Home Warranty 101: First Time Buyer Must Knows!

Transcription

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Pete: The one thing that I did know, and I didn't know this the whole time, but I just recently, probably in the last five years, found out that in order to get the home warranty, you do have to have a home inspection.

Lisa: That's not true.

Pete Not true.

Lisa: You don't have to have a home inspection.

Pete: Okay.

Lisa: But I will say, knowledge is power. Because if a buyer opts not to get a home inspection and there are things wrong with that home, they're not going to be covered.

Pete: Okay. Well, Lisa, thank you so much for coming in. I appreciate it.

Lisa: I love that you invited me, so thank you, Pete.

Pete: Yeah. You're actually the first, my very first podcast. So, we just put this room together, and I was super excited to have you on to talk about home warranties. So you have been selling home warranties now for how long?

Lisa: Not quite 20 years.

Pete: Really?

Lisa: Mm-hmm.

Pete: Wow. I bet you have some amazing stories to tell.

Lisa: I do. I do.

Pete: Wow.

Lisa: Yeah.

Pete: The theme of this podcast is really to educate first-time home buyers. And a lot of first-time home buyers don't really know. A lot of them aren't aware of what even a home warranty is. And so, do you want to explain what a home warranty is?

Lisa: Yeah. Honestly, I get a call at least once a week from a new buyer who is under the impression that it's their homeowner's insurance.

Pete: Oh, got it. Yep.

Lisa: Because it's confusing. There are so many things. So what the home warranty is, is very different from your homeowner's insurance. So we cover it for one year and sometimes two years. So we offer both one and two-year contracts that are renewable from year to year, so if you keep it.

Pete: They are renewable. So if it expires, you can continue to renew.

Lisa: Yeah. About 90% of my homeowners do renew.

Pete: Every year?

Lisa: From your. Mm-hmm.

Pete: And can you ever not renew?

Lisa: I mean, it's an option. Sure. Yeah. You don't have to.

Pete: But will the home warranty company let you continuously, for as long as you own the home?

Lisa: Yes. Yes.

Pete: Wow. Okay.

Lisa: Yeah. And so we cover your major systems and appliances that failed just from normal wear and tear of your everyday use.

Pete: Yeah.

Lisa: So we're very different from your homeowner's insurance in a couple of different ways because your homeowner's insurance is going to cover damage, but they're not going to cover those day-to-day items that failed.

Pete: Explain that, damage to the house?

Lisa: Right. So your homeowner's insurance, that's their function. And I'll give you an example because there are times when your home warranty and homeowner's insurance work together. Because, as an example, your home warranty does not cover for damage. So let's say you turn your dishwasher on, and you leave for the day. And you come home and unfortunately, it has flooded your house, and your floors are ruined.

Pete: That actually happened to me.

Lisa: Did it really?

Pete: But it wasn't really bad. It wasn't as bad. I didn't make a claim, but that happened recently.

Lisa: Okay. But it happens, right?

Pete: Yeah, it did. Yeah. Yeah.

Lisa: So if those situations happen, we, the home warranty, will come in, and we'll replace your dishwasher, but we're not going to fix your floors.

Pete: Got you.

Lisa: Your homeowner's insurance is not going to replace that dishwasher. They'll fix your floors.

Pete: Got it.

Lisa: Does that make sense?

Pete: So you can. So if you have both, you have the homeowner's insurance and the home warranty, and what you just explained, they will work together to cover both. So, why would the home warranty not cover the floors? Or why would the homeowner's insurance not cover the dishwasher?

Lisa: It's just outside of the scope of what we do. And when you look at homeowner's insurance, they're more for catastrophic, bigger issues.

Pete: I see.

Lisa: If you have a small issue, you're probably not going to file a claim for various reasons. For your home warranty, though, we're there for your smaller everyday problems, but we are also there for those larger ticket items.

Pete: Okay. Wow. I could see how buyers would get that confused. Homeowner's insurance also includes mortgage insurance, so buyers have to understand and learn about three different types of insurance. And what we're talking about is a home warranty.

Lisa: Correct.

Pete: Yeah.

