Nine out of 10 existing home sales today include a home warranty, according to the Home Warranty Association of California (HWAC). Basic coverage for a home warranty means the warranty company will repair or replace an existing home's covered mechanical systems and major built-in appliances that break down due to normal wear and tear. The typical warranty contract lasts for one year (but is renewable) and includes the home's heating, plumbing, electrical system, water heater and major appliances.
That said, a home warranty doesn't act as a catch-all for home-repair costs. "One of the biggest misconceptions about a home warranty is that it covers everything," says Ray Adams, a board member for HWAC. "But normally, we don't cover 'consequential damages': if a water heater bursts and the carpet or floor gets damaged, the warranty company is not responsible for that-just the water heater itself. We also don't cover pre-existing conditions, and sprinkler systems outside aren't covered. Our coverage is limited to the perimeter of the house and the garage."
The average premium for a standard home warranty policy is $315 a year, according to HWAC, which consists of nine member companies that account for 95 percent of California's home warranty sales. However, some premiums may be higher if the house is very large and has duplicate systems or extra coverage is selected to cover such things as pools and spas. Also, most policies have a $50 to $100 deductible. Adams says that the number of consumer complaints is few, although they are typically due to homeowners not understanding their policy and coverage.
According to HWAC statistics, warranty companies sell about 800,000 home warranties annually through a combination of renewals and new contracts, and approximately 90 percent of all resold homes in the state carry a home warranty. Betty Carter, regional manager for American Home Shield in Santa Rosa, says, "Home warranties in California are more of a competitive-sell-almost everyone here has one. In the rest of the nation, for instance in states like Montana where the percentage of home warranties is about 20 to 30 percent; it's more of a concept-sell."
According to Adams, one of the biggest problems warranty companies have is when a buyer closes escrow and is simply told by the seller or broker that the home has a warranty. However, the new owner usually doesn't receive the warranty contract until five to 10 days after close, due to paperwork and payment processing. Then, if the homeowner has a problem during that first week-HWAC reports 15 to 20 percent of its claims occur in the first 30 days-the owner will go out and get the problem fixed, mistakenly assuming that reimbursement is due from the warranty company.
"Our policies explain that homeowners must call us when they need a repair, not their own contractors," says Adams. "They often don't get the best price. Whereas we can put a water heater in for $300, some contractors will charge $1,000. We recommend that the REAL TOR@ gives the buyer a sample of a contract prior to closing so the new owner knows exactly what's covered and who to call if anything happens."
Judi Connor is a writer based in Northern California 
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