A Happier Homeowner, an Opportunity for Profitability by Mike Bartosch

In 2010, more than three million home warranties were purchased nationwide—the greatest
number to date (source: National Home Service Contract Association). In addition, the majority of warranties are purchased as part of a real estate transaction or subsequent renewal, which presents an interesting opportunity for agents.

It’s clear that home buyers and sellers are finding increasing value in the peace of mind and confidence a warranty provides, especially at a time when the current economic climate warrants a greater focus on financial security. The takeaway for agents is that there is a huge opportunity to increase your chance of referrals and repeat business by building client confidence through offering sound warranty advice.

To understand how home warranties can be a powerful tool for agents, it’s helpful to understand what a warranty is not. Offering a home warranty is not a guarantee of more clients or more listings. It is a line of protection, at a reasonable and affordable cost, that guards against breakdown due to normal wear and tear. It is a powerful confidence-builder and relationship-building tool for agents and their clients. Separate from homeowner insurance, home warranties give peace of mind with added protection and a smoother transaction for both the seller and buyer during a period of a sale.
For clients selling their homes, putting “Home Warranty” on the “for-sale” sign can offer a significant competitive edge. While there is no guarantee of selling the home faster or at a higher price, studies indicate that homes sold with a warranty sell for 2.2 percent more and 15 percent faster, on average. In addition, research shows that a warranty increases the chance of selling the property by 29 percent (source: REALTOR Magazine). A warranty also helps sellers while the home is listed—at a time, especially in today’s economy, when the seller may not have the budget available for an unexpected repair cost. Not only does the warranty give buyers more confidence in their home, but the seller gets complimentary coverage during the listing period for up to six months. A commitment must be made to fund the warranty, but the payment does not have to be paid until closing (note: Not every warranty provider offers this option. 2-10 Home Buyers Warranty offers listing coverage complimentary for up to six months in most states). This also gives the seller budget protection, easing their concerns about an appliance or system breakdown during the time of listing. With a warranty in place from the time the home is first listed, a smoother transaction is ensured, with each party covered and fewer negotiations conducted during the period of sale, from contract to close.
Warranties can build confidence with a buyer on a tight budget as well. According to Home Repair and Remodel, homeowners spend an average of $900 each year to repair home systems and appliances (source: Consumer Expenditure Survey 2002, U.S. Census). In addition, a home system or appliance repair can range from $65 to $2,000; a replacement averages $1,085 and can be as high as $6,000 to $10,000. The average life expectancy of nine critical appliances/home systems is 13 years, and the likelihood of failure of one of these systems in a given year is 68 percent (source: Home Repair and Remodel, Marshall & Swift L.P., 2004). An unexpected cost of a few hundred dollars is undesirable for all, and impossible for many who are allocating their existing funds into the purchase of their new home. With a warranty, buyers can confidently purchase their home knowing they’re protected and secured from closing day.
Most homes need a repairman twice a year for household repairs. In the event of an appliance breakdown or other repair needs, a warranty also helps keep a client happy after the close of sale. Finding a trusted service person who can perform the job quickly and properly can be a daunting task for a homeowner living in a new and unfamiliar area. With a warranty, the homeowner has 24/7 access to a customer service representative who will quickly connect them with a licensed and trusted contractor. Clients who experience sound advice, a smooth transaction and a well-handled repair, should they need one, will translate into happy clients. As you work to maintain a strong relationship with your clients, a positive experience with their warranty is a key stepping stone toward increased referrals and repeat business.
Home warranties can offer significant benefits and overall peace of mind to clients, but each warranty provider offers unique rules and limitations. Contracts can vary greatly in terms of the benefits they provide and the transparency with which they describe those benefits. Consider this quick checklist when reviewing coverage options with your client to ensure they’re choosing a solid provider and the best option possible, giving them confidence in your knowledge and their purchase decision:
Is the company a legitimate provider?
Consider a warranty provider that’s an NHSCA member, and one with a favorable Better Business Bureau rating. A warranty provider that’s been in the business for many years is also important.
Is the contract written understandably?
Your coverage should be outlined clearly, with limited jargon and legalese.
Is the contract flexible?
The most common warranty an agent will recommend to their client is a one-year systems and appliances contract. However, varying client needs require options. The warranty should be adaptable to the client’s needs, including pools or spas, septic tank protection in rural areas, and miscellaneous appliances.
How is the customer service?
In the event of a claim, a 24/7 call center, emergency service and clear disclosure of the service call process are a must. Look for a warranty provider with a high customer satisfaction rating and high percentage of claims paid.
Remember also that if you are offering a home warranty to one client, it’s industry best practice to offer a home warranty to all clients. This will reduce your liability in the unfortunate event that something goes wrong. We encourage agents to have clients who decline a warranty sign a waiver to be sure the agent is protected. The warranty offer can also provide savings on E&O for the brokerage. It has been proven that E&O claims may be reduced some 60 percent by including a home warranty offering in your transaction, as many items in question in an E&O claim are covered items in a home warranty.

For more information on home warranty options and how they can benefit your business, visit 2-10 Home Buyers Warranty’s online Agent Portal 2-10.com/agent. You can review your warranty activity with an online dashboard for all of your listings and closings. With 2-10 HBW’s customized materials, you can also keep up with clients and enhance your customer service and referral outreach.

The recommendation of a warranty from a trusted provider will establish a strong relationship, aid in giving your seller or buyer a positive experience, and will empower them to make strong and confident choices as they work through what may be the largest transaction of their life. Offering your clients the proper education to make an informed decision means better service and in the end, a happy home purchase. Long Live Happy Homes!

*This article was first published by and is being reprinted with permission from The Real Estate Professional, a publication of North American Consulting Group, Inc. therealestatepro.com.