Lisa: And another difference is that your home warranty, there's no requirement. I know that if you're having. If you're getting a loan for your property, you also have to have homeowner's insurance. That's not the case with your home warranty. Your home warranty is optional.

Pete: It's optional.

Lisa: Although it's of course, highly recommended.

Pete: Highly recommended. Yeah. Okay. So it's optional. And who typically would pay for a home warranty, and how much would it normally cost?

Lisa: That's a great question. The average cost is anywhere from $550 for the first year to $900 or more. It depends on the coverage you need. But for the basic stuff, we're looking at 550 to 650 for the year.

Pete: Okay. Is it based on square footage or location?

Lisa: It is square footage, but only when you're getting into homes that are over 5000 square feet.

Pete: Got it.

Lisa: So anything under 5000 square feet, it's a cookie cutter cost.

Pete: I see. And does it depend on what kind of appliances or heating and air system?

Lisa: That's a good question too, and it can. So we cover appliances, and every home warranty has limitations on certain things. Appliances are one of them. But they're generous. So, like Fidelity, if you want the refrigerator covered, it's $5000.

Pete: Oh, I see.

Pete: So most refrigerators don't cost that much.

Pete: Up to $5000. Yeah.

Lisa: Right.

Pete: Okay.

Lisa: So if we're needing to replace it. If you're dealing with a very high-end home, let's say you've got a Sub-Zero refrigerator or something like a Viking stove, we offer additional coverage so that you can double those and get better coverage for those at the higher end. Otherwise, regular coverage with the home warranty should be sufficient.

Pete: I see. And so I have so many questions on this because I see home warranties come on my closing statement. And the buyers most of the time, the realtor will approach the buyer and say, "Hey, let's get a home warranty." So I see these all the time. And so I've personally gotten home warranties before, but I've never actually had a claim.

Lisa: Oh, okay.

Pete: So I didn't get a home warranty on my last house. It was a complete remodel, and I didn't know if I could get a home warranty. So, I never actually went forward with it. So my question is, who will typically tell the buyer about the home warranty? And is it you who calls, or how does it work?

Lisa: So it is going to typically be their realtor. It's the realtor they have a relationship with. But then, once the realtor does that, I'm always there and available. So if the buyer wants to go over the details or has any questions, and especially if we're talking about first-time home buyers, they will likely have questions. And it's important that they know I'm local because a lot of the time, they think that they're calling this 800 number and they're getting it.

Pete: Like a customer service representative from the East coast. Yeah.

Lisa: Right. And, of course, we do offer that. We have that. But for clients that want me to connect, I'm more than happy to do that.

Pete: Do you ever go to the properties and look at the properties that they're getting home warranties on?

Lisa: No.

Pete: No?

Lisa: No.

Pete: You just get a list of what's in the house.

Lisa: Right.

Pete: Got it.

Lisa: So I'll either speak with the realtor, or I'll speak with the buyer. And to be honest, because the buyers are dealing with so much, the realtor sometimes has more detailed information for me.

Pete: Yeah. Makes sense.

Lisa: And then once I've gotten that information, I can guide that buyer into the coverage that I think would be best suited for them.

Pete: I see. Got it. A lot of the home warranties I see come across my desk; most of the time, the sellers give credit to cover. Do you see that a lot?

Lisa: I do. And because the market has shifted, that's a benefit for new buyers. It's also very localized, so it depends on the area. In some areas, the sellers always provide a home warranty. In other areas, they don't. It benefits the seller when they do. It does. There are reasons for that, but then, of course, it will benefit that buyer. Yeah.

Pete: Yeah. Wow. I have some more really good questions here for you. So let's see. What are the common misconceptions about home warranties? We addressed that. One of them was that people think it's insurance. Are there any other misconceptions that you can think of?

Lisa: There's a handful.

Pete: Okay.

Lisa: So one is, I do get concerned buyers when they're purchasing an older home. They think that the older home, because it's got older systems, will not be as good as a newer build. And that's mostly extremely wrong because they just don't make things like they used to.

Pete: Got you. So you.

Lisa: So if you're purchasing a home that is older and that has older systems, but those systems are functioning fine, you got your inspection, things look good, don't shy away necessarily because of the age of that home or those systems.

