When Wayne Williams listed his Carney home for sale last summer, he decided to add a home warranty plan as an incentive to prospective buyers.
Although he had maintained the house well during his 26 years of ownership, it still had the original furnace and heat pump. Williams knew a home warranty would not only elevate the house in a tough real estate market, but would protect the buyers during the first year. The warranty also shielded Williams from covered repairs during the listing period.
"We thought it would be a good incentive," he said.
Before the house sold, the unit went out. The home warranty company determined it couldn't be repaired and would need to be replaced. The cost for Williams was $50.
"The timing was unbelievable," he said. "If we didn't have [the home warranty], we would have been stuck with a $3,000 bill and with something we couldn't use."
Home warranty companies say unexpected home repairs and replacement costs can quickly add up and take a financial toll. With a down real estate market and slumping economy, warranties can also make homes on the market more attractive and offer peace of mind to existing and prospective homeowners.
"There's the cost-saving aspect with homeowners looking for protection against unexpected repair costs," said Douglas Stein, general manager of HMS Home Warranty. "That need is even more pronounced in economic times like these."
Home warranties are service contracts for existing homes that cover the cost of certain repairs on operational systems and appliances. An average warranty costs $300 to $600 a year.
A house is "the largest purchase of your life. Shouldn't it come with a warranty?" says Carl Knighten, HMS Home Warranty's chief executive officer for the region that includes Maryland.
Traditionally, home warranties are often used as incentives when purchasing or selling a home, but they are available to any homeowner and are renewable. They typically cover air conditioning and heating systems, appliances, plumbing and electrical systems.
When a repair is needed, the homeowner must contact the home warranty company to schedule a service contractor to come out, assess the problem and make the repair. A deductible that ranges from about $50 to $100 is required for each service call.
Real estate agents often recommend sellers offer a home warranty because they say statistics point to a quicker sale. For buyers, it can offer comfort in knowing that many major appliances and repairs are covered.
A study conducted in 2007 and 2008 by American Home Shield in conjunction with a national real estate firm found homes with an American Home Shield warranty sold an average of 23 days faster. The homes also sold on average for 4 percent more than homes without the warranty.
Vito Simone, president of the Greater Baltimore Board of Realtors, agrees they can give buyers an added confidence level when purchasing a home.
"In general, people who are buying houses that are not brand new do feel some value with a home warranty," said Simone, a real estate agent with Yerman, Witman, Gaines and Conklin Realty. "Offering a home warranty is one more thing the seller can do to give the buyer some peace of mind."
A home warranty was offered as an incentive when Dan and Courtney Bickish bought their Hampden home last October. Although Courtney Bickish didn't expect to use it, she quickly put it to the test after a leaky toilet was discovered. A few weeks later, the furnace failed to turn on.
The items were fixed and Bickishes were only out a $50 deductible for each repair.
"Our house is almost 100 years old, and that's one of the things we love about it," said Bickish. "But there was the concern repairs would come up we wouldn't know how to deal with."
When the warranty period ends, Bickish says she'll renew.
"If it wasn't offered as an incentive, I wouldn't have thought to buy it," she said. "I'm glad it was there."
Jennifer Bayne, a real estate agent with Coldwell Banker Residential Brokerage in the Village of Cross Keys, said she routinely recommends home warranties to clients including Williams and Bickish.
"It gives them peace of mind," she said. "It's hard when you have that unexpected break. You never know what can happen."
However, experts agree that anyone thinking about purchasing a home warranty should read the fine print and know exactly what is and isn't covered. Home warranties, they caution, should never be used in place of a home inspection.
"To evaluate a service contract, it is important to weigh the costs of the contract against the cost of possible repairs of the product," according to Angie Barnett, president and chief executive officer of the Better Business Bureau (BBB) of Greater Maryland.
She suggests comparing the service contract to the manufacturer's warranty to make sure coverage does not overlap.
It's also recommended to check that the company offering the plan is in good standing with the BBB. Understand what products are covered, if the products will be repaired or replaced and if there are exclusions for certain parts or labor.
Homeowners should also know, says Barnett, that routine maintenance on certain items may be required and that failing to operate appliances or systems in accordance with the manufacturer's original warranty could invalidate coverage.
In an effort to bring greater clarity to what is and isn't covered, American Home Shield launched its FlexPlan last year. Items that were typically not covered in the past, including breakdowns due to sediment, rust, corrosion or insufficiently maintained equipment, are now covered under the plan.
"The FlexPlan was developed to try and prevent a lot of those misunderstandings about home warranties," said Heather Wilson, a spokeswoman for American Home Shield. "Reading and understanding the coverage you get with your home warranty is the No. 1 tip I could give. It's vital to have the right expectations with any service contract."
Those expectations should include being aware that repair, not replacement, of appliances and operating systems is preferred, says Knighten with HMS Home Warranty.
"Our first option is to keep items working for the length of the contract," he said.
Eric Tyson, co-author of Home Buying for Dummies, suggests a better option is budgeting for unexpected repairs.
"The fundamental problem with home warranties is that you have a deductible and you're limited in terms of what's covered," Tyson said.
He said in lieu of a home warranty, set aside about 1 percent of the value of the home on an annual basis. So if you buy a $200,000 house, expect to spend on average about $2,000 a year on repairs and maintenance.
"Make sure you have money set aside" for common repairs, said Tyson, adding that peace of mind comes from being financially prepared for owning a home.
warranty guide
What's covered
Not all home warranties offer the same protection. Experts advise to check home warranty contracts carefully to see what items are covered and what exclusions exist.
Items typically covered in home warranty plans:
Plumbing
Electrical systems
Furnace
Water heater
Heating ducts
Water pump
Dishwasher
Garbage disposal
Stove/cooktop/ovens
Built-in microwave
Air conditioners
Refrigerator*
Washer/dryer*
*Sometimes only with deluxe/upgraded plans
What's not
Items not typically covered in home warranty plans. Many of these items can be added for an additional fee:
Solar heating units
Septic systems
Well pumps
Pool and spa equipment
Geothermal heating systems
Window air conditioning units
Lighting fixtures
Garage door openers
Haul-away fees
Source: American Home Shield, HMS Home Warranty, National Association of Realtors