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.

"Everything is Broken"

When it Rains it Pours?

Broken lines broken strings
Broken threads broken springs
Broken idols
broken heads
People sleeping in broken beds
Ain't no use jiving
Ain't no use joking
Everything is broken.

--Bob Dylan, "Everything is Broken" lyrics

I thought the saying was that things break in groups of three.

In the Kaplan household, that was barely half a morning's worth the other day.

Three . . . Squared

The list of casualties in just the last week include:

--dead car battery
--broken garage door sensor
--broken glasses (daughter, age 6; courtesy of son, age 8)
--broken vacuum
--dead cell phone (wife)
--broken cell phone clip (husband)
--broken coat zipper (daughter)
--broken belt buckle

--clogged master bathroom sink
--broken gas fireplace mechanism

Detect a theme?

We Kaplans may not make money on all-you-can-eat buffets, but we definitely come out ahead on home warranties and AAA.

P.S.: everything I know about cars, I owe to Saab: I learned the name and function of literally dozens of parts as they broke and needed replacing.

A/C Covered by Insurance? Better Double-Check

Home Warranties
& A/C Coverage

I don't do many "public service" announcements on this blog, but the following -- courtesy of the district manager for Edina Realty's home warranty vendor -- seemed especially topical:

It’s peak A/C season and we are getting lots of A/C home warranty claims - guess what the main reason for denial of coverage is? Lack of maintenance.

To keep your air conditioner maintained, on an annual basis you need to hose out the filter on the outside unit (gets rid of pollen and other build-up). If you don't the air flow decreases, causing strain on the system, which will eventually fail. Also make sure that shrubs are not overgrowing the unit.

Good advice . . .

"Service Minus" Plan

Covered by a Home Warranty?

Don't Be So Sure

It's supposed to be the CenterPoint Energy "Service Plus" Plan: a home warranty that covers some (or all) of the appliances in a home, depending on what coverage the homeowner selects (and corresponding monthly premium they pay).

However, depending on the age and make of the appliances in a home, it can very quickly turn into the "Service Minus" plan.

As in, the problem(s) aren't covered.

0-for-2

A client of mine has now had that experience twice in three days.

First, their SubZero fridge developed a problem that wasn't covered; according to the CenterPoint Energy repairman, Service Plus doesn't cover "closed system" repairs -- which, of course, was what was needed.

Today, the contractor who came out to fix the broken central a/c said the problem had to do with malfunctioning zones.

Surprise, surprise, that's not covered; the client now needs to call a "zoned system contractor."

Think you're covered by a home warranty plan?

Better check the fine print.

Estimating Home Upkeep

"Lumpy" Home Repairs

How much should you earmark for annual home upkeep?

According to one LA-based Realtor:

Homeowners should have 1% of the purchase price of their home in savings for improvements and surprise expenses. That is the absolute minimum. It's better to have 2% to 3% socked away somewhere.

--"Home Costs Keep Going Up"; The Wall Street Journal (12/28/09)

Before parsing this advice, however, first an aside: notwithstanding the article's headline, it gave no examples of how home costs are rising at the moment.

In fact, big ticket items like property taxes, as well as capital repairs like roofs and exterior painting -- not to mention major appliances -- are now getting less expensive, thanks to the recession.

Back to upkeep . . .

Yes, I agree with the 1% rule, but with a major caveat: home repairs are likely to be "lumpy." In other words, most years, homeowners will likely spend well below 1%; however, intermittently, they'll likely overshoot that quite a bit.

That's because things like roofs, exterior paint, and furnaces can last a decade or longer, but when they go . . . they go.

In the meantime, I'm a big fan of home warranty plans, which for a fairly reasonable monthly premium cover homeowners against major, unexpected outlays.

In fact, my standard advice to my Buyer clients is to get coverage for a calendar year, until they know their home, what reliably works -- and what doesn't. After that, they can re-assess as appropriate.

P.S.: Is The Wall Street Journal getting sloppy with its headlines? Consider this one, also from today's paper: 'Adjusted for Inflation, Dow's Gains Are Puny.' The article then goes on to note that the Dow, currently at 10,500 and basically unchanged from a decade ago, is only 8,140 when adjusted for inflation.

Since when does a 2,000 point drop qualify as a "puny gain"??