Pete: So what you're saying is that a buyer might call you and say, "Hey, this home is really old. I'm concerned even if I get a home warranty, the heating and air unit is 20 years old, 25 years old. Should I be concerned about this breaking?" And you're saying that back 20, 30 years ago, they built things well, better than what they sometimes built today. Is that what you're saying?

Lisa: That is what I'm saying.

Pete: Okay.

Lisa: Yeah. You'd be surprised how many claims we have on, for example, HVAC systems that are five years old.

Pete: Wow.

Lisa: Or less than 10 years old.

Pete: Wow. So, is it not necessarily the age that would create a claim?

Lisa: No.

Pete: Got you. Okay. So, what are some of the things that a home warranty does not cover? Well, we covered that with the floors and. But we're talking appliances, heating, and air. What are some of the other big air ticket items that actually are covered?

Lisa: We cover, yeah, those, and it's funny, but plumbing can be very expensive—water heaters.

Pete: It covers plumbing?

Lisa: We cover plumbing.

Pete: Really?

Lisa: Plumbing stoppages, plumbing leaks within the home. Your water heater used to be a lot less expensive to replace, but now, on average, it's anywhere from $1500-3000.

Pete: Wow.

Lisa: For that water heater. And.

Pete: For a water heater?

Lisa: For a water heater. A lot of the reasons why are because. And if you're a homeowner and very capable, you can go down to Home Depot and do it yourself. But if you need to hire somebody, there's a requirement now that those licensed plumbers have to handle. So, like, the disposal of the old one. Everything has gotten more expensive, including the unit itself, right?

Pete: Yeah. Yeah. That's a big-ticket item. I mean, who would think of a water heater? You buy your house, and the water heater goes out at $3000. Most first-time home buyers don't have much money after they close. They might have one or two months of reserves for the payment, but they're not going to have $3000 just lying around. They can just pay for a home warranty. So this is great information. Here's another question. We were talking about earlier coverage for if it's an investment property, it's not just first-time home buyers, although it's great for first-time home buyers, but can I buy a home warranty if I'm an investor? I'm buying a rental property.

Lisa: Yes. So, we cover any property that is used for residential purposes. And that includes even if you've got an apartment complex.

Pete: Like a big apartment complex?

Lisa: We would provide per unit.

Pete: Really? And do you do a lot of those?

Lisa: Well, we do a fair amount.

Pete: That's a good amount. Yeah.

Lisa: Yeah. But there. I don't think the information is as widely known as it should be.

Pete: Well, I had no idea. So, if someone wanted to buy, they just changed the rules for Fannie Mae. Fannie Mae now allows you to buy up to a four-unit property and just put 5% down.

Lisa: Nice. I did not know that.

Pete: If you live in one of the units, yeah. So they could get a home warranty for all the other three or four, four units, get a home warranty for all the major appliances and major big ticket items?

Lisa: Yes.

Pete: Wow.

Lisa: Yep.

Pete: Wow.

Lisa: Yep. So, anything from a mobile home or a condo to an apartment complex. As long as it's used for residential purposes.

Pete: Yeah. The one thing that I did know, and I didn't know this the whole time, but I recently, in the last five years, found out that to get the home warranty, you have to have a home inspection.

Lisa: That's not true.

Pete: Not true.

Lisa: You don't have to have a home inspection. But I will say knowledge is power because if a buyer opts not to get a home inspection, and there are things wrong with that home, they're not going to be covered.

Pete: So if someone gets a home warranty but they did not get a home inspection, and the dishwasher or washer and dryer goes out.

Lisa: Or if it never worked.

Pete: Oh, I see.

Lisa: If it worked for them, then we'll cover it. But if they move into a home and it never worked for them.

Pete: That makes sense.

Lisa: The air conditioner. I had this happen not long ago when the air conditioner wasn't working when they were first trying to move in, and there were missing parts on the unit.

Pete: Yeah.

Lisa: And they would've known that had they had a home inspection done. But they opted not to get that inspected.

Pete: Got it. So that's super important. First-time buyers or any buyer in the market, if you're going to be getting a home warranty, you should also look and make sure you get a home inspection. That's 101 for buying a home, get a home inspection. Okay. That makes sense.

