Warranty 'makes older homes compete with newer homes'
In a caveat emptor state - and Alabama is one - as a buyer or seller you may want to consider getting a home warranty to lessen your liability and potential cost in transferring and owning property.
Sometimes, despite your every effort to maintain a house, things just break down. When it's the dishwasher, that may not be a big deal, but what if it's the heating and cooling unit? And what if it goes down while you're selling or closing on a house, or soon after selling? That could hurt in many ways, so here's how to get a solid home warranty.
Your first best move is choosing a reputable home warranty company.
"There's a lot of them out there, but you want to be with someone who's been out there a long time and stands behind what they do," says Larry Carroll, broker at Keller Williams Realty and founder of the Real Estate Academy of Learning, both in Huntsville. "The important thing is, even if you get a warranty not as good as other warranties, that's still better than no warranty at all. This is an extra blanket of security and it gives you peace of mind."
Ask veteran real estate agents who they use for warranties, get at least three names, contact them for information and read it all, Carroll says. Choose a company that's recommended by at least two or three people, operates well and responds to a call in reasonable time.
If you're using a real estate agent, the agent will help educate you on companies and the warranty itself, he says. As an agent, Carroll encourages his clients to buy this coverage to cover anything that breaks during the listing period and then the warranty can be transferred to the buyer.
"It makes older homes compete with newer homes," he says, touting warranties as a buyer enticement. "A home warranty can make an old house new again, because it could fix or replace something that breaks, and then it's new again."
Carroll emphasizes Alabama being a caveat emptor state adds to the liability of a seller, buyer and agent in transferring property. The warranty limits that liability for all parties, but mostly the buyer.
"You get a home inspection by an independent inspector and you get a home warranty," he says, "because no matter how good the inspector is, no one can really guess the life expectancy of machinery, and the warranty covers those issues."
Agents are increasingly encouraging sellers to include a warranty in their house sale to entice buyers, limit liability and control out-of-pocket expenses, says Christina Williams, regional manager for First American Home Warranty. These policies have been around for years, but they've gained greater attention in the South in the last six to seven years as more people see the benefits.
Williams says a seller can avoid closing headaches such as surprise costly fixes, or even a lawsuit that could result from lingering repair issues. A buyer - especially a first-time buyer - can use the warranty to avoid dealing with larger, unexpected repairs.
Anyone from single families to investment property owners to multiplex owners can buy a warranty, Williams says. You buy it one year at a time and renew each year. Your first renewal year the rate typically rises $20 to $30 and that new total amount becomes your yearly rate.
For a house of 5,000 square feet or less, the warranty usually costs around $350 to $500 a year, and for a house above that size the figure averages $600 to $700 a year, she says.
Warranties also have deductibles. Carroll says they typically run around $50 to $75 and apply to each visit.
For the terms of coverage, Williams says to get a company brochure and go straight to the limits of liability section.
"This is the heart of the coverage - the fine print - and where you find out what the company is responsible to handle," she says. "From this, you should be able to decide if this is your policy, but if the company doesn't provide this, move on."
While a home warranty sounds handy, there are some things you should know.
"Home warranties don't cover everything," Williams says. "They cover the operating systems of the home, which typically means that's what the home owner's insurance doesn't cover."
For example, if the dishwasher leaks and water ruins the kitchen floor, your home owner's policy will likely cover the damaged floor while the warranty will cover the dishwasher fix or replacement, she says.
Also, not all warranties are equal so be proactive in shopping and comparing terms. If you don't understand them, ask the company to clarify.
"Review the coverage," Williams says of choosing a company. "Don't make a decision based on price. Are they a Fortune 500 company? Do they have a local representative in your area?"
Williams, who is located in Madison, says she can more quickly and accurately respond to her customers in her territory of Alabama and central Tennessee even though her company is based in California.
Know what your deductible is and be sure it doesn't cost more than a potential repair charge, she says. Determine if the policy has dollar limits on repairs and replacements and, if so, how much.
Warranties offer coverage options, which means you choose what you want covered, such as the roof, septic tank or swimming pool. These items may or may not be in your basic warranty, so ask questions about what's covered and know what you want covered. Additional coverage options will likely cost more, but you're covered.
Williams says the No. 1 misconception about home warranties is that everything is covered. It's actually gap coverage for unforeseeable repairs and replacements not covered by home owner's insurance.
Pre-existing conditions are not covered, she says. For example, a homeowner recently called about a failed heating and cooling unit within a week of buying the warranty, but the unit had multiple, rusty leaks indicating a preexisting problem. The new owner didn't have a home inspection done, so he didn't know about it.
"The home must be in good working order at the start of coverage," she says. "Be sure, whether a homeowner or investor, to fully check the items in the house to make sure they're in good working order at the start of coverage."
Thoroughly read the warranty, particularly stipulations and exclusions,
Williams says.
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