Home warranty instead of home inspection contingency

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B4Xt3r
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Home warranty instead of home inspection contingency

Post by B4Xt3r »

Hi all,

This is a follow up to a couple of threads I've posted recently with a new question. My realtor is suggesting that most winning offers do not have inspection contingencies, but that people are purchasing "home warranties" instead.

Does anyone have experience with such warranties? Some examples:
First American Home Warranty - https://homewarranty.firstam.com/
Home Shield - https://www.ahs.com/
Choice Home Warranty - https://chwprice.com/
Select Home Warranty - https://quote.selecthomewarranty.com/

Thanks...again...
fabdog
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Re: Home warranty instead of home inspection contingency

Post by fabdog »

Sorry... there is some overlap... but home warranties won't cover lots of things you'd find on an inspection... if there's an issue with a system (HVAC, etc) they will come repair/replace... but if there are structural issues, termites, wood rot, foundation issues, etc... home warranty will not address that

Mike
DarkHelmetII
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Re: Home warranty instead of home inspection contingency

Post by DarkHelmetII »

+1 that there is little overlap. And even where warranty technically provides coverage, too many stories of difficulty in squeezing the actual value out of the insurance.
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RickBoglehead
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Re: Home warranty instead of home inspection contingency

Post by RickBoglehead »

OP should find a new realtor...
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adamthesmythe
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Re: Home warranty instead of home inspection contingency

Post by adamthesmythe »

It may be that in order to get an offer accepted in the present environment it is necessary to waive inspection.

BUT a home warranty in no way should make a buyer more comfortable.

Some of the things to worry about (foundation problems, water leaks, clogged sewers, etc.) are not addressed by a home warranty. The things that ARE addressed are usually less expensive, with the possible exception of HVAC. And even there the difficulty of getting an adequate fix from a warranty company remains.

The best substitute for an inspection contingency is a sizable emergency fund, and credit cards.
Yarlonkol12
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Re: Home warranty instead of home inspection contingency

Post by Yarlonkol12 »

I had a home warrenty that was offered when I purchased me house years ago. One of the AC units failed 8 months later dur to a condenser leak, but because they were so old, the policy wouldnt cover the recharge cost nor the condenser. I just had a new system installed instead, so it was beyond worthless ime
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golfer292
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Re: Home warranty instead of home inspection contingency

Post by golfer292 »

I purchased a home one year ago. The seller provided one free year home warranty with https://www.2-10.com/ . The warranty covered me replacing all the door locks saving me about $120.00. I did the installation myself. I did not have any covered failures of any appliances. That word "failure" is important to remember. Appliances are not covered because they have problems that should be corrected. They has to be a failure to work before the appliance is covered. And then you have to file a claim and if the company approves they select the company to come out to inspect the appliance and again if the approve the appliance will be repaired at a set price and you might have to kick in a copay. I found this out when my hvac person found my furnace heat exchanger has cracks and needed replacing. The cracked heat exchanger, $2000.00 estimate to replace was not covered. Personally, I would not accept a home warranty in place of a inspection. Home warranties are often provided free by the seller to entice the buyer. After the free year with 2-10 Home warranty it would have cost me $620.00 to renew for another year. I am self insuring.
runner3081
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Re: Home warranty instead of home inspection contingency

Post by runner3081 »

We had a warranty for 2 years with Oneguard. Actually had a lot of things fixed.

New washer, sprinkler repair, pool repair, hot water heater, shower cartridge, AC repair.

But, even with all of that, it was a break even proposition compared to hiring them out when you added the annual premium and service fees with the warranty.

We dropped it as future years would have been big losses in premiums.
miket29
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Re: Home warranty instead of home inspection contingency

Post by miket29 »

My realtor is suggesting that most winning offers do not have inspection contingencies, but that people are purchasing "home warranties" instead.
In another thread you posted that your realtor told you the only way to have a contingency clause for inspection is to put up a $10K deposit which you'd lose if the home failed inspection and you decided not to go ahead with the purchase. Perhaps you misunderstood what they said, but the whole point of a contingency clause is that you can back away if the clause is not satisfied. Maybe in your market the only way to put in this contingency is with a non-refundable deposit, but it sure sounds strange to me.

