Home Warranty Basics Colorado

You are about ready to close your real estate transaction on a home; did you consider a home warranty?

"It is not mandatory in any state that you have to get one. But in some states it's mandatory that it is offered on a purchase agreement of the real estate contract," says David Sobel, VP of Sales, for Home Warranty of America.

Depending on where you live, you may have heard about a residential service plan or home warranty from your real estate agent. How important are these warranties? What do you really get? Let's explore.

Why a home warranty?

Sellers want peace of mind that buyers won't be calling them after the sale of their home, with problems about items in the home breaking down and expecting the sellers to pay to fix them.

Buyers want to know that the home they're buying is going to be protected and not cost them a lot of money once they move in. The home warranty helps both sides achieve their goals.

Also, in these tough economic times, Sobel says sellers can take comfort in knowing that the home warranty can help. "It does help sell homes," says Sobel. He says that when buyers are faced with a choice between two similar type houses with a comparable price point, the house with a warranty is usually preferred.

What's covered by a home warranty?

The plans differ from company to company but, generally speaking, the home warranty covers major mechanical systems and appliances such as furnaces and air conditioning, plumbing and electrical items, and appliances.

"It's a repair or replacement warranty," says Sobel. When something malfunctions, the homeowner calls the home warranty company. A technician is sent to look at the problem. The homeowner pays a flat fee for the service call. "Then the warranty company either repairs or replaces the [warranty] covered item," says Sobel.

When to buy a home warranty?

The best time to purchase a home warranty, according to Sobel, is during the actual real estate transaction. This is because "not all companies offer it later." Sobel adds that what's offered later is often not as good, "Those prices [for the home warranty] after the transaction typically increase and the coverage usually decreases," says Sobel.

He says this is because if there is no real estate transaction then there is no due diligence being done. "No inspection was done. The seller didn't disclose if things were working," explains Sobel.

What does a home warranty cost? Sobel says they average about $400 across the nation with a flat service fee ranging anywhere from $50 to $100 per call.

Who pays for it? This can vary from state to state, depending on market conditions. "In today's environment, the buyer has more leverage so we're seeing the seller pay for it more often," says Sobel.

Know before you buy.

A few key steps can help you decide which company to use to purchase a home warranty.

• Make sure the company is licensed in the state that the home is in.

• Verify that the company is real -- sounds obvious, but lots of scams occur when some consumers find the company online and then don't bother to confirm that the company is more than just a website.

• Call the company and ask for referrals. Find out what other customers are saying about their experience with the company.

• Don't fall for gimmicks. "If a company is giving you all the coverage that other companies are offering at a discounted rate of 50 percent off, run as fast as you can -- it's too good to be true," says Sobel. He says all the national companies selling home warranties offer plans that are within a five-to-10-percent price range of each other.

• If a company offers a gift card or incentive to buy the home warranty, "that's not a real company. It's illegal to give incentives to buy warranty.