Understanding Home Warranties

I'd bet 90% of our home sales end up with either the buyer or seller paying for a home warranty. They're a big part of the residential real estate industry so you might want to learn a little more about them if you're buying or selling a home.

I wanted to ask an experienced home warranty rep some questions about how their company operates and the industry in general. Becca Stewart has been with Old Republic Home Protection for ten years. They have a good reputation among the 220 or so agents within our Keller Williams Allen office so I asked her to sit down for an interview.

Here are some topics I'll be discussing ... Who pays for the warranty, the buyer or seller? Who picks the warranty company? What do they cost and what don't they cover. Who does the company use for the repairs? Will the company keep delaying a replacement with constant repairs? Who decides when it's time for replacement? What recourse does the homeowner have if there's an unresolved issue? Are there limits to the repairs for expensive items like air conditioning? What about multiple issues on the same home at the same time? What about prior conditions, can they be excluded?

I'll answer the first question here. The language in our Texas Association of Realtor contracts state the seller pays for the warranty at a certain not to exceed cost but that's entirely a negotiable deal point. The Texas Association of Realtors believes in them and that's why they're part of our standard contract. If the seller thinks they're getting a fair deal on their home, they'll usually pay for the warranty. If not, they might not agree to it.

A home warranty is really a good idea if for no other reason than they help to diffuse what might end up as hard feelings between the buyer and seller after the sale.

Nothing's worse for a buyer than having something break down right after the closing. They might think the seller knew there was a problem and didn't disclose it and the seller quite possibly had no idea there was a problem at all. The breakdown was just bad timing. A $75 service charge from a reputable warranty company should get the problem resolved.

Homeowners who've had a home warranty might have different opinions about the companies they used. If the company stands behind a repair or replacement, they're probably going to like them. If there's small print or a loophole that allows the company to avoid paying for a repair/replacement, the homeowner probably isn't going to be happy.