When representing a buyer in a transaction, I always ask the seller to provide a home warranty for the buyer. On the rare occasions that I cannot persuade the seller to provide a home warranty, I encourage the buyer to buy one at closing. I believe that a home warranty will provide peace of mind to the buyer, and that a good listing agent will encourage the seller to put on a home warranty when the property is initially listed.
The home warranty is going to become more valuable in the next few years as HVAC systems need to be completely replaced under the new Department of Energy HVAC guidelines - and replacement costs for the new systems will go up significantly.
However, while a home warranty is a wonderful thing in principal, the service that is due to a client can be a matter of debate. Is the item in question - whether it is a washer or a hot water heater - under warranty. This can be a huge source of conflict between the new homeowner and the warranty company.
Home warranties generally cover mechanical failures of covered systems and appliances that are on the property and in proper operating condition on the effective date of the agreement. While the definition of proper operating condition may vary slightly between home warranty companies, in general, an item is considered in proper operating condition if it is correctly located within the property, was properly installed to code at the time of installation, and was fully connected and capable of successfully performing all operations according to the manufacturers design.
Home warranty companies rely on many factors when making the determination as to proper operating condition on the agreement effective date. First, they rely on the real estate agent and homeowner to disclose any known conditions when applying for the home warranty.
Second, they rely on the opinion of their independent contractor's diagnosis.
Lastly, they rely on the independent review of licensed home inspectors when a home inspection is available.
How does one determine if an item is in proper working order? There are two ways to determine if a system or appliance are in proper working order; by performing a visual inspection and a simple mechanical test. A visual inspection of the covered item is considered to mean the viewing of an item to verify that it appears structurally intact and without damage or missing parts that would indicate inoperability.
A simple mechanical test means the ability to turn the unit off and on verifying the item operates without irregular sounds or smoke that may indicate a problem. The inspections can be done and coverage provided at the time of the listing or as part of the home inspection. I suggest having these tests performed by a licensed home inspector.
But what can one do in the winter when the temperatures are below the manufacturer threshold to mechanically check the air conditioning or a swimming pool has been properly winterized?
If we refer to the home warranty guidelines above of "performing a visual inspection and a simple mechanical test" then most people would assume that since the units cannot be tested they would not be eligible for coverage.
This is NOT the case! Home warranty companies understand that in certain circumstances the units cannot be turned on and therefore a simple mechanical test cannot be performed. In this situation, the home warranty company only requires that a visual inspection is performed.
Some failures can be found by a visual inspection. For example; the outdoor condensing unit could be physically set incorrectly, rusted out or physically damaged. The indoor unit could be rusted, show signs of previous water leaks or damage. If these issues are found in a visual inspection they should be addressed before settlement and before a home warranty is purchased.
If after performing the visual inspection both the air conditioning and the pool appear to be visually correct then the home warranty will cover the systems for future normal wear and tear mechanical failures.
It is important to note that systems and appliances must be properly installed and a pool must be properly winterized. The home warranty does not cover improper installations or incorrect winterization.
The home warranty only covers normal wear and tear mechanical failures. So if you find yourself in a situation where the air conditioning and the pool cannot be checked but the home inspector says everything visually looks ok then consider purchasing a home warranty plan to protect your buyer come spring.
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