THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, November 13, 1994 TAG: 9411100196
SECTION: CAROLINA COAST PAGE: 24 EDITION: FINAL
SOURCE: Chris Kidder
LENGTH: Long : 106 lines
Robert Bruss, whose syndicated column appears in The Virginian-Pilot's Hampton Roads Real Estate Weekly section, recommends home warranty policies. In fact, a lot of experts see these policies as a boon for sellers, buyers, real estate agents and builders.
Warranties address the sellers' and agents' legal responsibility to disclose defects in the houses they sell. The policies provide added value, an edge in a competitive market.
Typically, warranties for existing homes claim to cover repairs and replacement for wiring, plumbing, air conditioning and heating systems and built-in appliances for one year. They cost between $300 and $450.
New home warranty programs are usually more inclusive and for longer terms. With most policies, builders are expected to cover any claims during the first year, although the policy will kick in if a builder has gone out of business or claimed bankruptcy.
Most cover defects in workmanship; some provide arbitration for settling disputes between builders and homeowners. Industry spokespeople say there is no typical policy.
A Virginia reader wanted to follow Bruss' advice. ``I'm trying to sell my house,'' he explained when he called me last week. ``I thought a warranty would make it more attractive to buyers but I've called several insurance agents and no one knows what I'm talking about.''
The reader was talking to the wrong people.
Home warranty policies are available for both new and existing homes but, in North Carolina, they are sold primarily through builders or real estate agents.
According to Ted Williams, an assistant attorney general for the state of North Carolina, all of these home warranty companies are based out of state. Some may be licensed and regulated as insurance companies in their home state.
North Carolina classifies most of the warranty providers as ``risk retention'' companies, ``theoretically owned by the people they insure,'' Williams explains. ``Risk retention'' insurers of improvements to real property are excluded from regulation by the N.C. Department of Insurance.
Regulated insurance companies must undergo periodic financial reviews. All rates and policy forms must be approved by the state; sales agents must be licensed. These companies must belong to guarantee groups which will cover policy claims should the company not have the funds to do so.
Home warranty insurers, on the other hand, simply have to register with the N.C. Secretary of State's Office. Some must post a $100,000 bond. That's it.
In other words, buying a warranty policy to insure against defects in a home may be a risk in itself.
Home Owners Warranty Corp. (HOW), the nation's oldest and largest new home warranty insurer, has been taken into receivership, says Williams.
This company, founded over 20 years ago and endorsed by the National Association of Home Builders, insured millions of homes built by more than 15,000 builders nationwide. Whether the company can be turned around or must be liquidated will take some time to sort out, says Williams.
The potential demise of HOW might dampen builders' enthusiasm for warranty programs but probably will have little effect on consumers.
Consumer watchdogs have barked about service contracts and extended warranties being poor values on other products for years. We've spent millions of dollars on them anyway, anticipating shoddy workmanship and materials.
Home warranties, however, generally have been given the ``thumbs up,'' encouraging this mania for protection against defects to spread to home ownership.
Three years ago, one out of every 14 existing homes sold in the United States was covered by a home warranty. Today, about 20 percent of all homes sold have one, says John Kinker, president of the National Home Warranty Association.
But not on the Outer Banks.
Betty Canina, executive officer of the Outer Banks Home Builders Association, says most local builders haven't been interested in warranty programs.
Those who have looked into providing warranties found the requirements for coverage and the premiums too expensive. They point out that North Carolina already has a one-year ``implied'' warranty covering new construction.
Cheryl Kilgore, executive officer of the Dare County Board of Realtors, says her board doesn't endorse any home warranty program. She hasn't seen much interest either.
A warranty company provides existing home policies to members of the North Carolina Association of Realtors, says Kilgore, but she doesn't recommend it because other boards have been unhappy with the company's service.
Outer Banks buyers and sellers aren't demanding home warranties. John Stubbings, co-owner of REMAX Ocean Realty, Kill Devil Hills, says he's puzzled by the lack of interest.
Even so, he uses a warranty as a sales tool to clinch listings on higher-end homes. He pays for the policy himself. It's attractive to out-of-town buyers, he says, and his experience with the warranty company has been good.
ERA (Electronic Realty Associates), a real estate brokerage franchise, is one of the biggest providers of existing home warranties nationwide. Any house listed through an ERA broker is covered by their program.
But Ocean Country Realty in Avon is currently the only ERA broker in the Outer Banks market - and it doesn't even advertise its affiliation.
For more information about home warranties, ask your builder or real estate agent. If they can't help you, you can contact the National Home Warranty Association, 20 Ellerman Road, Lake St. Louis, Mo. 63367. The phone number is 314-625-3456.
For information about North Carolina's one-year implied warranty on new homes, call the consumer affairs division of the North Carolina Attorney General's office, 919-733-7741. MEMO: Send comments and questions to Chris Kidder at P.O. Box 10, Nags Head,
N.C. 27959. by CNB