What’s What With Home Warranties & Insurance?February 10, 2016
Are you covered? Just this past week a real estate agent asked me what type of home warranty or insurance policy their client should purchase so they would “be covered”? The answer to that question lead me to this article. If you are not a “warranty specialist” or an “insurance agent” working in the industry of buying and selling homes daily, the concept of home warranties may be quite confusing. There are so many products available to protect home buyers and sellers, but which one protects the customer from unexpected catastrophes?
The terminology can be confusing:
- Systems and Appliance Warranties, also called Extended Warranties, Resale Home Warranties or Home Service Agreements by some companies
- Structural Home Warranties, also known as New Construction Home Warranties or Builder’s Warranties
- Remodelers Home Warranties
- Extended Home Warranties & Service Contracts
- Appliance Warranties (usually sold through department stores when purchasing an appliance)
- Homeowners Insurance
- General Liability Insurance
In this article, I will attempt to clarify and define each of the warranties listed above, so that you as a customer, real estate agent or builder understand the importance of each of these policies and how they will affect your specific purchase or sale.
Systems & Appliance Home Warranties, (i.e. Resale Home Warranties, Home Service Agreements and Extended Warranties) are typically considered a “systems” warranty. This type of warranty assists homeowners with the repair or replacement of unexpected breakdowns that occur during a listing period or after the close of sale. These are traditionally designed for items in homes that are not new construction and often times, don’t have to be in a real estate transaction. (Please note: PWSC does in fact offer a New Construction Systems & Appliance Warranty!) Repairs or replacements covered by a System & Appliance Warranty protect the electrical, plumbing, heating and air conditioning systems as well as appliances found inside the home. There are several home warranty companies in the industry from which to choose. I recommend that you do your research and understand the terms and conditions of each warranty.
As a builder or seller of a new construction property, a Structural Warranty (i.e. New Construction Warranty or Builder’s Warranty) would be purchased for structural protection on the home and the warranty terms and conditions should be communicated with proper documentation to the homeowner at closing. While coverage may vary from company to company, a Structural Warranty includes limited coverage for the first years on workmanship and materials defects as well as major systems, exclusive of appliances and items of equipment; including wiring, piping, ductwork and specified structural elements and required state or lender statutes of limitations. In addition, most structural warranties give homeowners ten years of structural coverage. This means your home is protected from the framing and foundation from major structural failure!
Remodelers have an opportunity to offer a warranty similar to a New Construction Warranty. A Remodeler’s Warranty offers protection on the portion of an addition that is a new structure. If there is no structural change, a Home Service Agreement may be purchased for remodelers. This would not cover any structural part of a rehab home.
Appliance Warranties are offered from most retailers that sell an appliance. Appliance Warranties are purchased for one appliance and are limited. A Systems & Appliance Home Warranty covers most appliances under one umbrella plan. This would be something that you should review before purchasing. Compare the coverage of a Home Warranty to an individual Appliance Warranty to get the facts.
Many tradespeople will offer “Extended Warranties” or “Service Contracts” on the systems that they install in both new construction and resale homes. An example of a Service Contract would be an HVAC company installing a new unit and then offering you a yearly contract for cleaning and extending the system’s warranty. All units should have annual cleaning and inspection, but before agreeing to an extended warranty on that unit, review one of the other more inclusive warranties. Rather than protecting only one component of a home, have an agreement that comprehensively covers your systems and appliances. The price difference will be very little, but the coverage difference will drastically increase.
Home Warranties can protect buyers, sellers and real estate professionals from catastrophic consequences. They do not, however, protect the damage that a failure may create. That job falls under Homeowners Insurance. Homeowners Insurance is available to protect the homeowner from the disaster that has occurred due to the catastrophic breakdown of an appliance or one of the systems of a home. To put this in real life terms, an example of this would be a leaking water heater. The water heater would be repaired or replaced by the Systems and Appliance Home Warranty, the damage that occurred to the home would be insured and covered by homeowners insurance. Read more about the difference between a Home Warranty and Homeowners Insurance in one of our past blog posts.
General Liability Insurance is another type of insurance that is available to Builders to protect them during the construction period. It is not a transferable insurance to a new homeowner and does not protect builders from claims against them should a homeowner have a systems failure. This insurance is a risk management tool that is an important requirement for all homebuilder operations and covers the cost of investigating claims and defending against third-party lawsuits.
For additional information on any of the aforementioned coverages, seek professional advice from an experienced Home Warranty Regional Sales Director. Our PWSC RSDs, are always available to offer some resourceful information!