Reprinted From "Home Warranty Gains Popularity"

By James M. Woodard
Copley News Service

Homes sales activity is picking up in markets throughout the country. But buyers are still bargaining hard for the best possible deal - including home warranty coverage.

A home warranty protection plan is becoming an increasing frequent part of home sale transactions, according to a recent survey conducted by the Gallup Organization Inc. Nationally, 16.5 percent of sales last year included warranty coverage for a specified period after the sale (usually one year).

A home warranty plan typically covers the electrical and mechanical elements in a residential property. The plumbing, electric, central heating and air-conditioning systems, along with built-in components, are normally covered.

The warranty protection is obtained for a one-time premium fee (usually from $210 to 300). This normally paid by the seller, but in some cases the cost is shared by the buyer or broker.

Most plans exclude coverage of structural elements in the house and pre-existing conditions. But some plans will even cover these items for an extra fee.

Nearly eight out of 10 home owners polled in the Gallup survey stated they would likely purchase a home warranty for the buyer of their current home when they plan to sell it. Another significant finding of the survey revealed 89 percent of all consumers would likely recommend a home warranty to another home buyer.

"Consumer demand has been reflected by a significant rise in home warranty sales across the nation, affirming the independent Gallup findings," said John M. Kinker, president of the National Home Warranty Association.

It should be noted that the Gallup study was commissioned by the National Home Warranty Association at a cost of about $25,000. It took about nine months to complete.

A record 535,000 home warranties were sold nationwide last year, compared to 516,358 warranties sold in 1989, according to the NHWA. Sales of home warranties nationally have increased more than 84 percent over the past five years.

A home warranty plan provides the seller with a marketing tool, regardless of market conditions, Kinker said. Particularly in a competitive market, a home warranty distinguishes a home for sale from other homes on the market without warranty coverage and enhances the buyer's perceived value of the property. In addition, a warranty can provide sellers with added negotiating leverage.

The Gallup survey showed nearly 64 percent of all homeowners nationwide would find a home on the market more attractive if it had a home warranty. In addition, the survey determined more than seven out of 10 homeowners agreed having a home warranty would give them a greater level of confidence in a home they might purchase.

The NHWA commissioned Gallup to survey consumers to determine their attitudes and opinions regarding the value of home warranties, according to Kinker. Gallup survey 800 home owners nationwide to obtain a maximum standard error range at the 95 percent confidence level of +/-3.5 percent.

The trend toward full disclosure information and warranty coverage make home buyers more confident and minimizes subsequent problems for the seller and agent.

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