Picture this: You move into your newly purchased home and within the first year the garbage disposal quit working, one of the toilet tanks sprung a leak, the water heater stopped heating and the air conditioner conked out. Encountering unexpected repairs after closing is never an exciting proposition unless, of course, you don’t have to pay for the repairs.
I know what you’re thinking. If you’re not the person who’ll be ponying up the bucks for the after-closing repairs, who will be? To be sure, there are many good candidates for the job. We’ll explore who they are later in this piece. Let’s first explore the topic at hand; home warranties.
In the case of a new-home purchase, builders typically provide a one-year “bumper-to-bumper” warranty. Beyond that, some builders offer an extended “aftermarket” warranty that adds another year to major component coverage and provides 10 years of coverage on the structure. Homeowners who purchase existing homes can purchase after-market warranties offered by dozens of private home warranty companies.
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Coverage for existing homes typically includes repair or replacement of basic systems such as heating and air conditioning, plumbing, major appliances, garage door openers, ceiling fans, pools, spas, wells and sometimes roofs. If a covered component or system breaks down within the coverage period, which typically spans one year from the date of closing on the purchase of the home, the warranty company will dispatch a local tradesperson to repair or replace any items covered by the contract. The homeowner pays only a small deductible that typically ranges between $85 and $100 per service call.
Defining the term “service call” can be a bit challenging. For example, seven electrical problems occurring at the same time can be addressed in one service call made by one electrician. Calling in a plumber and an electrician at the same time will require two service calls, however.
OK, so the homeowner pays the deductible and the home warranty company pays for the repairs. Who, then, pays the $400 to $800 fee for issuing the coverage in the first place? Here’s where those other candidates come in. The warranty company doesn’t care who pays for its product. As a result, it will accept payment from the buyer, the real estate agent, the seller and even the mortgage company. Exactly who or what combination of people will pay for the warranty is normally worked out when the purchase agreement is negotiated.
Not all home warranties are created equal, so it’s a good idea for buyers to make sure a clause is inserted into the purchase agreement giving them the opportunity to shop for the warranty company. Sellers also have an interest in knowing what types of warranty coverages are available to them, both while their home is for sale and after closing. So, how do buyers learn about the types of home warranties that are available to them? They usually obtain the lowdown from their Realtor or builder.