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Home warranties blasted in nonprofit group’s report

By Lew Sichelman
Universal Uclick
Lew Sichelman
Syndicated columnist Lew Sichelman has been covering real estate for more than 30 years.

Homes that come with warranties sell 11 days quicker and for an average of $2,300 more than those without, according to a recent survey by one of the country’s largest warranty providers. But Consumers’ Checkbook says such warranties aren’t worth the costs, which run from $400 to $600 a year.

“Instead of buying one of these policies – or placing any value in the one provided when you buy a home – you'll do better to place that money into a home-repair fund,” says Consumers’ Checkbook, an independent nonprofit that publishes local magazines in seven locations, including Boston, Chicago, San Francisco and Washington, D.C.

Home warranties have been vilified before, but never by an organization with a reputation like that of Consumers’ Checkbook, which has won the National Press Club’s First Place Award for Excellence in Consumer Journalism.

The warning about warranties does not include those provided by homebuilders on brand-new houses. Rather, it is solely about those on existing homes. Actually, they aren’t really warranties at all: They are service contracts that insure against the repair of a home’s major appliances, heating and cooling systems, plumbing systems, circuit breakers and a few other things.

But while the potential breakdowns covered by home warranties might be unpleasant, Consumers’ Checkbook says, they are often not catastrophic. Those bigger, more expensive repairs are what insurance is for – to cover stuff you can’t afford to fix or repair yourself.

“When you buy insurance against risks you can afford to cover on your own,” the magazine says, “you end up paying for sales commissions and expenses and company profits rather than for claims paid” by the warranty company.

“Buying a home warranty is like buying a (very) limited extended service contract on a bunch of appliances,” says the group.

Nevertheless, warranties have become almost universal. Buyers and sellers tend to put their faith in the warranties, but only until they are actually needed, according to the magazine, which notes that the files of consumer affairs agencies are “stuffed” with complaints about warranty companies.

Two major warranty companies were contacted for this story, but declined to comment. But Art Chartrand, counsel for the National Home Service Contract Association, which represents the largest warranty companies, called the report “silly” and “full of extreme factual errors.” He said the policies his members write are for the repair and replacement of systems due to normal wear and tear. “If you are competent at handling repairs, you may not need a warranty,” he said. “But most consumers are not.”

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