TIP 8 - HOME WARRANTY PURPOSE: PROS AND CONS
Originally a Home Warranty Policy was provided at seller expense to the buyer to repair unknown problems within the home during the first year of buyer ownership. For the seller, this meant a way to diffuse a problem that pops up when the buyer first moves into the home. The seller says I didn't know anything about this problem while I owned the home, but I paid for your home warranty policy so you could call them to have any problem repaired by your home warranty company (assuming it is deemed worthy of coverage by the home warranty company) with you (the buyer) only having to pay a very low, reasonable Call Out Fee. This diffuses the problem for the seller (and real estate agents) who avoided having to deal with a nasty problem after the home is now owned by the buyer. Ah... peace of mind... for the seller... who no longer has to deal with a problem after close of escrow.
But the buyer owns the home... and now... the problem. The buyer has to battle with the home warranty company the buyer picked to get the problem repaired. But the home warranty company is not a not-for-profit charitable organization. They have to ensure the liability of having to make repairs does not exceed the cost of the home warranty. If this happens often, they'll go out of business. Many home warranty companies will not make repairs for preexisting problems the seller should have disclosed and, in any case, the buyer should have inspected, discovered and gone back to the seller to make the repair at seller expense BEFORE close of escrow. As your buyer's agent, I recommend a thorough home inspection performed by a diligent home inspector who is very thorough about discovering symptoms or finding evidence of past or potential problems. But it is impossible to predict what might fail or missed during a 2 - 3 hour home inspection.
PLAN FOR COST OF HOME OWNERSHIP
What can the buyer do to minimize problems? First, realize that there's a cost of home ownership and you don't know when the bill will come. So plan and budget for home repairs. In my post Typical Home Repair Costs and Component Life Cycles, I recommend a savings plan based upon the age of the home for big-ticket items like-new roof, carpet, appliances like dishwasher, hot water heater, etc. and, yes, painting the exterior.
CHECK OUT HOME WARRANTY COMPANIES - THEY ARE NOT ALL ALIKE!
I recommend to buyers and sellers a home warranty company that itemizes in their warranty contract they do NOT deny home warranty claims for the following causes of problems, as many home warranty companies do for:
- Undetectable Pre-existing conditions,
- Rust and Corrosion,
- Lack of Maintenance,
- Improper Installation, repairs and modifications and
- Mismatched Systems such as incompatible components within the HVAC system.
Contact Sam for the name of this company and I will confirm their business model does not currently exclude these six items. Do not buy a home warranty policy that does not specifically state your claim will not be denied for any of these problems as the cause of the claim you are making. This company’s repair limit per category also significantly exceeds the repair cost limit for the same repair category of all the home warranty companies I have investigated.
REPAIRS AFTER THE FIRST YEAR
So back to the problem of repairs after the first year. Do you keep paying for a home warranty policy year after year or is there a better way? A home warranty policy may cover the cost of repair of a roof leak, but there comes a time when a new roof is needed. They will fix a dishwasher, but there's a time you need a new dishwasher. A new garbage disposal is far less costly to replace than repair it. Ya-da, ya-da. So the home warranty makes little repairs, but they aren't going to give you a new one. And if they are losing money on your warranty policy, they may even deny renewal. Then what? So you spent all this money all these years to have a repair made, but that's a lot of money spent for the convenience.
SELF FUNDING FUTURE REPAIRS
My recommendation is to set up a self-funding home repair account. Take the money for an annual home warranty policy and the cost of two call out charges and save it in the bank every year. If your home is older, you should double or even triple your savings amount based upon the home's age when you bought and how soon major repairs are expected. Or you can keep paying the home warranty company every year - with some years there aren't any repair or very minimal costs. Then when expensive repairs occur, you are on your own. Or do nothing and be ready to pull out your credit card to finance the repairs. Start your savings account now and enjoy your home, knowing you are prepared for the cost of responsible home ownership and that's okay. Happy Home Ownership!!
But if you decide your home is too big, too small, too far away, not close enough or it is time to be a vagabond and travel, please contact Sam to get your home sold and you to where you want to be. It will be a pleasure representing you!
STAYED TUNED - Anything in big doses is hard to digest. Instead of blasting you with all home buyer tips, you are going to receive my recommendations in small bites…
This is the eighth installment. If you are buying an Arizona home now and want the complete series of tips at once, email me and it will be sent on its way to you. Otherwise, my blog will eventually include all home buyer essential tips. Return to Buyer Tip 7 or continue...
Arizona Associate Broker, CRS, GRI, e-PRO, SFR
Berkshire Hathaway HomeServices | Arizona Properties
Contact Sam to discuss your next Arizona home purchase plans and schedule an appointment to see how he can help make your plans become a reality.