Q: I have heard that heavy pressure is sometimes exerted on real estate sales people, and in turn on sellers, to lay on those one-year house component warranties. Can you tell us something about these warranties. Isn't this pressure policy likely to be self-defeating in the long run?
A: Let's first distinguish between the two kinds of warranty programs available for the home buyer. First, in many parts of the country, the new home buyer can take advantage of a 10-year warranty program sponsored by the National Association of Homebuilders, called the HOme Owner Warranty plan (HOW). This is a comprehensive warranty, backed by a responsible insurance company, which covers major structural defects for a period of 10 years. There are no deductible charges, and there is a dispute mechanism so the homeowner can request conciliation in the event the builder disagrees with the claimed defect. There is an advisory board composed of non-builders (including consumers) which actively monitors the program on a periodic basis.
The second type of warranty is available for the older home and is sponsored by the National Association of Realtors. There are a number of different kinds of warranties. You would be well advised to read the fine print of the insurance contract before you decide to subscribe to this program.
These warranties are available only through a realtor or real estate agency. A number of sales agents and sellers have been complaining in recent months about the heavy pressure on them to sell this type of insurance warranty. A representative of one of the major warranty programs confirmed for me that their program required 100 per cent coverage of every home listed by a particular real estate company.
Should you as the buyer of the seller pay for this type of program? It usually costs $200, which can be paid by the seller or the buyer. In some instances the sales agent absorbs the cost.
Many of these warranties are ionly for one year, and will cost the homeowner about $20 per service call. Usually, the policy excludes more than it covers. For examples, one such program states that it includes "only repairs, replacements and services made necessary by normal operations." The warrantor "has the sole option of determining whether a malfunction will be corrected by repair or replacement. This plan does not provide maintenance service such as inspection, cleaning, adjustment and lubrication."
Some people are willing to self-insure, in the expectation that they will not have any problems within the one-year period. Others would rather pay for an insurance policy. It is really a matter of personal choice. My own opinion is that insurance is the only legalized gambling this side of Atlantic City. "You pays your money and takes your choice."
But if you do decide to take such a warranty plan, you must read the policy carefully. If your sales agent is pressuring you to purchase one of these programs, ask the agent to pay for it himself of herself. After all, if it really is a good sales tool, your agent will be able to use it inselling your house.
Benny L. Kass, a Washington attoreny, answers question through this column. Write him in care of the Real Estate Section, The Washington Post, 1150 15th St. N.W., Washington 20071.