Purchase on an older property contingent upon the seller’s provision of a one-year home warranty at closing.
As a full-time Realtor®, I believe that every real estate agent – whether working for the buyer or seller – has a fiduciary responsibility to educate their respective clients with respect to the availability and advantages of a home warranty. And, they should be knowledgeable enough to recommend reputable firms that offer this coverage, as well those that offer optional coverage as dictated by an individual buyer’s needs (e.g., for swimming pools, spas/hot tubs, garage door openers and so forth).
Purchasers of newly constructed homes – including condominiums – are very familiar with the one-year warranty provided by most homebuilders at closing. These warranties give the new homeowner piece of mind by guaranteeing the repair or replacement of everything from a leaky gutter or roof, to defective new appliances, to problems with mechanical systems including HVAC, plumbing, heat, hot water, and so forth. A home warranty for older condos, single and multi-family homes (most of our local Boston housing stock!) is intended to give new owners of these properties similar coverage and piece of mind by approximating the coverage provided by a new home warranty.
A home warranty should not be confused with homeowner’s insurance. Whereas the latter covers damage to the structure of one’s home (walls, kitchen cabinets, floors) and personal belongings (clothes, television, furnishings) in the event of a fire or other tragic catastrophe, the former provides coverage for normal wear and tear of appliances and systems. Lenders require homeowners’ insurance, whereas home warranty coverage is optional.
Who among us enjoys being unpleasantly surprised by a sudden, urgent need to repair or replace an expensive stove, dishwasher or central air conditioning system? How many of us look forward to devoting the requisite time and energy it takes to find a spare part, or to get repair or replacement quotes from multiple service providers, determine which provider is both reputable and affordable, and can only hope that the provider arrives on time as promised to make the needed repairs? With a home warranty one simply places a call to the home warranty firm, which then covers the remainder of expenses associated with the repair or replacement of the offending appliance or system. Generally, the only expense is a modest $50 to $75 service call fee (not dissimilar to the co-pay one gives their doctor for an office visit, while the HMO or insurance company pays for the remainder of the associated costs).
Depending upon the kind and extent of coverage needed, a home warranty can cost, on average, in the vicinity of $400 to $600. Sellers can purchase a home warranty to cover their home during the listing period and also provide buyer coverage for one full year from the closing date. Or, a buyer can purchase a warranty to commence for one year after the closing. Home warranties are generally renewable on an annual basis by the homeowner. Since one can never predict when a home system or appliance will break down, unexpected repair or replacement costs for “big ticket items” can easily strain one’s budget. A home warranty gives prepaid piece of mind to control and minimize these kinds of costs.
Here’s how home warranties work: The covered homeowner calls the warranty firm to report the nature of the failure of a system or appliance to operate fully and effectively, and is given the name and phone number of a locally contracted, preapproved service provider to call: an electrician, plumber, HVAC repair person and so forth. The repairperson will then fix the problem or, if it cannot be fixed, replace the offending part or the entire system or appliance with one equal to or better than the original. The home warranty firm then follows up with the policyholder to ensure that they are pleased with the outcome. Once again, the policyholder gets all of this service for the price of the annual policy, plus a nominal service charge (also referred to as a co-payment, service charge or deductible).
Here is an example of how this kind of coverage can work to the benefit of the covered homeowner: let’s suppose your HVAC system fails. You call the home warranty firm and select from among the network of pre-screened service providers. When the plumber, electrician or other service provider arrives at your home, you pay the nominal service charge. Since the HVAC system cannot be fixed, a system as good as or better than the original is procured and installed. Total cost to you: $70.00 for the service charge (plus the original cost of the home warranty of, let’s say, $500) = $570.00. By way of marked contrast, the cost of replacing the HVAC system with a new one without this kind of warranty protection would be approximately $15,000. Your savings with the home warranty = $14,430. Six months later the stove dies. It is repaired at a cost of $375.00, but since you are covered once again by the warranty, you pay only the $70.00 service charge once again. Your savings with the home warranty = $305. Total cost for these two items with the warranty is: $640.00. Without the warranty the cost would have been $15,375.00. Your total savings for the replacement of the HVAC system and stove repair with a home warranty = $14,735. As one can see, the savings can be quite substantial!
Real estate agents who offer home warranties with their listings will tell you that they do so to differentiate themselves in the marketplace by providing an added-value service and peace of mind at no cost to the seller and/or buyer. Occasionally the buyer and seller agent will share the cost of this expense. A home warranty provides an added benefit to both the buyer and seller – especially in those instances in which a home inspection uncovers significant problems with any item covered by the home warranty. There is no longer a need to argue or renegotiate the price at closing – at the risk of the entire deal falling apart – because the home warranty has effectively eliminated the likelihood of these stressful, last-minute circumstances.
How to Select a Home Warranty Service
As with any product or service, a home warranty is only as good as the reputation of the firm that underwrites the policy. Look for an established firm with a good track record of customer satisfaction. Be certain that the firm offers 24-hour service 7 days a week, and has a large, multi-specialty service provider network in your geographic locale. Compare the annual cost for each policy. Look carefully at the service charges: are they per issue, or is there a charge each time the service provider enters your home to work on the same issue?
Above all, “read the fine print” to be certain that you understand any and all exclusions and exceptions to coverage. If you need additional customized coverage, select a firm that also offers multiple “add on” services for a nominal fee. Ask your Realtor® for his or her recommendations. Ultimately, though, only you can decide which home warranty policy will best suit your individual needs and budget.
Keith Munsell 
