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A home warranty helps prevent the dreaded money pit syndrome

Cut the costWhen you buy a pre-owned house the last thing you need is for your dream home to turn into a money pit. Appliances, heating, plumbing and electrical systems have an uncanny ability to break down shortly after new owners move in.

The key to keeping these problems from sucking up the little you have left in your bank account is a home warranty.

This type of warranty doesn't cover structural problems such as a leaky roof but it will cover most major mechanical systems and built-in appliances -- things that generally aren't covered in a homeowners policy.

Real estate broker Rosemary Chiaverini of RE/MAX in O'Fallon, Ill., says many home buyers don't get a home warranty unless the house is 10 years or older, but she recommends one for any house that's more than 3 years old.

"The buyer has two options," says Chiaverini. "They can request that the seller pay for coverage and try to negotiate that or the buyer can purchase a contract that begins after closing."

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Under-warranty homes often sell faster
The best situation, of course, is that the seller has already purchased a warranty. Many do because it can help sell the home more quickly. Chiaverini says sellers who purchase a one-year warranty often get coverage during the listing period for free with the actual one-year period not kicking in until after closing. But sellers may not want to spend the money if they're confident nothing will break down. In that case, the buyer will have to decide whether a policy is worthwhile.

Annual coverage runs about $350 to $400 with a fee of $50 to $100 per item, per service call. The annual rate goes up if you want to cover things such as a pool or spa. Chiaverini says even a washer or dryer may not be covered in a basic policy because they're not considered items that normally are included in the sale.

Know exactly what's covered
It's extremely important to read the policy carefully -- especially if you're the buyer and the policy was purchased by the seller. A basic home warranty may not cover the heating and air conditioning in a seller's policy, but would cover those systems in a buyer's policy. Make sure you know exactly what's covered.

Buyers and sellers can get home warranty contracts from their real estate agent. Chiaverini says her office generally has contracts from a half-dozen companies and they may vary in types of coverage and limitations.

"Consider the home you're buying when weighing the advantages of one plan over another. If you have a plan that's strict on water heaters and you know yours is old -- you can't see the rust but you know it's old -- get a plan that covers water heaters."

Speaking of rust, most plans don't cover rust or corrosion -- that's to protect the issuer from pre-existing conditions. There is often a waiting period that can be 30 days or more, although some plans let you begin coverage immediately. If your house is on a slab, more than likely any plumbing in that slab won't be covered. Likewise, if there's a problem between the house and the sewer system, for example, that may not be covered. Inspections generally aren't required but you may be asked to sign something that says, to the best of your knowledge, all systems that are covered are in good working condition.

-- Posted: Feb. 14, 2000


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