Homeowner's warranty (HOW)

What is Homeowner's warranty (HOW)?

Homeowner's Warranty (HOW) is a type of insurance that provides coverage for repairs and replacements of specific parts of a house for a predetermined period, typically one year. This warranty can be offered by the builder or the property seller as a condition of the sale, and its costs are often included in the purchase price of the home. A Homeowner's Warranty is particularly valuable for first-time homebuyers and those purchasing newly constructed properties, as it helps to protect against unexpected repair costs that can arise after the purchase has been completed.

Key Features of a Homeowner's Warranty:

• Coverage Scope: A typical homeowner's warranty covers major systems and appliances, including plumbing, electrical, heating, and air conditioning systems, as well as kitchen appliances like refrigerators, ovens, and dishwashers.
• Service Call Fee: When a homeowner requests a service under the warranty, they usually pay a service call fee, which can range from $50 to $125. This fee is paid to the contractor who performs the repair work.
• Limitations and Exclusions: Homeowner's warranties may have specific limitations regarding what is covered. For example, pre-existing conditions, improper maintenance, and certain types of damage may not be included in the warranty coverage.
• Transferability: Many homeowner's warranties are transferable to new owners if the home is sold within the warranty period, which can enhance the property's value and appeal to potential buyers.
• Renewal Options: Homeowners may have the option to renew their warranties after the initial term expires, allowing continued protection against unforeseen repairs.

Real Estate Relevance:

Homeowner's warranties play a crucial role in the real estate market for several reasons:

1. Peace of Mind for Buyers: For many homebuyers, especially first-timers, the prospect of unforeseen repair costs can be daunting. A homeowner's warranty provides reassurance that they will not bear the full financial burden of unexpected repairs shortly after closing.
2. Increased Property Value: Homes that come with a homeowner's warranty may be more appealing to buyers, potentially resulting in a higher sale price. A warranty can serve as a selling point, showcasing the seller's confidence in the property's condition.
3. Facilitating Transactions: Real estate agents often recommend including a homeowner's warranty in the negotiations, as it can ease buyer concerns and facilitate smoother transactions.
4. Protection for Sellers: Sellers who provide a homeowner's warranty can reduce the risk of post-sale disputes regarding the condition of the property, as the warranty typically covers repairs for a specified duration.
5. Cost Management: New homeowners can budget more effectively for homeownership when they know that certain repairs are covered, which can aid in financial planning.

Real Estate Example:

Consider a newly married couple purchasing their first home. They are excited but anxious about future repair costs. The seller is offering a homeowner's warranty that covers their heating and air conditioning system, plumbing, and kitchen appliances for one year. This warranty alleviates their concerns, knowing that if their water heater fails or their refrigerator breaks down within that first year, the warranty will cover the repair costs minus a small service fee. This peace of mind allows them to enjoy their new home without worrying excessively about immediate expenses.

In a different scenario, a seasoned real estate investor purchases a rental property. As part of the transaction, he negotiates for a homeowner's warranty that covers the property's major systems for the first year. After a few months, the air conditioning unit fails. Thanks to the homeowner's warranty, he only pays the service fee for the repair, preserving his cash flow and allowing him to reinvest in other properties.

Important Notes:

• Always read the terms and conditions of a homeowner's warranty carefully to understand the coverage and exclusions.
• Consider the age and condition of systems and appliances when purchasing a warranty, as older items may be more prone to failure.
• Some warranties may require regular maintenance records to process claims, so keeping detailed records is essential.
• Not all homes are eligible for a homeowner's warranty, particularly if they are newly constructed and come with builder warranties.

In conclusion, a homeowner's warranty is an essential tool in the real estate landscape, providing protection, peace of mind, and potentially increasing property value. Both buyers and sellers can benefit from understanding and utilizing these warranties effectively, ensuring a smoother transition into homeownership and a more secure investment in real estate.