As for a home warranty being a substitute, not even close! Home warranties are carefully drawn up to provide the appearance of protection without actually providing any. Our home had a leak in the roof above the kitchen. Sorry, not covered. Furthermore I'd bet lots of other things that could cost you a lot of money and that should be caught by inspection (electrical wiring done incorrectly, problems with the foundation, etc) are not going to be covered by any home warranty.
hicabob
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Re: Home warranty instead of home inspection contingency

Post by hicabob »

Realtors make a nice commission on home warranties which is why they push them.
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B4Xt3r
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Re: Home warranty instead of home inspection contingency

Post by B4Xt3r »

adamthesmythe wrote: Tue May 11, 2021 7:24 pm

The best substitute for an inspection contingency is a sizable emergency fund, and credit cards.
How much $$ of an emergency fund should one have for insuring against unforeseen costs when purchasing a ~2000 square foot home?
LittleMaggieMae
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Re: Home warranty instead of home inspection contingency

Post by LittleMaggieMae »

Ask your realtor for the money they would be spending on the Home Warrantee.

I was an emotional mess when I bought my house (I had been looking at/expecting to buy a "fixer upper" and I wound up with a habitable house in pretty much move in condition - but with a failing AC system and a it's gonna need a roof in a few years - at the top of my 'budget'. I had NEVER bought a house this nice before, and had never spent so much money upfront on a house. I asked for an allowance for the failing AC - but the seller wouldn't budge. To calm my nerves and go thru with the deal (I REALLY did want this house - it was just the nicest most expensive house I ever bought! It wasn't just habitable - you could live in it right away!!! I never bought a house like that before! I was terrified.) My realtor and seller's realtor got together and offered me a "home warrantee" from First American Home Warranty saying it would the AC (if it was going to fail). I knew the AC was gonna fail - I got experience with houses that have big problems. Anyway, I knew it was stupid to take the warantee - but I did. The policy cost them $700.00. And, yes, the AC failed 3 days after closing. :)

After a zillion calls, and a bunch of different contractors looking at the AC unit and a couple of attempts at fixing it - the Home Warrrantee company ok'd a new AC unit being installed. First the wrong unit was ordered. Finally the right unit a refurbished one- arrived and was installed incorrectly causing water damage. Got it installed correctly and eventually gave up on getting the water damage repaired so we did it ourselves.
Total cost was $1250 for the AC unit - which took almost 4 months to get installed.

I wish I had asked if I could just have the $700 in cash. Using the Warrantee was the most stressful awful thing I have ever done (and I've had 2 feet of water in my basement. I've had a furnace die in January when temps were in the single digits. I once bought an uninhabitable house practically sight unseen and without an inspection (It cleaned up nice, had good bones, and was cute as a button. Owned it for 5 years.). That warrantee is at the top of my all time most awful things.

Instead of skipping the inspection - can you ask for the previous Inspection documents on the houses you are looking at? If the inspection is a year or two old - it might provide valuable clues about the property.
Last edited by LittleMaggieMae on Tue May 11, 2021 8:43 pm, edited 3 times in total.
LittleMaggieMae
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Re: Home warranty instead of home inspection contingency

Post by LittleMaggieMae »

B4Xt3r wrote: Tue May 11, 2021 8:05 pm
adamthesmythe wrote: Tue May 11, 2021 7:24 pm

The best substitute for an inspection contingency is a sizable emergency fund, and credit cards.
How much $$ of an emergency fund should one have for insuring against unforeseen costs when purchasing a ~2000 square foot home?
Depends on the COLA you are in. It's not about the size the house (a 2000sq foot ranch house has a bigger roof than 2000sq ft bi level house for example). A McMansion roof with lots of peaks and valleys and weird roof lines will be more expensive than a simpler gable or hipped roof.
It's also about all the "mechanics" of the house - is there a pool? do all the windows have "automatic" shades? Is there fancy shower controls? Are there 5 bathrooms but only 2 people living in the house (unused things that use water - can fail if you don't tend to them regularly).

That said - I'd guesstimate you don't want less than 5K in the EF - I'd maybe go 10K (if you've got a fancy house with a pool and hot tub for example). If in 12 or 18 months after you move in you don't have any failed appliances or haven't discovered any 'surprises' that need fixing OR stuff that needs routine maintenance that you didn't realize (decks that need to be re-stained regularly, or a sump pump battery backup that needs replacing, or having someone come out and clean the furnace or to clean the fireplace chimney or something else your house has that needs yearly tending) - you can allocate the money to upgrading stuff around the house!
Last edited by LittleMaggieMae on Tue May 11, 2021 8:34 pm, edited 1 time in total.
BruDude
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Re: Home warranty instead of home inspection contingency

Post by BruDude »

