For years buyers were told that the solution for those nagging “property condition” problems was to have a new home inspected and obtain a Homeowner Warranty Policy (“HOW”). That way the buyer would know the current condition of the property, and if certain things failed, there was a policy to cover them.
Some real estate companies decided that disclosure of the availability of a homeowner warranty program to prospective buyers and sellers was a must. Then the broker could not be accused of failure to provide the buyer with access to the available protection. Some listing brokers, in an attempt to make the property more saleable and quiet buyer’s fears, offered the program as part of the listing and sale package.
Now we find that home warranty companies are not what they might have appeared to be. Some of them are bankrupt and unable to pay claims. Regulators have decided that they are “insurance policies,” and therefore the company needs to maintain appropriate reserves to be held for potential claims. Previously, in some jurisdictions the companies were not required to retain reserves and were not considered “insurance” companies. At least one major HOW issuer is no longer viable and is not paying claims as received.
What do we recommend?
- Home inspection. Make sure that you select a home inspector to “check out” your new home. All inspectors are not alike, and they are not licensed. You need to make sure that you select a company that will do a good job and be around to pay if they fail. Buying a new home? Have it inspected. There are many companies on the market, for example InspecTech, a client of our Firm, that should be able to provide you with their credentials to assist you in making a decision.
- Home Warranty. If you desire a home warranty program, investigate the viability of the issuing company before relying on its warranty. The company should be able to provide you with information regarding its ability to pay claims. Some companies are independent companies dealing in the secondary home market, while others are an extension or affiliate of the builder. There is no guarantee by the government or the REALTOR® assisting you that these companies will be there when you need them. Home warranties cover a limited list of items. Make sure that you understand the extent of the “guarantee” or “warranty” before you sign.
Yes, there is another step in the buying and selling process to consider. This is just one more reason to use the services of a professional REALTOR®. Do not expect your REALTOR®, or the company that inspects or insures it, to guarantee the home. You can rely on them to give you the names of one or more companies that they feel you should consider.