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.

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.