Choice home warranty is awful, stay away.
adamthesmythe
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Re: Home warranty instead of home inspection contingency

Post by adamthesmythe »

LittleMaggieMae wrote: Tue May 11, 2021 8:32 pm
B4Xt3r wrote: Tue May 11, 2021 8:05 pm
adamthesmythe wrote: Tue May 11, 2021 7:24 pm

The best substitute for an inspection contingency is a sizable emergency fund, and credit cards.
How much $$ of an emergency fund should one have for insuring against unforeseen costs when purchasing a ~2000 square foot home?
Depends on the COLA you are in. It's not about the size the house (a 2000sq foot ranch house has a bigger roof than 2000sq ft bi level house for example). A McMansion roof with lots of peaks and valleys and weird roof lines will be more expensive than a simpler gable or hipped roof.
It's also about all the "mechanics" of the house - is there a pool? do all the windows have "automatic" shades? Is there fancy shower controls? Are there 5 bathrooms but only 2 people living in the house (unused things that use water - can fail if you don't tend to them regularly).

That said - I'd guesstimate you don't want less than 5K in the EF - I'd maybe go 10K (if you've got a fancy house with a pool and hot tub for example). If in 12 or 18 months after you move in you don't have any failed appliances or haven't discovered any 'surprises' that need fixing OR stuff that needs routine maintenance that you didn't realize (decks that need to be re-stained regularly, or a sump pump battery backup that needs replacing, or having someone come out and clean the furnace or to clean the fireplace chimney or something else your house has that needs yearly tending) - you can allocate the money to upgrading stuff around the house!
Right- age, style, and location are going to matter more than size.

There are some number of things that can fail that will cost 10K or so to fix. HVAC, roof, maybe sewer. So you don't want to be destroyed by a sudden expense of this sort. Of course some things (structural) can be worse. Here's where the non-refundable deposit comes in- if you do an inspection, and there's bad structural problems- then it might make sense to walk away.

Now if some problem emerges that should have been on the disclosures...then you can try negotiating return of the deposit- because then the owner done wrong.
CriticalCareJunkie
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Re: Home warranty instead of home inspection contingency

Post by CriticalCareJunkie »

You’re opening yourself up for a world of heartache if you don’t get an inspection. It’s down right foolish.

As for home warranties, they’re a joke. We’ve had one on both of the houses we’ve bought. They’ve both been terrible and two different companies. The first didn’t cover either of the problems we encountered due to technicalities. The second sent an incompetent repair man twice (no, the oven isn’t working right when it takes an hour to preheat....). We paid for our own repair main (after the $75 copay both times before) and it was fixed in 5 minutes.
John Doe 123
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Re: Home warranty instead of home inspection contingency

Post by John Doe 123 »

Read the home warranty. It probably isn't worth the paper it's printed on.

Get a home inspection. Get one from an inspector that you've found independent of your realtor.

If this isn't possible, then negotiate the price down accordingly. Do not rely on a home warranty.
abracadabra11
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Re: Home warranty instead of home inspection contingency

Post by abracadabra11 »

Don't waste your money on a home warranty, it won't provide any real coverage so it provides zero risk reduction related to home condition and unexpected expenses.

I would urge you to reconsider purchasing a home in the current environment. In the areas we've looked, winning offers are waiving inspection, financing, and appraisal contingencies and are going way over asking ($100k+ on a $700k home is very common). If for whatever reason you still want to purchase a home, then consider having an inspection done prior to making your offer. I don't think you'll get the same detailed inspection as what normally happens when purchasing a home, but you can at least get a good sense on the condition of critical and costly infrastructure in the home. Some inspectors we spoke with referred to it as a walk-and-talk inspection.

We went this route on a home where we thought we made a strong offer. The house closed for $110k over what we offered (which was over asking and in line with the sales price of similar homes in the last 30 days in that area).

Good luck.
dboeger1
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Re: Home warranty instead of home inspection contingency

Post by dboeger1 »

John Doe 123 wrote: Tue May 11, 2021 9:31 pm Get a home inspection. Get one from an inspector that you've found independent of your realtor.

