- The Washington Times - Friday, May 31, 2002

You have a warranty for your car, your computer and maybe even your Walkman. So why not a warranty for your house?

"Home warranties make sense," says Tom Spier, a real estate agent with Weichert's Wisconsin Avenue/Chevy Chase office in Northwest Washington. "Once you've had just one major service call, they don't seem to cost that much."

Home warranties are increasing in popularity for both buyers and sellers, according to the Better Business Bureau. For buyers, a home warranty can give peace of mind. For sellers, home warranties can offer that added bit of incentive to buy.

What exactly is a home warranty? Basically, a home warranty is a combination insurance policy and service contract. A good home warranty can be a sort of one-stop shopping arrangement for repairs or replacements on nearly everything in your home, from major appliances to electrical and heating systems. Standard policies usually range between $350 to $450 a year and are designed for buyers, sellers or a combination of both who share the cost of the warranty at closing. Builders of new homes offer their own warranties.

The number of home warranties written is increasing nationwide, but many Washington-area homeowners do not take advantage of them.

"Housing prices are so high here and most houses sell so quickly," says Mr. Spier, "you don't really need a home warranty to help you sell your home."

He points out, however, that a good home warranty can help you keep one.

"Whether you decide to get a home warranty probably should depend in part on the age of the house," Mr. Spier says. "You should also consider how hard the appliances have been used or how well they have been maintained."

In the cash-strapped days of early homeownership, the prospect of a major repair to the refrigerator, the dryer or the heat pump can be daunting. Something wrong with your furnace? Expect to pay $1,250 to $3,500.

A broken dishwasher? Repairs usually cost $500 to $700. Even a broken water pipe can cost you more than $100.

"A home warranty is just about $370 a year," Mr. Spier says. "People pay more than that for their car warranty."

Once, home warranties were mostly marketed through real estate agents.

Today, a multitude of companies, including American Home Shield, the largest home warranty company, can sell a warranty directly to a home buyer or seller. Prices are even available on the Internet.

According to HMS, a home warranty company that does business nationwide, including the metropolitan Washington area, eight out of 10 home buyers prefer to buy a home with a warranty. Homes with warranties sell 50 percent faster than homes without. The presence of a warranty also increases sales price, says HMS, a clear value-added advantage.

For new home buyers, a one-year warranty is included by the builder and will usually cover problems such as bad plumbing or faulty wiring. Some builders even offer extended 10-year plans, through a third party, that promise to cover in-home system and structural repairs.

It pays to be careful. Not all warranties are created equal. What seems to be a 10-year plan may actually cover systemic irregularities only for the first year or two. Your definition of structural integrity may be different from that of the builder.

About six months ago, Eileen Lynch, a financial analyst who works in the defense industry, noticed some cracks appearing in the stringers of the main staircase of her Leesburg home. Since she had bought the home less than two years ago, she called the subcontracting company that had put up the stairs.

"They told me I should call the builder," she remembers, "but when I called the builder, they told me I should call the subcontractor. We went back and forth for quite a bit."

Meanwhile, the cracks were spreading.

Finally, at the behest of the builder, the subcontractor came and put putty on the stairs. The cracks reappeared. More putty was applied. The cracks appeared again. Now, after a third application of putty, they seem to have been put at bay. But Miss Lynch is not sure what the future or the staircase will hold.

"What if the cracks come back?" she asks. "My warranty will be up and then I'll be stuck with a really big job."

That can be a problem with some new home warranties. The problems only show up after the policy has run out.

So does Miss Lynch wish she had a 10-year warranty?

"Those 10-year warranties can be fairly useless if you really have a problem," says Miss Lynch, who did extensive research on home warranty programs before buying her house with just a two-year warranty.

"Anything that's conceivably going to happen, they don't include. Your house has to practically collapse around you in order for you to be covered," she says.

New-home warranties have been under increasing scrutiny in the past 10 years, after a 1991 congressional investigation revealed that many consumer claims went unregarded. A number of states since then have enacted laws that make use of an "implied warranty" that comes with the purchase of any new home.

In Virginia, disclaimers or exceptions to the implied warranty have to be indicated in bold, capital letters in the builder's contract.

"The thing that ticks me off is that the state of Virginia has a new-home buyer law that says that new homes have to be provided free of defects unless the contract with the builder specifically exempts them," says Miss Lynch, "and you can't buy a house without signing the contract that specifically exempts your house from the protection provided by the law."

In addition, many builders often mandate that any disputes be resolved through arbitration, thus avoiding the possibility of litigation.

"In my experience her situation is not typical," says Kenny Light, a senior marketing director with Long and Foster's New Homes Division. "In fact, in my experience the warranty really isn't the issue. It's how well the builder will stand behind his product."

In Maryland, homeowners have the right to waive warranty coverage offered by the builder in favor of the implied warranty granted by state law. But the real problem, Mr. Light says, is that many people assume coverage on items that were never intended to be covered in the first place.

"Usually, warranties don't cover aesthetic items like drywall seams or nail pops," he says. "But builders often fix things they don't have to that the buyer comes to expect that just about anything will be fixed."

And when a home warranty company goes under, as one company did a few years ago, it was area builders who stepped up to ensure that homeowners would be covered.

"Washington area homebuilders have done such a good job of standing by their product," says Mr. Light. "In order to survive in this highly competitive market, builders do have to go above and beyond."

It is important to check with the Better Business Bureau before signing on to an outside warranty company.

There are often hidden costs, such as deductibles, that can eat away at coverage.

For some people, though, there is nothing like a carefully researched home warranty for ensuring a measure of security.

Miss Lynch's mother is a retired public school administrator who recently bought a home in Florida. She is happy with her warranty.

"She's got an old refrigerator, so it makes sense," Miss Lynch says. "It could go at any time, so what she is really paying for is peace of mind."

She's not alone. An increasing number of homeowners, such as Julie Fuscus and husband David, are drawn toward buying a house that comes equipped with a warranty as a means to stave off potential disaster.

"I always kept worrying about the furnace," says Mrs. Fuscus, who bought a converted farmhouse in McLean two years ago. "We'd just paid for a new house and the thought of taking another financial hit was uncomfortable."

The Fuscuses were happy with their warranty, but they let it lapse after the year ran out. Other homeowners opt to renew their warranties year after year.

When Mr. Spier's stove in his own home broke recently, it cost $150 to get it working, and another $100 to replace a part.

"That's almost the cost of your home warranty right there," he says. "So it really makes sense to get one."

Often, Mr. Spier points out, appliances break down after a change in ownership.

"Take a house that has had one or two residents and then has a family of four or five more in," he says. "Equipment is used to routine. Often, the hot water heater goes. So a home warranty would be a good thing."

Of course, don't expect the builder or anyone else to come in and replace your hot water heater or your air conditioning unit if you haven't been holding up your part of the bargain. Just like you need to perform basic maintenance on your car, refrain from dropping your computer, or not leave your Walkman where someone can step on it, you need to take care of your house. Owner neglect can nullify a warranty, and warranties generally won't cover pre-existing conditions.

It is important to remember that nothing stays looking brand new for long.

Bottom line? Home warranties can be helpful, but it is important to read the fine print to understand rights and obligations of both parties.

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