Lisa: And something too, since we're on that subject of home inspections, they need to also keep in mind and maybe have a conversation with their realtor because depending on the time of year. So even now, it's too cold sometimes to turn on that. Especially if the inspection is scheduled in the morning, that home inspector may be unable to turn on the air conditioner to test it.

Pete: 'Cause it's too cold.

Lisa: Because it's too cold.

Pete: I see.

Lisa: And it's not inspected. So you have no idea the condition. So, even though you are getting a home inspection, they're not able to inspect that piece. So I suggest having your home inspector come back out later in the day when they can test it.

Pete: When it's a little warmer.

Lisa: And usually, they'll go out there for free or for a very nominal price to reevaluate something. But just understand that you don't know the condition if it's not inspected.

Pete: That makes sense. That makes sense. And so when someone makes a claim for a warranty, and they give you a cause that, one of the questions they ask, they say, "Hey, was this working in the past or. " How do they know whether it was working or not? If there is no home warranty on file, how do they know?

Lisa: We ask.

Pete: You ask? Okay.

Lisa: We will ask.

Pete: Got it.

Lisa: Yeah.

Pete: Okay.

Lisa: Usually, that's only if it's a recent policy that they just purchased. They just moved in. And they call us, we'll ask them, when did you first notice the problem? Was it working for you?

Pete: Okay.

Lisa: And that's the determination. Yeah.

Pete: Okay. Nice. Very cool. All right. Just a few more questions here. Here are a couple of good ones. So, what factors should a first-time home buyer consider when choosing a home warranty provider? So I understand there's more than just one. So, you've been with Fidelity for 20 years. And so I'm sure you have some great benefits of why Fidelity would be a good one over maybe some of the others.

Lisa: One of the biggest things that I would say is the coverage does differ based on the company. It's super important to choose; don't choose just by price. There are a lot of companies out there that are online only. The problem with those companies is. There are a few, but one of the major ones is that they don't have any local representation and don't do a lot of business in our area. And that causes a problem because they don't have the vendors, they don't have the contractors.

Pete: Got it. That makes total sense.

Lisa: So when you call for service, there's no one for them to send.

Pete: Yep. So if they're looking at home warranties and they're looking at pricing, I guess you get what you pay for. You get what you pay for. So they look at Fidelity, and one great reason why they should go with a local company like Fidelity is that the local company will have the providers, the contractors, the maintenance people, and the heating and air companies to service that unit.

Lisa: Exactly. Yeah. And for me, because I live here locally, not just because I live here locally, but I truly advocate for my home buyer. So if there is a questionable situation, I'll get involved to see what I can do to assist them in getting something moved forward and taken care of.

Pete: Yeah. Very cool. And speaking with the providers, do you have relationships with the providers on making sure they have a standard that they work with, like turnaround times, and make sure they provide good service, too?

Lisa: Yes, we do. Yeah. I have got some great, great local vendors.

Pete: That's awesome.

Lisa: Here, because I have a personal relationship. Over the years, you build relationships.

Pete: Totally.

Lisa: But there are times since you brought it up, there are times, let's say it's peak season when all of our contractors are swamped. So let's say you call and want something done, and our guy can't get out there in the time you want. We will work with you on hiring your own contractor.

Pete: Oh, I see.

Lisa: As long as they're licensed. So there are ways around that. So, a lot of the misconceptions are that there's frustration with waiting for that technician to come out. We do handle that very well. But in those peak seasons, sometimes we just give the option for the homeowner.

Pete: Yeah, I see.

Lisa: That they can go outside of our vendor.

Pete: I see.

Lisa: If they choose to.

Pete: I see. So I didn't know that that's actually how it worked. So you guys have vendors, and if my heating and air unit went out, I can't just call you and say, "Hey, my heating and air went out. I have a home warranty. I'd like you guys to pay this guy at my house because he told me I need a new whatever. Can you go ahead and pay him?" It doesn't work like that?

Lisa: No. What you would want to do.

Pete: I see.

Lisa: Yeah. Let's say, as an example, you wake up and don't have any hot water. You don't call your plumber. You call us.

Pete: Got it.

