Home Warranty May Be An Incentive For Buyers

Offering coverage for home's systems can be a buying incentive in this tough real estate market
By Nancy Jones Bonbrest Special to The Baltimore Sun
January 25, 2009

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.

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A Bastion of Growth in a Down Market

From the Baltimore Sun

Property values in Baltimore are rising faster than anywhere else in Maryland, according to state officials who were to mail more than 730,000 assessment notices this week.

While appraisals were nearly flat statewide for property overall - and even dipped in the more prosperous suburbs - values for homes in the third of Baltimore that will receive the notices rose 21.4 percent since their last assessment in 2005.

State assessors said home values rose 9.7 percent in eastern Baltimore County, 5 percent along the U.S. 40 corridor in Harford County, and 2 percent in the reassessed area of Carroll County. Home values dropped 4.2 percent in Anne Arundel, 7 percent in Howard and 16.3 percent in Montgomery County.

State assessment officials said that higher demand for relatively low-priced houses has driven average values up in some areas.

"Most of the increase you're looking at is in moderately priced properties," said Owen C. Charles, assessment supervisor for Baltimore. A house in South Baltimore that might have sold for $75,000 in 2005 can cost $150,000 now, he said, while decreases in prosperous Howard or Montgomery counties reflect larger drops for higher-priced homes.

Daraius Irani, director of applied economics at RESI, the economic forecasting arm of Towson University, said the new figures show that the Baltimore area has some stability.

"It doesn't mean you go out and leverage yourself to the hilt to buy a home, but it shows there is a strong point in our local economy," Irani said.Last year, assessed values were up an average of 25 percent through a swath of Baltimore's midsection. The city's new assessment area includes South Baltimore and some waterfront areas such as Fells Point.