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When Bob and Sarah Patterson signed a contract to put their family's Hamilton-area Cape Cod on the market March 1, they also agreed to purchase a home warranty that their real estate agent told them could help attract a buyer.

The couple spent several hundred dollars for insurance to pay for repairs on the major systems and appliances in their house for one year after they sold it.

"We definitely wanted to move and if anything would make the house move faster we were going to do it," she said. "When we went to sign the contract, the buyers did like the fact that it was there."

Growing numbers of sellers are making the same gamble. According to the National Home Warranty Association, 15 to 20 percent of all homes sold in the United States include a warranty. Last year approximately 640,000 warranties were purchased nationwide, up 16.4 percent from 550,000 in 1992, according to Brada Fishman, vice president of Fishman Public Relations, which represents the NHWA -- a trade organization that includes nine of the major home warranty companies.

Why the increase? Opinion is mixed. Industry people cite consumer awareness, the improving economy and tighter state disclosure requirements. Since Jan. 1, sellers have had to fill out a form listing major defects in their homes, or sign a disclaimer offering the house "as is." In addition, some brokers have recently offered to pay for warranties as an incentive to sellers to sign up with them.

But industry experts caution that such warranties are limited, and buyers and sellers should be aware of all terms.

For example, warranties do not cover everything that can go wrong with a house. It complements, but does not overlap, coverage provided by a homeowner's insurance policy. It may pay to replace a broken hot water heater but not to repair the damage caused when it leaks.

"For the first-time homebuyer to know that major systems in the house are protected is very valuable," said Shirley Lieberman, administrative assistant for Homeowners Marketing Services of the Mid-Atlantic States, which offers such policies. "But it's not a cure-all and it's not a guarantee that anything that breaks in the house will be paid for."

Warranties usually have deductibles and a dollar limit on coverage. In addition, warranties may only last for six months or a year, unless they are renewed -- which, naturally, costs money.

A home warranty is a service contract that typically covers heating, air conditioning, plumbing and electrical systems, as well as the dishwasher, refrigerator, hot water heater, well pump, microwave, washer and dryer for one year after settlement. It may also include swimming pool and spa equipment.

But it is not a structural warranty and does not cover a leaky roof, termite damage and other failures in the building itself.

The warranty is also in effect during the sale period, so when the Pattersons' microwave broke one week after their house went on the market, the $283 repair bill was covered -- minus a $100 deductible. They paid the $395 fee for the warranty at settlement.

Typically, a seller purchases a home warranty and gives it to a buyer at settlement to cover repairs of mechanical systems and appliances, Mrs. Lieberman said. If an item cannot be repaired, the warranty will pay for replacement.

The warranty is usually marketed to the seller by an agent. HMS, for example, trains agents to sell warranties and handle applications; a $60 fee is paid to brokers for each warranty purchased.

If the seller does not purchase a warranty, the offer may also be made to the buyer at settlement.

"Often the astute buyer may negotiate a warranty into the contract," Mrs. Lieberman said. "It's a good deal. Right now we're getting inundated with air conditioning claims."

The fee for a warranty -- which ranges from about $355 to $395 -- is not paid until settlement. Deductibles range from $100 to $150 per occurrence and there may be limits on liability.

At the end of a year, the buyer may be given the chance to renew, Mrs. Lieberman said. About 15 to 20 percent do.

In new construction, the builder provides his own one-year warranty; extended coverage of appliances and mechanical systems -- but not the structure -- may be purchased for years 2 through 5. The HMS warranty for such a policy costs $460.

Many sellers will offer to buy one for a buyer to encourage offers, and to assure buyers that even if anything is wrong with the house, the warranty will cover it.

Some agents view the warranty as insurance to help keep a sale fromfrom falling apart. If something breaks before settlement, the warranty may pay for repair or replacement, eliminating disagreements between buyer and seller.

"I've always pushed warranties," said Craig Thomson, a salesman and associate broker for ERA Imperial Real Estate. "A home warranty is a demonstration of good faith on the part of the seller. I put a warranty on virtually every transaction I do."

"Home warranties attract buyers," said Thomas Bauernschub, an agent in the Towson office of Long & Foster Real Estate. "If a house is kind of run down, it might provide the incentive for someone to buy it."

Unlike most real estate firms, ERA Real Estate owns and operates a home warranty service -- one of the biggest and oldest in the country. According to William Iampieri, president of ERA Caton Realty, company research shows that homes with ERA warranties sell for 2.4 percent more money at an average of 27 days faster. "I'm a great believer in home warranties," Mr. Iampieri said. "Consumer protectionism is here and everything you buy today has a warranty on it."

In Maryland, 25 to 30 percent of all ERA listings are covered by a warranty, Mr. Iampieri said.

Homeowners Marketing Services reported a sales growth of 37.2 percent for Maryland from its mid-Atlantic office during the first five months of this year. For May alone, sales in that office jumped 72.5 percent over the same month in 1993.

Home warranties -- which are regulated in some states but not in Maryland -- have been available here for about 10 years. They were first introduced 20 years ago and have found their greatest popularity in California.

Warranties do not cover items that were broken before the policy goes into affect.

"People do not flush every toilet and turn on every faucet," said Larry Reiners, vice president of insurance services for HMS and executive vice president of NHWA. "It's not unusual for us to get a lot of claims during the first month that a person is living in a house. A lot of those things were already broken and . . . will be denied."

For this reason, Mr. Reiners warns: "A home warranty should not be used as a replacement for a total inspection."


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