Housing Trends 2011

A Bigger Role for Home Warranties

No, this isn't a call about where housing prices are headed next year.

Rather, it's an observation that home warranties are becoming a bigger part of real estate sales.

Background

Local utility companies have offered home warranties for years now.

The basic plan typically covers the home's heating plant (forced air furnace or boiler), water heater, fridge and stove; premium coverage add the washer, a/c, dishwasher(s), etc., most often on an ala carte basis.

Such plans have also been a fixture of residential real estate transactions for at least five-plus years.

The most common situation: a home with older -- but still functioning -- mechanical's, where the owner wants to reassure a cash-tight Buyer, but also not bear the expense of preemptively purchasing several new appliances.

Instead, popping $400 or so for a home warranty has been a terrific compromise.

The appeal of such warranties has been further enhanced by the fact that payment is deferred until the home sells, when it is deducted from (buried in?) the home owner's sales proceeds; and the coverage can be assumed and renewed for subsequent years by the Buyer.

"Opting In"

As home warranties have grown in popularity, three developments have accompanied them.

One. Express mention of home warranties in the standard Minnesota purchase agreement.

So, there's now a clause, 2 years old, addressing whether or not the sale is accompanied by a home warranty, and if so, who's paying for it.

Two. More companies entering the business, and as a result, better pricing.

Locally, amongst utilities, Xcel Energy has been revving up to compete with Centerpoint Energy.

On the private contractor side, HSA, HMS, and several other companies write such policies.

"Leak" vs. "Roof" Coverage

Three. Home warranty policies are evolving and tightening up.

Until recently, private contractors offered a "deluxe" home warranty that, for an extra charge (natch), covered the home's roof and foundation.

However, such coverage was subject to both a deductible and a $2,000 ceiling, and required a private inspection.

Surprise, surprise, those limitations and caveats weren't exactly trumpeted in bold print.

To avoid misunderstandings (and lawsuits), both HSA and HMS now explicitly bill this feature as "leak coverage."

P.S.: And no, slapping a home warranty on a dilapidated home with shot mechanical's isn't a way to get new ones for cheap: all such policies are subject to strict "preexisting condition" clauses.