Now, 'used' houses that come with guarantees built in
The next time you buy a resale house, you may get a guarantee as part of the deal. While already an integral and "expected" part of the sale package in some parts of the country, by 1985 up to 85 percent of all home resales will include a home-protection plan, according to Art Leitch, a San Diego Realtor and past president of the National Association of Realtors (NAR).
These plans normally cover the mechanical, functioning elements of a resale home for at least a year after the sale is closed. Most plans cover the electrical and plumbing systems, heating and air-conditioning systems, hot-water heater, and built-in appliances.
If one of the guaranteed elements becomes inoperable during the coverage period, a phone call will quickly bring a contractor to your home to fix the problem.
Hundreds of thousands of new houses are already registered in the Home Owners Warranty (HOW) program, sponsored by the National Association of Home Builders, or a competing plan.
Now the time has come for the "used" houses as well.
A warranty plan can be fully backed by an insurance company, or it may be a noninsurance or "home maintenance" plan. The one-time premium usually ranges from around $230 up to, say, $290. A deductible amount of about $50 per service call is common and tends to reduce the high-cost nuisance work.
Several factors in the current market are pushing the increasing use of home-protection plans.
One is simply the high prices being paid for today's houses.With this kind of cash outflow, the home buyer does not want to face major repair costs a few weeks or months after moving in.
Further, home-mortgage lenders prefer this coverage on the houses they finance and sometimes will offer more favorable terms on a covered home. Generally, it provides benefits for both buyers and sellers which are especially needed and wanted in the current depressed market.
It was Mr. Leitch who first recognized the emerging consumer demand for home-protection plans several years ago. In fact, he was instrumental in forming the home-protection committee of the National Association of Realtors and served as its first chairman.
"In today's market, the need for strong home-protection plans is more important than ever before," Mr. Leitch asserts.
"If private industry doesn't satisfy this growing consumer demand, the federal government will step in and put together its own bureaucratic program.
"If that happens, any resale home that is financed by a federally chartered lending institution or a government-backed mortgage (Federal Housing Administration or Veterans Administration loan) will probably be required to utilize the federal home-protection plan."
It is hoped that private industry will provide a choice of good plans that will negate pressure for a federal program, he stresses.
For several years, the primary function of the NAR's home-protection committee was to study and evaluate home-protection plans offered by a variety of companies. Its objective was to encourage development of strong, consumer-benefiting plans and inform brokers and consumers of their study results.
However, this function and consumer service was recently abandoned. The process of approving certain plans and not approving others carried too much legal risk, the NAR was advised by its legal counsel.
It was determined that the association does not currently have the capability to monitor "NAR approved" home-protection plans adequately, according to a spokesman. "There are too many plans emerging for us to handle an effective monitoring system on a national scale," he says.
Another key factor in the association's decision to abandon its home-protection plan "approval" process is the widely varying state laws that control and restrict how such plans are set up and marketed.
In some states all these plans, whether or not they are backed by an insurance company, must be approved and controlled by the state department of insurance. Others impose rigid restrictions on how the plans are structured and marketed.
In view of the substantial regional differrences in laws and types of plans offered, the NAR concluded it would be in the best interests of Realtors and consumers alike for each state association and local board of Realtors to become actively involved in scrutinizing plans being marketed within their region, rather than the national association's continuing to operate a national monitoring program.
Many state associations of Realtors now have their own home-protection committee to serve in this important area of responsibility.
The NAR is urging all state associations to establish such a committee.
Providing home-protection-plan coverage with the sale of a previously owned home is becoming a necessary ingredient in an effective marketing program, especially in today's severely depressed market.