A Worthwhile Incentive
Home warranties are becoming a mainstay in real estate. Learn how to discuss the pros and cons of various plans with both buyers and sellers.
May 9, 2013
It’s one of the most disheartening calls you can get: You close a sale, and within days, the new owners call to tell you the furnace has stopped working or another major home system has failed. They’re worried that their new home is a lemon. This is where home warranties come into play: A warranty can reduce buyer remorse and provide some after-sale protection to sellers against disclosure liabilities.
Here are ways to talk about home warranties that can help secure a property sale:
Foreclosures and distressed sales: Buyers who are reluctant to purchase a foreclosure or other vacant property can gain added protection, says Lelia Chapman, vice president of field sales for American Home Shield. Last year, mortgage -giant Freddie Mac announced through its HomeSteps division that it would begin offering up to a $500 home warranty credit to buyers of its qualified foreclosed properties.
Listing period protection: Home sellers can get warranty coverage during the listing period, usually for 180 days. Following the sale, the warranty can then be transferred to the home buyer. “It helps with inspection issues if a big, unexpected problem pops up,” says Beth Tyler, ABR, e-PRO, with Long & Foster Real Estate in Annapolis, Md.
Landlords: Scott Geller, ABR, CRS, associate broker with RE/MAX Centre, REALTORS®, in Jamison, Pa. says he often recommends a warranty to his investor clients, particularly if they have concerns about dealing with tenants needing services from landlords. With a home warranty in place, the tenant can call the home warranty hotline first when something goes wrong. An expert comes to assess the problem and repair or replace the appliance covered by the warranty, Geller explains.
The policies can also bring an extra measure of comfort to agents. “Home warranties really do protect us as well,” says Bob Patterson, broker-owner of The Bob Patterson Group in Hamilton, Ga. “Before we were using home warranties, the buyer would discover a problem with the property and file a lawsuit that brought in the brokers and agents as well.” But with a home warranty, buyers have a far more cost-effective means to obtaining a needed repair.
Warranties are becoming a mainstay in real estate transactions and are the most popular incentive that sellers use to attract buyers. Of the 40 percent of sellers who use incentives, nearly a quarter used home warranties, according to the 2012 NATIONAL ASSOCIATION OF REALTORS® Profile of Home Buyers and Sellers.
And whether or not they accept fees from providers, real estate professionals say they discuss home warranties in their buyer consultations and listing presentations. Home warranties, which typically range from $250 to $500, cover repair or replacement of malfunctioning systems and major appliances. They typically cover heating and cooling systems, plumbing, and electrical systems.
Scott Geller, ABR, CRS, associate broker with RE/MAX Centre, REALTORS®, in Jamison, Pa., says he reviews the pros and cons of various plans with his buyer and seller clients. “I tell them the pluses and minuses. Warranties don’t cover everything, and there are different vendors that supply them. Some coverages are better than others, but none are perfect.” Some warranty plans can be customized to include extra coverage, such as for pre-existing conditions, pools, private septic systems, or permit violations.
“When a system or appliance breaks down unexpectedly, it can be very inconvenient and stressful to home owners, and potentially devastating to a household budget,” says Lelia Chapman, vice president of field sales for American Home Shield, the nation’s largest home warranty provider. On average, AHS customers use their warranty service at least two times a year, Chapman says. And the $75 to $125 cost for the service fee is often much less than, say, a furnace repair of several hundred dollars, let alone thousands of dollars for a replacement.
Bob Patterson, broker-owner of The Bob Patterson Group in Hamilton, Ga., says he writes a home warranty into all of his offers. When he’s working on the listing side, he suggests them to sellers, too. “When sellers understand that in Georgia a buyer can sue them for fraud up to four years after a sale, they usually are happy to provide the coverage,” Patterson says.