Photograph by Paul Myers

Realtor Mitra Lahidji of Alain Pinel found that a home warranty saved a client from potential problems.

Home warranty an antidote for Murphy's Law

By Jean Newton

Most Realtors consider home warranties for newly purchased homes not only a good idea, but also an effective dose for Murphy's Law--whatever can go wrong, probably will. In spite of detailed home inspections and a critical eye toward finding any defects, there is always the potential for something to slip through the cracks during the home buying process.

A home warranty is a service contract for an existing home that covers a home's major operating systems and appliances for one year, typically after the close of escrow. The contract usually provides for the repair or replacement of covered home systems and major built-in appliances. The homeowner pays only a small service charge for each repair call.

"Murphy's Law seems to dictate that, if something is going to break down, it inevitably happens within the first few months of purchase, when most new owners are still busy unpacking boxes and getting settled. The last thing they need is another task," said Realtor Stefan Walker of Alain Pinel Realtors in Los Gatos.

Walker and his partner, William Rippe, encourage their clients to call when any issues arise so they can personally coordinate the repairs that are needed through the home warranty. In fact, the two Realtors often pick up the tab for the warranty company service fee for their clients and believe their relationship with the warranty company representative means they can help get repairs accomplished more quickly.

At $250 the cost of a home warranty is relatively nominal when compared to the peace of mind provided, said Walker, who recommends home warranties for all transactions. He estimates that 95 percent of his transactions include home warranties.

"We find that many sellers are happy to provide a warranty if requested by a buyer, due to the relatively low cost and the comfort of knowing that if something unforeseen goes awry, the new owner does not have to come after the seller for remedy. The warranty service paid for upfront can handle such situations," said Walker.

Realtor Mitra Lahidji, also of Alain Pinel Realtors in Los Gatos, found out the benefits of having a home warranty contract in place for her new buyer the hard way. After her clients moved into their new house, a shower in a bathroom that had seldom been used by the previous owner showed signs of an extensive leaking. Although the leak had not been detected in the course of two termite inspections and two property inspections, it was causing significant problems for the new buyers.

"Having the home warranty saved me as a buyer's agent and the listing agent from embarrassment and a possible complaint. It was a disaster that ended quickly and made the buyer happy with everybody," said Lahidji, who credited the fast action of Kim Mayer, associate vice president of Fidelity Chicago Home Warranty, for saving the day.

From Mayer's standpoint, the purchase of a home warranty contract is essential because "buying a used home is such a question mark."

"A home warranty is invaluable; it's the best value in the world," said Mayer. "I've been in the business for 19 years, and back then the cost was $240. Today the basic policy is $250."

Mayer's company recently introduced a new type of upgraded coverage that adds $40 to the basic home warranty policy of $250 and takes care of additional repairs. Called a comprehensive package, the optional coverage provides a $250 cash value for mandated code upgrades on approximately 40 items, including water heaters, and faucets . While water heater replacement might be covered under the standard home warranty, usually upgrades are not covered, said Mayer.

"This issue is that water heaters almost always require code upgrades when they are replaced, so the comprehensive package will cover up to $250 for those upgrades," Mayer said. "The optional extra coverage is a phenomenal value for the cost."

Home warranties are not for everyone. Those who are handy with tools may be able to make necessary repairs themselves. Then, for some homeowners, there is the danger of paying for the coverage but forgetting to use it when a repair is needed.

"The efficiency of home warranties depends on a couple of factors, including the overall age and condition of the property, as well as the nature of the buyer. The older and less well-maintained the property, the more likely I am to recommend a warranty," said Mary Prochnow of Mary Prochnow Realtors of Los Altos. "Then the buyers need to ask themselves if they are likely to call the warranty company or if they tend to prefer to use their own workers and get on with it. If the buyers rarely turn anything in to insurance, they are probably wasting their money--or if the seller is paying, their negotiating power."

Over the last 10 years, there has been a significant rise in home warranty usage. According to the Home Warranty Association of California, approximately eight out of 10 existing home sales include a home warranty. Estimates show association members provide service to homeowners on an average of 1.7 to two claims per contract per year, to represent an annual savings to California homeowners of more than $68 million.

"Home warranties have become a virtual necessity, as compared to 10 years ago, when they were unheard of or unused," said Barbara Roark of Campi Realty in Los Altos. "In my estimation, it is an insurance policy for the seller's protection more than anything. The new owner now has someone to turn to for assistance."

Realtor Deann Mahoney with Alain Pinel Realtors in Los Gatos said, "I recommend home warranties to both buyers and sellers. Other than spending less than $1 a day, there really are no drawbacks. The home warranty companies offer a nice choice of coverage and great service to follow. More importantly, it provides peace of mind--money well spent in a transaction."

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