Penny Wise and $10,000 Foolish

Would You Like a Warranty With That?

I don't get it. There isn't any one that I know who wouldn't proclaim to everybody how smart they are if they were able to invest consistently in 20% plus returns on investment. My own stock broker advises me I should be VERY pleased with half that, and our investment plans are designed around an average 8% return. Since hiring this manager 5 years ago he has averaged 11% returns on our portfolio. We're pleased. Yet if I could show you how you could potentially get a phenomenal return in the SEVERAL THOUSAND PERCENT range, you'd either think I was nuts, or vehemently argue that was an impossibility, or so risky as to make such an investment foolhardy. I know I'd say the same thing.

But Listen Up

How about a 5600% annualized return for only a $375 investment. Translated that means, if I could take your $375 and return to you $10,500 within six months, you'd likely certify me as a genius - ESPECIALLY if I could CONSISTENTLY demonstrate that kind of return on investment for the same $375 investment each time. Well you're right I probably can't do it EVERY time. Sometimes I can probably get you a mere 500%, or so, but most of the time I can probably average in the 1,000+% range.


Don't Call me Cukoo Quite Yet

Let me explain! Business Week has found out through surveys that a home sold with a Home Warranty can get as much as 3% MORE than a home without one. Translated roughly for much of my immediate market area, which has an average home price of about $350,000 even in this market, 3% more is an additional $10,500. The excellent Home Warranty I have available costs $375 for a single family home, or condo. So, $10,500 divided by $375 is 28, which means that the original $375 investment is returned 28 times, or translated into percentages that means 2800% (TWENTY EIGHT HUNDRED) return on invested capital of $375. Now if the average home is taking about 6 months now to sell in this kind of market, that means on an annualized basis it's a 5600% return. Annualized means that if you extrapolated the same return out for a year that's what you'd get. That would only happen if you had 2 houses to sell and most people don't. But, it's how many investments are perceived when calculating returns.

Reality and Proof

Various Home Warranty companies make claims all over the place. So, I don't even use my own company's statistics. It sounds too self-serving, so I use the Business Week statistics. Business week has lots of credibility, and you can easily verify these claims online doing as Google search.

Remember they said UP TO 3% more, not guaranteed 3% more. Now in ADDITION, the Home Warranty industry (there are a number of insurance underwriters who do this Home Warranty thing, none as special as ours however) homes can sell up to 50% FASTER. Now, if you believe time is money, and it is, you need to factor into the return on investment equation that return too. I'm not going to do that here, but I think you get the point. Again, that's UP TO 50% faster.

OK let's say I only get 1% more for a house on average AND my homes only sell 20% faster. Let's examine that based on our above $350,000 example. That means my average house only gets $3,500 more. Now for our purposes let's assume that the "carrying costs" of th average $350,000 house in my market costs $2,200 a month, including payments on a $200,000 mortgage, taxes, insurance and maintenance. Since mine sell only 20% faster, then I shave off 1.2 months of the average market time of 6 months. Extrapolated into dollars, that means that time without the carrying costs is $2,640 less I will have to spend compared to the average home without a warranty - that goes in MY pocket. Therefore, my seller's return for the $375 Home Warranty investment is $2,200 (more for the house) + $2,640 (time saved), or a total return on investment of: $4,840. That only translates into a 2581% return on investment.

So, is there a reason you WOULDN'T invest $375 to get a 2000+% return on investment. That would help reduce that commission fee wouldn't it?

It's a Gimmick

I often hear from the unwitting sellers, buyers AND a SURPRISING number of real estate agents: "oh that's just a gimmick to get you for another $375 bucks. Aren't you making enough money already?" That's when I explain the above to them. Almost invariably they want to add the Home Warranty.

Here's What's REALLY Crazy!

If you actually list your house with me, you don't have to pay for it unless there's a sale - EVEN if you have a claim as a seller. Since you already think this is nuts I might as well finish the explanation. We believe it helps to sell your house so much, that we are willing to list your home, and for your PROMISE to buy it for the buyer when it sells, we'll cover you during the listing period for FREE up to 6 months.

I'd say let's pretend, but I can do much better than that. I have had more than one home over the years where my Home Warranty company replaced a major component - like a furnace, the seller paid the small $100 deductible, and the warranty company paid several thousand dollars for a completely new furnace. Then, after the listing agreement expired the seller decided not to sell. Did he owe us for the furnace - NO, did he have to buy the Home Warranty for $495 (another franchise's warranty) NO! NO! NO! It's the same with the Acceptance Group WPI Home Warranty, but it's better because the deductible is only $75.

By the way this didn't just happen once, it may times between all of our agents over a 12 year period. Our Home Warranty company might even have several items we replaced during the listing period. Once I was told by a seller, after requesting he relist the property and how great it would sell now that we had replaced his furnace, hot water heater AND refrigerator; he said: "yeah that's great now I'm not worried these things will crap out on me. I think I'll keep it now. I'm really glad you convinced me to put that warranty thing on the house. I don;t owe you anything right? That's what you said." I said "you're absolutely right. You don't owe us anything. Thanks for allowing us to be of service. Please tell your friends you know of a great company if they ever think of buying or selling real estate.

Of course we sold a LOT of houses with claims from buyers who bought houses and had their furnaces, water heaters, appliances, electric and plumbing systems repaired or replaced. I stopped soliciting testimonials years ago.

Why Will They Pay More?

I believe the main reason buyers are willing to pay more for a home with a warranty is that they are buying piece of mind by purchase a home with a warranty on it. When you're spending $350,000 o a home and you can buy Home A for $340,000 with no warranty, but you can buy Home B with a warranty for $345,000, or even $350,000, and payment wise, the difference is only $15 a week for peace of mind, which house would you buy?

Ask us about our Home Warranty. It's like no other in the business, and it's only $375 for a single family home.

Chris Michaud
chris@acceptancegrroup.com
www.acceptancegroup.com