Comments on "What's a Warranty Worth? The Impact of Home Owner Warranties on Property Sales".
As a real estate broker, consultant, and appraiser in Houston, Texas, for over twenty-five years, my experience supports the authors' findings. I have never made an adjustment in the sales comparison approach for the presence of a home owner warranty program. In our locale, these programs are usually offered by title companies and range in price from $250 to $400 for one year of coverage.
That being said, I would like to offer my opinion as to why their use has not only continued but also expanded. The authors' findings and the findings of others suggest that paying for an HOW would seem illogical.
As brokers, we have found that offering a home owner warranty program on a residential property is an effective marketing/business tool. It is not put in place to increase the sales price or reduce the marketing time. It is encouraged to ease the minds of agents, buyers, and sellers of residential property. Properties are generally purchased with a real estate appraisal, home inspection, and other due diligence. HOW insurance offers another level of security. Buyers concerned about older appliances, water heaters, air conditioning units, and heaters will proceed with the purchase if such a warranty is in place. The main reason, as brokers, we utilize a home owner warranty program is for "after the sale" peace of mind. We encourage these warranties because our experience has been that funny things happen to a property after the sale is transacted. These programs allow the potential buyer to look elsewhere, besides the seller or real estate agent, in order to solve the problem. We get many cards from the home owner warranty programs indicating that within the first year they have replaced an air conditioner, water heater, dishwasher, etc., in a property we were involved, as an agent. These would have been calls that we, as a real estate agent, the other real estate agent, or the seller might have received had there not been a home owner warranty program interjected between us and the buyer. With such a warranty in place the seller does not have to worry as much about calls after the sale. I am convinced that home owner warranties decrease lawsuits and reduce phone calls from disgruntled buyers because it puts someone else, a home owner warranty program, in the mix. This becomes the first line of defense for the buyer and if coverage is not in place on a particular item, the buyer argues with a home owner warranty program and not us or the other agent or the seller. From a buyer's standpoint, this works well because in many instances their problem is solved either with a repair or replacement of an item that was found to be deficient after purchase despite having an appraisal and home inspection completed.
The value of an HOW is something that is not realized until after the sale. Due to the small monetary cost of such a program, the impact on value and marketing time is negligible. The true value comes from these programs after the sale. Many buyers continue paying for the home owner warranty plan after the first year, on their own, for this same peace of mind. This type of insurance has a benefit in the marketplace for reasons other than increasing sales price or decreasing marketing time.
Hopefully, this gives some insight as to my experiences regarding home owner warranty programs and their reason for existing and proliferating. My guess is that other real estate brokers have had similar experiences, but this is another topic for exploration.
Frank J. Lucco, SRA
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|Title Annotation:||letters to the editor|
|Author:||Lucco, Frank J.|
|Article Type:||Letter to the Editor|
|Date:||Jan 1, 2005|
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