Home warranties limited in their scope

Question: I have seen real estate agents advertising a homeowner’s warranty on some homes for sale. What does the warranty cover and is it a good deal? I also understand that we can purchase a homeowner’s warranty ourselves, is it worth the investment?

V.S., Lynnwood

Answer: The primary benefit of a home warranty is peace of mind. More than likely, nothing will go wrong – but can you afford to buy a new furnace if the old one dies one week after you move into your new home?

Home warranties typically cover the mechanical systems in the home – such as heating, plumbing, electrical systems and built-in appliances – for a period of six months to one year, depending on the policy. However, most home warranties do not cover structural problems such as a leaky roof or a cracked foundation. That’s why it’s crucial that you always hire a professional home inspector to inspect a home before you buy it.

Home buyers should not assume that their problems are over for a year just because they have a home warranty. As with any contract, warranty buyers should read the fine print carefully and ask lots of questions.

Find out which systems and appliances are covered, and more importantly, which are not. Ask about the service call fees. These fees are typically $50 to $75, or more, per repair visit. Most warranty policies will replace appliances that cannot be repaired, but you may not get a comparable product. For example, an expensive gourmet range might be replaced with an inexpensive builder quality range. In such a case, the warranty company may allow you to pay the difference to upgrade to a new range of comparable quality – but again, be sure to ask.

Real estate agents like to use a home warranty policy as a sales tool. Buyers who may be leery of purchasing an older home will feel more comfortable knowing that they won’t have to worry about major unexpected mechanical expenses during the first year. Agents also like home warranties because they relieve them of some of the risk of lawsuits from unhappy home buyers if something goes wrong after the deal closes.

Some home buyers make their purchase offer contingent upon the seller paying for a home warranty policy. Sellers won’t always agree to this, especially in a seller’s market like we had in the past few years, but it doesn’t hurt to ask. Even though the general housing market is slowing down, it depends on how hot the housing market is in the neighborhood in which you are home-shopping. The hotter the market, the less the sellers will be willing to negotiate.

A home warranty policy typically costs about $350 to $450 for one year. Swimming pools and spas can be covered for an additional fee. However, the price should not be the only consideration when selecting a home warranty company. The warranty is only as good as the company that stands behind it.

Some home warranty companies have gone bankrupt in the past, leaving their policy holders with worthless pieces of paper. Make sure that the warranty company you’re dealing with has a proven track record and the financial ability to pay claims.

Remember, home warranties don’t cover everything. You still run the risk of finding expensive structural defects in the home. But buying a home with a warranty is certainly better than buying a home without one – especially if the seller or real estate agent picks up the tab. If you are considering buying a homeowner’s warranty policy yourself, I think it makes less sense.

Personally, I prefer to take my chances for one year rather than spend a few hundred dollars on a warranty that will probably never be used. It’s up to you to decide whether you can afford to take that risk or have the peace of mind of knowing that many potentially expensive repairs would be covered for a year.

Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206. Fax questions to Tytler at 425-339-3435 or e-mail him at economy@heraldnet.com.