Wednesday, November 14, 2007

Are warranties warranted?

In the last decade, home warranties have been growing in popularity. People wonder if home warranties are all they are hyped up to be and how they can impact a home sale.

Consumers are familiar with warranties. From cars to computers, many of our larger purchases in the United States automatically come with warranties. A home is the single largest investment most people with make in their lives. It is no wonder that warranties have been expanding to include homes. As with all warranties, though, there are limitations and loopholes. Consumers must be certain of what they are purchasing. Not all home warranties are created equally. Some do not cover repairs of roofs or other major mechanicals; hot tubs or pools require special riders.

The average home warranty is purchased by the seller as a perk to entice a potential buyer. Sellers have the option of purchasing a warranty that covers the house while it is on the market as well as for a period of time after the home is sold, usually a year. This usually costs slightly more than the standard warranty, which covers the home only from the date of sale. The extra cost is a deterrent for some. Most sellers will never reap any benefit from this coverage. It is like insurance. If the furnace goes out or water heater dies while a home is on the market, the seller pays only a deductible instead of having to pay for a new unit. The benefit is that the seller is not putting extra money into the home, money that may then have to be rolled into the asking price of the home or is simply lost to the seller. Sellers need to decide if the extra cost of the extended warranty is an insurance they wish to carry before deciding to sign up for it.

Once a home is sold, the buyer is protected under it for a specified period of time. During this time, if the major systems of the home stop working or if there is damage to them, the buyer is protected, paying only the deductible instead of full repair or replacement costs. Many buyers, especially first time buyers, do not have the reserves necessary for a furnace replacement. When a seller offers a home warranty, it can be a significant selling point for these buyers.

Sellers must decide if warranties are something they wish to offer, and they must be careful consumers of warranties. Talk with your realtor about the benefits of different warranty plans or ask your realtor for the details on the warranty before you purchase it.

Polls have shown that buyers prefer homes with home warranties, and industry data indicates that homes with warranties sell faster and for slightly more. However, purchasing a warranty is only one part of the puzzle. It will not guarantee that your house will sell for top dollar or sell extremely quickly. It could sway buyers to see your home in a more favorable light, especially with an older home or starter homes. As a seller, warranties are something you should at least consider.

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