Home Warranty - is it Worth the Money?

Are Home Warranties Worth the Money?

Answer: Warranted homes sell at a higher price: Warranted homes are perceived as a safer investment and on average offer a selling price of up to 3% more, according to Business Week Magazine.

On a $350,000 house, that's an EXTRA $10,500! In our case, we offer the Seller the coverage for FREE during the listing period and deduct $375 from sales proceeds ONLY if there's a sale. There aren't too many investments with that kind of yield, and in most cases 3% represents a substantial portion of a commission. While a home warranty is not a guarantee of more money for your home on an individual basis, it certainly can be demonstrated that is is a help to adding value.

Warranted homes sell up to 50% faster, according to a National Home Warranty Association Report.

On a home with a $300,000 mortgage, calculating principal, interest, taxes, insurance AND maintenance costs at 2% per year, or $3,055 per month, with an average market time of 6 months, if your home did sell 50% faster you would realize another $9,165 outflow from your existing house. In a declining value market that cost is even higher, because prices are declining over time. For example, if house prices declined by -4%, then that's another $1,167 a month on a $350,000 house. So, the potential savings from selling your house 50% faster in a declining market could be SAVING you an additional : $9,165 (monthly costs plus maintenance) + $3,501 (3 months of negative market decline in the above -4% scenario), or an additional $12,666.

80% of buyers prefer a warranted home according the Gallop polling people. It's hard to calculate the value here other than to say that in a flat or declining market wouldn't you want any advantage you could get over the hundreds of competitive houses for sale in the market? Would that be worth anything in negotiation value? I think so. That's what I think helps boost house prices up to 3% more, as indicated by the Business Week data.

OTHER Answer: It also may help keep you from getting sued by a disgruntled buyer who may be stretched thin financially after making such a large investment as a home. Though "pre-owned" homes are expected to require repairs on their mechanical systems, the stress of limited capital after a large house purchase can weigh heavily on the buyer's mind if something as expensive as a furnace stops working soon after closing. Sometimes logic and emotions become blended into a strange brew of half-truths and contortions that result in unfounded lawsuits. A limited home warranty on mechanical working components may not eliminate the threat, but it can certainly mitigate it in many cases.

Add this potential benefit to the potential increase in sales yield, and there is a very significant impact in value that makes a warranted home a better buy than a competitive home without one.

Raw POTENTIAL from the above examples could mean a positive swing of as much $23,166. That is not a sure thing, but it just seems logical that there is real value in adding a home warranty to your house, when selling. If the seller doesn't want to do it, I think thew buyer should have one for an investment of $375. It buys a certain peace of mind, and covers most of the mechanical systems of the house for the first year of ownership. If the seller purchases it, then there's no cost to the buyer.

We actually feel we are doing a disservice to our customers and clients by NOT offering a Home Warranty to them. All of our buyers and sellers are offered a home warranty for qualifying residential homes.

Ask us about our excellent Home Warranty. Yes, some of our competitors have Home Warranties too. We just happen to think our Home Warranty is the best.

Chris Michaud
Acceptance Group WPI
chris@acceptancegroup.com