Lisa: And then we dispatch our local plumber. And then they'll coordinate with you as the homeowner to get out there and evaluate and see what's happening.

Pete: I see.

Lisa: If you choose, you'd still need to start a claim with us. So let's say you do. You've got a personal friend who's a plumber. You want them doing the work. You would still make your claim with us first. Let us know. I'm going to hire my own guy, and I'll provide you with the documentation that you need.

Pete: I see. And you guys will be able to accommodate the best you can.

Lisa: We will. Now, what we'll do, and why home warranties are affordable, is because we have contracted rates.

Pete: It makes sense.

Lisa: With our contractors. We also purchase our appliances our HVAC units.

Pete: It makes sense.

Lisa: Significantly because we buy.

Pete: In bulk, you're buying in bulk.

Lisa: Major bulk, yeah.

Pete: That makes a lot of sense. Okay.

Lisa: So that's why. So when it comes to hiring your own plumber, we're not going to reimburse you a retail cost. We would reimburse you with what we would have paid our contracted rates.

Pete: Got it. Okay. Well, that's awesome. I'll get a home warranty every time I buy a house. Let's see. Are there any specific maintenance tips or strategies that a first-time home buyer should remember to maximize the benefits of a home warranty?

Lisa: That's a great question,

Pete. And again, make sure you get your home inspections. If you've got a pool, get a pool inspection.

Pete: I see.

Lisa: For me, with what I do and what I've seen throughout my career, my HVAC, I think it's worth the extra money to hire a separate HVAC licensed person.

Pete: I see. Yeah.

Lisa: To make that evaluation. There's so much information that they have.

Pete: Oh, I see what you're saying. So instead of just getting a full homeowners inspection, you could get another, like a heating and air inspection and a pool inspection.

Lisa: Yes.

Pete: And inspection for another appliance, or depending on what they have.

Lisa: Right. For the most part, your pool, your HVAC, if you have. Home warranties don't cover your chimney, but that's another.

Pete: I see.

Lisa: That I might consider if I were buying a home, and I only say that because, again, with the years of experience I've had situations where the home inspector, they're very good. They know what they're doing, but they are limited. They're not licensed HVAC personnel, so they cannot tell you things.

Pete: Correct. It makes sense. Yeah.

Lisa: That your licensed person could. So, if you're investing in a new home, it might cost you another $100 or $200 to get that additional information. And again, information is power.

Pete: Absolutely. What advice would you give to a first-time home buyer on the fence about investing in a home warranty?

Lisa: I thought about this question a little bit because I got into the business just as a side story. I've never sold a thing in my life. I had no intention of ever selling anything. I still don't sell anything. I was a homeowner. I had purchased a new home. I had only been in it for a few weeks.

Pete: This is your first time?

Lisa: Yes.

Pete: For your first time? Oh, that's good. That was going to be my last question. Tell me a story of the first time you bought your home.

Lisa: And I remember it was a two-storey house, and I heard the water, and I was the only one home. I had no water on. All of a sudden, my carpet started getting soaked, and I had a plumbing leak. And I didn't know where it was coming from. I didn't remember that I had a home warranty. I called my realtor, very upset.

Pete: I bet.

Lisa: Anyway, he reminded me that I had this home warranty.

Pete: Oh, wow.

Lisa: And he helped me get it taken care of. Of course, it was before I was in the business, and it was such a relief. And since then, we owned that house for four years. They replaced my air conditioning and heating system.

Pete: Wow.

Lisa: My pool pump, my water heater. And so, when the job became available, I felt this was something I truly could do. I have personal knowledge of. And so it really can be very helpful. And especially now, I don't know about you, but we had to replace our refrigerator last year and the cost. Of course, I have a home warranty, so that helped. But they're just so much more expensive these days.

Pete: Here's a question. I own a few pieces of real estate that I don't have home warranties on anymore.

Lisa: Okay.

Pete: Can I just go out, if I own a house, can I just go out and get a home warranty on the house?

Lisa: Yes.

Pete: Really?

Lisa: The only difference is there's two differences. Your coverage won't start for 30 days after it's been ordered and processed.

Pete: That's cool, okay.

Lisa: That's so that we ensure that it's in good working order and your service fee is a little higher. Other than that, the coverage is the same. It's.

