Does a home warranty protect a buyer in the event something goes wrong after they have purchased a property?
Sometimes.
That's because home warranties are oftentimes misunderstood, and not every warranty provides the same protection. All warranty companies are not equal, either.
Warranties, of course, were designed to protect buyers from problems that emerged after they moved into a dwelling. For example, if a major appliance breaks or the roof leaks, the ideal warranty kicks in and pays for the repairs.
On the surface, this sounds simple and straight forward. But, most of the time it is not.
First, all warranties differ. Aside form the obvious differences (the amount of deductible required), they may also vary insofar as what is covered and what is not. For instance, with some warranties, if the hot water heater works on the day of closing, but suddenly does not work six months later, then it may be covered. And, with other policies if the water heater was not in good working condition when the home was purchased, and it breaks a week or two later, there is no coverage.
Complex? Confusing? It can be. Even though the language in the warranty must spell out exactly what's covered, it isn't always the easiest document to understand. Thus, step one in evaluating any warranty should be to take it to your attorney to help you decipher the legalese. It may be well worth the hour or so that it will cost you in legal fees.
Next, is the warranty company financially sound? In many states, warranty companies can be doing business, despite the fact they do not have the funds to back up their policies. Thus, step two when evaluating a warranty is to take the policy to your accountant or a local CPA. Have them check out the warranty company's financials. Can they pay the claims?
Warranties can be critically important when it comes to new construction, too. Obviously, the reputation of the builder is an important consideration. However, problems with new homes can be enormously expensive if they are not covered by a warranty.
There are two types of defects when it comes to new homes: patent or latent. Patent are those problems which can be seen. Cracked plaster, a fence that is off-kilter, etc. Latent problems develop later, and may not show up for five or six months...ground shifting, for example. Latent problems are usually more expensive than patent problems. Thus, the warranty for a new home can be one of the most important documents executed during the buying process.
Whether you are purchasing a new home or a resale, remember that warranties definitely have a place when it comes to protection and peace of mind in the real estate transaction, but make sure that you check them out carefully.
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