If this isn't possible, then negotiate the price down accordingly.
I'm not saying you're wrong in normal times, but I think in today's hot markets, this is frankly unrealistic for many people. You have to understand that in some places, houses are getting 30+ offers with the top ones being all-cash, no-contingencies, close-within-30-days, 20%-over-asking (I didn't check OP's post in total so I don't know where they are or if that's their case). A typical home buyer coming in with financing and negotiating the price lower over an inspection in such a market is like buying a lottery ticket. We bought our first home in the Bay Area last year, and one thing I didn't even realize was common practice but I actually really liked was that virtually all the sellers got their own inspection, and then just distributed the report to interested buyers. I know the old line of thinking is that this introduces a potential conflict of interest, but really, it's not like most inspectors are out trying to get buyers the highest price possible. They generally have standards and a lot of that gets coordinated through the realtor who mostly just wants the place sold. In our case, the house had been way overpriced initially, so it sat on the market for a long time, and by the time we bought it, nearly all of the issues in the inspection report had been resolved by the owner, unbeknownst to us. I really didn't want to waive inspection contingency on our first home, but that was just the state of the market, and we couldn't afford not to, as we bought just about the cheapest single family home we could find in the area. We're happy in our new home with our first baby on the way. I don't see how it would have benefitted us much to stand our ground on principle when it came to the inspection contingency. We couldn't help that so few homes were on sale.
carolinaman
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Re: Home warranty instead of home inspection contingency

Post by carolinaman »

dboeger1 wrote: Tue May 11, 2021 11:15 pm
John Doe 123 wrote: Tue May 11, 2021 9:31 pm Get a home inspection. Get one from an inspector that you've found independent of your realtor.

If this isn't possible, then negotiate the price down accordingly.
I'm not saying you're wrong in normal times, but I think in today's hot markets, this is frankly unrealistic for many people. You have to understand that in some places, houses are getting 30+ offers with the top ones being all-cash, no-contingencies, close-within-30-days, 20%-over-asking (I didn't check OP's post in total so I don't know where they are or if that's their case). A typical home buyer coming in with financing and negotiating the price lower over an inspection in such a market is like buying a lottery ticket. We bought our first home in the Bay Area last year, and one thing I didn't even realize was common practice but I actually really liked was that virtually all the sellers got their own inspection, and then just distributed the report to interested buyers. I know the old line of thinking is that this introduces a potential conflict of interest, but really, it's not like most inspectors are out trying to get buyers the highest price possible. They generally have standards and a lot of that gets coordinated through the realtor who mostly just wants the place sold. In our case, the house had been way overpriced initially, so it sat on the market for a long time, and by the time we bought it, nearly all of the issues in the inspection report had been resolved by the owner, unbeknownst to us. I really didn't want to waive inspection contingency on our first home, but that was just the state of the market, and we couldn't afford not to, as we bought just about the cheapest single family home we could find in the area. We're happy in our new home with our first baby on the way. I don't see how it would have benefitted us much to stand our ground on principle when it came to the inspection contingency. We couldn't help that so few homes were on sale.
I understand the market today makes it harder to insist upon an inspection contingency but it just seems very risky to not do an inspection. There are so many things that could be wrong with the house that could be very expensive to repair: foundation, wood rot, septic, drainage, etc.

The house next door to us has been vacant for 20 years. The owner recently sold it and the new owner (a flipper) has spent several weeks repairing and remediating issues. The house was full of mold and mildew and I was told there was extensive wood rot. I doubt flipper has repaired everything and I guess the buyer will be none the wiser without a home inspection. The current housing market brings out these kind of unscrupulous sellers. Buyer beware!

If I needed a new home, I think I would either buy a new home or rent until the market reverts to a more normal market.
daheld
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Re: Home warranty instead of home inspection contingency

Post by daheld »

Home warranties are an enormous scam and you should avoid them at all costs. Actually, avoid them even if they're free.
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grogu
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Re: Home warranty instead of home inspection contingency

Post by grogu »

daheld wrote: Wed May 12, 2021 8:41 am Home warranties are an enormous scam and you should avoid them at all costs. Actually, avoid them even if they're free.
I largely agree, although I don’t hold home inspections in that high regard either. Don’t get me wrong, I suck it up and pay for it (in the same way that I go along with the scam of title insurance). But just because your inspection doesn’t reveal any major issues, don’t think that bad things won’t happen. This can be due to an apparently good system unexpectedly failing or (more likely) the inspector just didn’t see something. And if you read your agreement with your home inspector, you’ll find that they disclaim practically everything and you have practically no recourse (maybe they’ll refund you the price of the inspection) if they negligently missed something. And while home warranties have exclusions up the wazoo, at least there is a chance you could receive some compensation if something fails. Personally, I hope inspectors would catch a giant hole in a roof or a deck that’s about to collapse because of wood rot. Other than that, I take their report with a huge grain of salt and plan for the worst.
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