Pete: Wow. Okay. Very cool.

Lisa: And a few statistics that are. And this was from a few years ago, so they may have even increased some. But on average, in the first year, your home buyer will use their home warranty two times. And the reason for that is there's. These are the statistics thats provided: a 70% chance of a failure in any given year.

Pete: Say that again.

Lisa: You have a 70% chance.

Pete: As a first time home buyer?

Lisa: Right.

Pete: Okay.

Lisa: Or really any buyer.

Pete: Okay. Any buyer, yeah.

Lisa: But there's a 70% chance your something's going to fail.

Pete: Within the first 12 months.

Lisa: It could be your dishwasher, it could be your water heater, your heater.

Pete: Within the first 12 months.

Lisa: 70% chance within the first 12 months.

Pete: Wow.

Lisa: And on average, that repair costs about $1,500.

Pete: Interesting. I had no idea. So, any home statistically within the first 12 months has a 70% chance that there'll be a $1500 repair.

Lisa: Yes.

Pete: Wow. Okay.

Lisa: So when you look at the cost of the home warranty, it makes sense.

Pete: Absolutely. I think I'm going to get some home warranties. So, as you know, I started this podcast, and my goal here is to help first time home buyers, and I hope this has created a lot of value for the listeners. One of the things that I want to do is tell stories about how my guests purchased their first house and tell a little bit about some of the things you learned. What year was it? What were the circumstances? Was it a scary time when you bought it? 'Cause right now, anyone that's buying right now, it can be scary. There are a lot of challenges right now for first-time home buyers. However, they still need housing. So I was going to ask if you could tell your story of what it was like, or how you felt throughout the process and how it came about.

Lisa: Gosh, it's been a long time. But it was very scary. It was so scary because you're jumping from that. In my opinion, the wrong perception that you've got some sort of security by not owning your home because you're signing on that dotted line is a scary feeling.

Pete: I see. Yeah.

Lisa: Versus renting because you can get out of that. You can change after 12 months or whatever your lease is.

Pete: Yeah, so that part was scary for you?

Lisa: That was scary for me, but also exciting. When we purchased our house, I want to say it was, gosh, early '90s, maybe '92.

Pete: Wow.

Lisa: And the interest rate, I want to say, was about 10%.

Pete: Really?

Lisa: And the reason why I say that is because I have kids, probably your age.

Pete: Yeah.

Lisa: And over the last handful of years, the interest rates have been so good that they're a bit shocked now. But I let them know that, truly, it's all relative. It is, and even back then, at that percentage rate, which was the going rate, we felt lucky.

Pete: Wow.

Lisa: We were fortunate and we appreciated that. Times change. We refinanced.

Pete: Yeah. How long was it until you refinanced? How long? No, You don't remember.

Lisa: Oh my gosh. If you don't, honestly, I don't remember.

Pete: Now, you don't remember, yeah. It's an interesting story. In '92, interest rates were at 10. And one of the scarier parts for you was signing on the dotted line, thinking that you might not have options for getting out of the contract.

Lisa: Well, yeah. Or just there's just. I was young and a lot younger, and I just didn't know what our future held and didn't want to be tied down. So we learned, of course, that we could always sell it, which is what we did. You know what I mean?

Pete: Yeah.

Lisa: After however long we were in that home and it did. Then, the next home we purchased allowed us to purchase that second home.

Pete: Get into the next house. Yeah. Wow. Very cool. Well, Lisa, thank you so much for coming on. I enjoyed our time together, and I appreciate you sharing about the home warranties and Fidelity. So if our listeners would want to get a home warranty, what would they need to do? If they own a house or if they're a first-time home buyer, how would they go about getting in touch with you or getting a home warranty?

Lisa: They can just reach out to me. I do have an 800 number. I prefer not to use it. I have a cell phone. 530-440-9376.

Pete: Okay. Awesome. And I'll put that in the description of the video.

Lisa: Yeah. Or they can email me.

Pete: Yeah. Cool. Well, thank you so much. I appreciate it.

Lisa: Thanks, Pete. It's been great.

Pete: Yeah, thank you.

Lisa: Thank you.