"I think that they are a good thing to have," said Realtor Arvada Darnell of Coldwell Banker, who gives her buyers a home warranty as a housewarming/thank-you gift. "Basically, the policy gives the buyers some peace of mind for a year, as it covers the heating, plumbing, sewer and electrical problems that may arise. For a small service fee, the warranty will fix or replace whatever is wrong."

Darnell gets a postcard from the home-warranty company every time it is called for service so she can keep tabs on how things are going after the purchase is completed.

"This is great for me, because it tells me that my gift is being utilized and it also gives me a reason to 'touch bases' with my client to thank them for using the policy and to continue to wish them well in their home," Darnell said.

Darnell also issues a caveat and says there could be a downside to the home-warranty process.

"Vendors that have negotiated contracts with home-warranty companies may not always be the best in the business, especially if they are smaller companies that need these negotiated contracts in order to get more business," Darnell said. "All in all, I think that home warranties are a good thing to have, particularly with regard to older properties."

One way to guard against any problems is to do some homework to find out about the reputation of the home-warranty company. The Home Warranty Association of California has established some guidelines to help consumers select a home-warranty company. The association reports that nearly nine out of 10 home resales include a home warranty.

The first thing consumers need to know is that the home-warranty industry in California is regulated by the state Department of Insurance. Prospective buyers and sellers can check with the department to learn whether a particular home-warranty company is in compliance with its regulations.

In addition, the Home Warranty Association of California also suggests several steps to assist home buyers and sellers in securing a reputable home-warranty firm. The first recommendation is to consult with a local real estate professional or ask the local board of Realtors for sample warranty plans. Consulting with neighbors is also a good idea, since the majority of homeowners have had some experience with the benefits of warranty coverage.

The association also advises shopping around for key items, including coverage offered, company stability, price and service fees. In California, the cost of basic home-warranty coverage can range from $225 for a mobile home or condominium to $255 for a single family residence under 5000 square feet. Service fees for trade calls typically range from $35 to $55.

It's important to ask questions about the coverage to make certain the coverage is compatible with the type of home. When purchasing an older home (10 years old or more), there's a good chance that changes in building codes could involve additional costs to accommodate modern systems, which may not be covered by the warranty. Take the time to thoroughly read the contract provided by the home-warranty company to make sure the coverage applies and take note of any limitations and exclusions.

The association also recommends that homeowners confirm whether the warranty company has the state-mandated minimum reserves. By law, 40 percent of premiums received on active contracts sold during a given year are required to be held in reserve. Check out the Home Warranty Association of California at www.warrantyassn.com to find member companies that are licensed and abide by a strict industry code of ethics.

Typically, a home warranty covers a home's major operating systems from breakdowns due to wear and tear for one year after the close of escrow. Items covered include plumbing, heating and electrical systems, most built-in appliances and water heaters. In recent years, some companies have provided additional coverage for homeowners for such items as air conditioners, washer/dryers and refrigerators.

What does a home warranty cover and what doesn't it cover? In an effort to assist consumers, the Home Warranty Association of California provides an outline of home-warranty coverage terms and conditions:

A "covered" system or appliance must be listed as a covered item in the contract; it must be located within the confines of the main foundation of the home or garage (with the exception of exterior well pump, air conditioner and pool equipment). Items must also be in good working order at the start of coverage and must be properly installed. An example of an item not covered under the contract includes a pipe or plumbing line that is broken or leaking outside the home's main foundation.

Home warranties do not cover consequential or secondary damages. For example, the warranty company will repair a leaking water heater up to and including the replacement of the unit if necessary. But the warranty does not cover water damage that may have been caused by the leak. Typically, this kind of damage would be covered by the homeowner's insurance policy.

Home warranties cover residential property. They do not cover residences utilized for commercial use, such as day-care centers, or non­single-family homes, such as fraternity houses or nursing homes.

A home warranty does not require a home inspection or other inspection prior to coverage. However, if a defect is obvious or known prior to the home warranty becoming effective, it is not covered.

A home warranty covers virtually any age, make or model of covered systems and appliances designed by the original manufacturer for residential use. It does not, however, cover equipment categorized by the manufacturer as commercial equipment.

When a contractor is required to repair a leak in a wall or floor, the home-warranty company will generally provide access and return the opening to a rough-finish condition but is not responsible for restoration of any wall coverings, floor coverings, cabinets, countertops, tiling, paint or the like.

A home-warranty company is not responsible for repairs arising from a manufacturer's recall of covered items or any items that are still under an existing manufacturer's, distributor's or in-home warranty.

A home-warranty company is not responsible for costs required to correct code violations or, in some contracts, costs related to permits. A home-warranty company will not perform services or pay costs involving hazardous or toxic materials, mold or asbestos, nor will it pay for disposal of refrigerants, Freon or contaminants.

Understanding what is covered under the warranty contract will help a new homeowner decide whether a home warranty is the best way to keep a home in good repair.