Not Just Peace of Mind

The most obvious reason to buy a home warranty?

To avoid an unexpected, budget-busting home repair — or several of them.

In return for an annual premium ranging from $500 – $1,000 (depending on coverage and home features), most such policies cap homeowners’ out-of-pocket expense for repairs at $100 – $150 per claim.

That’s especially attractive for notoriously cash-poor, first-time home Buyers — and the homeowners who want to sell to them (in lieu of replacing aging-but-still-working appliances and HVAC, smart Sellers often include a home warranty with the sale).

Group Rates/Volume Discounts

However, there are two other reasons for homeowners to consider a home warranty:

One. Convenience.

Unlike veteran Realtors, who often work with plumbers, electricians, etc. (or can buttonhole their colleagues for referrals), the average homeowner may not have such relationships.

Unfortunately, the worst time to find a reliable contractor is after the hot water heater springs a leak, the oven starts spewing smoke, etc.

By contrast, homeowners who have warranty coverage typically call a 1-800 number, which connects them to the appropriate professional.

Two. Pre-negotiated costs/group discounts.

Home warranty companies not only have access to contractors, they often negotiate better rates due to group discounts.

Think of it like a hospital charging an uninsured patient $5 (or $50!) for an aspirin vs. 50ยข for those covered by a group plan.

While the insurers benefit from any contractor discounts, consumers indirectly enjoy the savings in the form of lower premiums.

Getting Past Inspection

If all those pluses weren’t enough, experienced agents know that warranties play yet another useful role: they help Buyers and Sellers get past potential inspection issues.

That’s true because, once a capital item is determined to be in working order — “pre-existing conditions” are routinely excluded by insurers — the Buyer doesn’t have to (overly) fret it will fail on their watch (I promise you: live in a home long enough, and everything will).

Instead of asking for, say, half of the cost of a new furnace, Buyers are typically satisfied by a warranty insulating them from risk.

No doubt that’s why, starting about five years ago, the standard Minnesota Purchase Agreement added a paragraph** discussing Home Protection/Warranty Plans.

The section includes a clause requiring the parties to say whether the sale includes such a policy or not, and — if affirmative — providing key terms such as the insurer, maximum premium amount, coverage features, and who pays.

**As opposed to “Opt in” and “Opt out” clauses, the MLS provision includes both choices. Call it, “Opt . . .”

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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