If you're buying real estate in Florida, and you're using a REALTOR® professional, then depending on where you live, there's a good chance your real estate agent is using the FAR/BAR Real Estate Contract for Sale and Purchase or the FAR/BAR "As Is" Real Estate Contract for Sale and Purchase. One of the great things about the FAR/BAR real estate contracts is a clause that was added a few years ago, regarding Home Warranties.
- If your REALTOR® is using the FAR/BAR "As Is" contract, the home warranty clause is found on lines 98 and 99.
- If your REALTOR® is using the regular FAR/BAR contract, the home warranty clause is found on lines 99 and 100.
There are many differences on the two contracts, but the verbiage for the home warranty clause is the same on both.
I don't know of any REALTORS® who don't like the addition of this clause. It's just one less item among hundreds, that we have to remember. But it needs some tweaking. Here's the problem. Most home warranty plans offer more than one option. For example, the plan I prefer has several tiers, depending on whether or not the coverage is for a house or condo, the square footage, and whether the policy is for both the buyer and seller, or only for the buyer.
As an example for this post, I'm going to use the price options for buyer coverage only, on an average sized house.
- For $395, which is paid at closing, if anything that is covered by the plan breaks during the one year policy (policy goes into effect at closing), the new owner pays a $55 service call fee and the warranty company will repair or replace whatever is broken.
- For $365, which is paid at closing, if anything that is covered by the plan breaks during the one year policy, the new owner pays a $75 service call fee and the warranty company will repair or replace whatever is broken.
So have you spotted the problem yet? If not, allow me to help.
The actual clause in our FAR/BAR real estate contracts first specifies who will pay for the warranty. This part is only a problem if a REALTOR® has agreed to pay for the warranty, so the pre-specified options have to be crossed through, and the agent's name and brokerage has to be written in. But that's only a minor issue.
The next section is just the line to specify which home warranty company will issue the plan. This is only a problem if an agent makes it a problem, which is unnecessary. So the biggest problem can happen on the last line.
You'll notice the verbiage on the last line says the home warranty plan is "at a cost not to exceed $________." Now in my experience, I've found that most agents don't attend the instructional classes that are offered each time the contract is changed (usually every 2-4 years) and/or, they don't comprehend/pay attention to what they're reading. So most REALTORS® just fill in this blank with the amount of the policy they want for their buyer. So what happens when the REALTOR® who is representing the seller provides the warranty that costs the seller less, but costs the buyer more if there's a problem with a covered item, during the coverage period? Granted, we're not talking about large amounts of money here, but things can get very heated during negotiations, when emotions are running high.
Fortunately for my buyers and sellers, I do attend the instructional classes that are offered, each time the contract is changed. I also read the fine print. And the last line of this clause can be fixed with a very simple modification. I just cross through the words "a cost not to exceed" and replace them with "of". So the last line of this clause will now read "at a cost of $________ .
This simple fix is just one of the many ways I give my clients the best service, by looking out for their interests.
If you're a real estate buyer or seller in the Daytona Beach area, stay tuned when I share another tip this week. I can't give away all my secrets, since I don't want to educate my competition too much *ssshhh, they might be reading this* but I do have one more important item on the FAR/BAR real estate contracts that needs to be addressed, since I see agents do it ALL the time! I've even tried to explain the problem to them, but they won't take me seriously until they find themselves in a big, sticky mess!
If you're unclear on the definitions of anything you've read, read this Glossary of Real Estate Terms.
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