New Study: Home Warranties Increase Home Sale Prices, Reduce Length on the Market for Owners

TALLAHASSEE, Fla. -- Houses covered by a protection plan sell faster and bring their owners a higher sales price than those without such a service contract, according to the findings of a recent industry study of home sale prices. The Service Contract Industry Council (SCIC) said these findings demonstrate how home sellers can benefit from a service contract even as buyers gain the service contract's protections.

"Purchasing a home is a significant investment and can create tremendous anxiety. Fortunately, because home warranties can be transferred to the new owner, buyers are finding that the extra protection of a service contract can ease this apprehension," said Tim Meenan, SCIC executive director. "Home buyers understand that when it's time to sell in the future, the home will have an increased resale value."

The recent home sales study of customers conducted by SCIC member company American Home Shield found that homes covered by protection plans spend almost 11 fewer days on the market on average, and sell for more than $2,300 higher on average than homes sold without a home warranty. The ability to transfer a home warranty to new owners helps create added incentives for buyers.

With housing sales increasing amid the economic rebounds, home warranties make sense to help increase the home's marketability, Meenan said. The resale benefits are in addition to the primary reason homeowners purchase warranties: the peace of mind that comes from knowing the extra protection will cover everyday breakdowns due to defects or even normal wear and tear during the life of the contract. When a problem does arise, contract holders know they can request service around the clock.

Depending on the terms of the contract, the systems and appliances that can be covered in a home service contract may include:

• Electrical system
• Air conditioning or central heating
• Water heater
• Washer and dryer
• Stovetop, microwave, oven, refrigerator, dishwasher or trash compactor
• Interior plumbing
• Pool/spa equipment
• Ductwork

Service contracts help homeowners avoid unexpected, potentially large repair and service bills, as well as inconvenient wait times for repairs. To learn more about where to buy a home service contract or tips on using a protection plan, see go-scic.com/homes.

The Service Contract Industry Council is a national trade association whose member companies collectively offer approximately 80 percent of the service contracts sold in the United States for home, auto and consumer goods. The SCIC educates consumers about service contracts, encourages its members to pursue high standards of customer satisfaction, and has developed and promoted model legislation to regulate the industry with standards designed to protect consumers and the industry.

SOURCE Service Contract Industry Council

Questions to Ask When Shopping for a Home Warranty

When you buy a pre-existing home, you want to make sure that your Realtor negotiates into the contract a residential service contract (RSC), also known as a home warranty.For home buyers, that means that don’t have to worry if something goes wrong. For the seller, that means that they don’t have to worry about surprises haunting them once they’ve moved on. For a nominal charge - usually about $60, the RSC company will repair or replace many of the common mechanical systems and appliances found a residence should they wear out due to normal use.

These systems typically include HVAC systems, plumbing, electrical, oven, range, cook tops, built-in microwaves, trash compactor, disposal, water heaters and garage door opens. You also can purchase optional packages to cover permits, the hauling away of old equipment and limited code upgrades, kitchen refrigerators  built in wine coolers, washers and dryers, pool/spa equipment and septic system, septic plumbing and well pumps. Some policies even offer coverage for termites and pest control.

RCSs typically won’t cover the roof, the foundation or anything structural. They also won’t cover routine maintenance.

But for systems that just wear out, RSCs are a life saver! Such contracts have personally saved me thousands of dollars in repairs through the years and eased a lot of raging headaches when diswashers and garbage disposals wear out.

The catch phrase is “normal wear and tear.” Cosmetic defects typically aren’t covered. Nor is damaged caused by pets or misuse.

While most RSCs cost roughly the same, they’re not all created equal. Different policies have different limitations and exclusions. When your Realtor hands you an armload of literature, it helps to know upfront what you’re looking for and the questions to ask. Here’s a few to get you started:

• Does the policy have an “obsolete parts clause”? An obsolete parts clause says that if the part to fix your system or appliance is no longer available, the RSC provider can just pay you for the cost of the part. The won’t pay to fix or replace your failed system or appliance.
• Does the policy cover appliances or systems that break due to previously poor maintenance? Will it cover problems not detected during the home inspection process? During your home inspection, you can catch some problems and your Realtor can negotiate to have them fixed prior to closing on the home. However, a home inspection typically doesn't include the same level of inspection that say an HVAC tech would do. If an HVAC system breaks down because the coils were cleaned as scheduled, then some policies won’t cover it.
• Does the policy cover problems that arise from incorrect installation? Recently we had a client who purchased a pre-existing home with an above ground spa. When the spa was installed, it required a new breaker box. The breaker box worked fine for the original owner, but failed within weeks of the new owner moving in. The RSC provider wouldn’t cover the repair because the new box was incorrectly installed in the first place.
• Does the policy cover pre-existing conditions? If so how does are pre-existing conditions determined? Most policies won’t cover “known” pre-existing conditions. They also may place limitations on unknown pre-existing. For example, many companies would cover rust and corrosion claims made within the first 30 days that policy is in effect.
• Does the RSC cover upgrade costs when a system has to be replaced? This is particularly important to ask if the home still has a SEER 10 system or one that uses Freon. New EPA mandates mean that SEER 10 systems and systems that use Freon are being phased out. When a SEER 10 system finally wears out, it will have to be replaced by the new standard. You’ll want to make sure that your RSC covers that hefty expense.
• How much is the additional coverage for optional coverage for pool/spas, septic systems and for homes over 5,000 square feet in size? This is important to know because if you don’t ask for enough from the seller to cover the cost, you could end up paying for the additional coverage yourself.
• How much is the second year of coverage? Again, this is important to know because you will be responsible for your own coverage after the first year.
• Is the RSC provider licensed by the Texas Real Estate Commission (TREC)? Since 1979, all RCS providers in Texas have to be licensed by TREC.
• Is the RSC provider a member of the National Home Service Contract Association? More than 90 percent of all RCSs written in Texas are done by association members/ Association members are required to adhere to standards of practice and offer the best recourse. In recent years, a lot of Internet-based RCS companies have popped up that are not licensed nor a member of the association. If they’re not, then you might not have any resource if they refuse to pay claims or disappear over night.

The best time to start shopping for a home warranty is when you start shopping for your new home. Ask your Realtor for information and recommendations early in the home shopping process. You’ll want give this important decision the attention it deserves. And not allow it to get lost among the hundreds of other decisions you’ll make in the purchase of your new home.