Home Inspections and Home Protection Policies…What Every Buyer and Seller Should Know

(Riverside, California…Westcoe Realtors)…We live in a business climate these days in which protection from unknown surprises is a must…especially in the real estate industry.  Purchasing a home is a pretty big ticket item for any family, and the more one can do to minimize any future home repair surprises, the better.  Today, I wish to explain two of the avenues a prospective home buyer has to help them avoid the proverbial “money trap” when it comes to real estate.

HOME INSPECTIONS

A home inspection is simply what it says:  the inspection of the prospective new home by an individual capable of determining the current shape it is in.  Sounds simple, and it essentially is…but there are a few things a buyer should know before having one done.

First of all, Westcoe highly encourages every buyer of a home to have a home inspection.  Why?  Because when it comes to an existing home, while most sellers feel they live in a “perfectly kept” home, in reality, these homes fall into one of three categories;  it really is perfect, it is a mess and the seller is lying about it, or the seller really thinks everything works, but has forgotten about what is broken since they have lived with it for so long.  No matter what the motive behind the seller’s opinion of their home, the buyer will sleep better if a qualified, neutral third party inspects the home.

The cost of a home inspection will vary by the size of the home to be inspected, but will generally run from $300-$500, and is customarily paid for by the buyer.  As a general rule, the buyer is encouraged to attend the inspection, and most inspectors welcome the buyer to be there.  The inspection itself is very thorough, and includes everything from top to bottom, inside and out, and front to back.  The inspector looks at the roof, foundation, plumbing, sprinklers, electrical, attic, appliances, heat and air conditioning, all rooms and baths, walls, ceilings, windows, doors, and much more.

Once the inspector is finished, they will prepare a detailed report with photos, and a copy of this report will be given to the buyer, the seller, and any real estate agents involved in the sale.  At that point in time, in most transactions, if there are repairs recommended, all parties will sit down and try to decide who will fix what.  Some repairs are very important and must be addressed, and some repairs are very minor, and can be ignored.  Every house is different, and every report reflects this difference.  The important thing is that all parties have an independent report that accurately reflects the current condition of the home.  What the buyer, seller, and agents do from there is up to them…but at least everyone is now playing with the same information.

Hopefully, everything gets worked out between the buyer and seller, because the report is truely designed to protect both.  Understand, in the sale of most houses, the seller is required to provide the buyer with what is called a Transfer Disclosure Statement (TDS).  On this form, the seller is to disclose any defects or items not working in the home, so the buyer can make an informed decision on whether to continue with the purchase of the home. 

The days of a seller knowing of a problem and then not telling the buyer are over.  Sellers need to tell the buyers everything that may affect the home.  However, as mentioned above, some sellers are more honest, or more aware, than others.  No matter what the case, the home inspection and its subsequent report will make sure that the buyer totally understands what is happening with the home, and then everyone can adjust from there.

HOME PROTECTION PLANS

A home protection plan is basically a one year insurance plan that offers the buyer some protection in case something should go wrong with the home after the buyer has closed escrow…but beware, there are exceptions to almost everything, so the buyer must be educated on what exactly is covered and what is not. 

First, this policy is generally paid for by the seller, and goes into effect upon the close of escrow.  Most major systems in the home are covered by the home warranty company, and there is a small deductible that needs to be paid by the buyer should they file a claim during the policy year.  The cost of this basic policy is approximately $275, and then there are add-ons for central air or pool and spas.  In total, the price will be about $350 including central air conditioning, rising to upwards of $500 if pool equipment and spas are covered as well.  These policies are for one year only, but can be renewed annually by the buyer if so desired.

Now…how do they work?  IN THEORY, if the buyer has a problem, they will call their warranty company, who will send out a repair person for that specific problem.  The buyer will pay the deductible (generally about $50-75 per trade call) and then once the problem is discovered, then that is all the buyer will have to pay. The warranty company is now on the hook, and will either repair the problem, or replace the item at fault.  This includes electrical, plumbing, and almost all built-in appliances.  Sounds good, and most of the time it is…but not always.  As we tell our clients, a home protection policy is better than nothing, but it will not cover a home in every instance.

You see, there is a little thing called “pre-existing condition” that can rear it’s ugly head more often than it should.  On the one hand, the home warranty company has every right to say that if the condition that lead to the repair was pre-existing when you bought the home, then they cannot be expected to fix what was already broken.  This makes sense.  In the early years, some unscrupulous sellers/buyers/agents would simply sell the home with a non working dishwasher for example, and then call the home warranty company to come replace the broken machine at the close of escrow.  That is not right.  The dishwasher was supposed to work at the close, and the home warranty company should only be involved once a working dishwasher breaks at a later date.

However, sometimes this “pre-existing condition” pendulum swings a bit too far, resulting in home warranty companies denying claims by blaming that the root cause was in place before the buyer closed escrow.  All real estate agents try to use reputable home warranty companies, but every agent has a horror story about a home warranty company denying a claim…and it is hard to fight.  Ultimately, the buyer and buyer’s agent can throw a huge fuss, and threaten future business, but that does not always work.  This is not a slam or rant on the entire industry and the reputable companies in this business, but merely a statement of fact.   That is why we tell our clients that having a home protection policy is better than nothing, but is not the universal answer to any home repair.

However, one thing we have found useful in combating the dreaded “pre-existing condition” issue is your home inspection report that you had done prior to purchasing the home.  Here, if your inspection report can show that the system or appliance was working at the time of the inspection, then it is harder for the home warranty company to deny your claim.  This is another reason to have a home inspection, because it has come in handy many times when a claim is trying to be denied by the home warranty company.

In the end, there is only so much protection that can be offered upon the purchase of a home.  It would be foolish not to take advantage of the options available to you, but everyone must understand that home ownership is not fool-proof.  Sometimes things just break, and the owner at the time is the one who gets stuck with the repair.  It may not be fair, but homes are no different that cars, televisions, appliances, etc.  The above mentioned precautions will help, and that is all you can do…and hopefully, the home inspection will let you know all about your home, and you will never have the need for your home protection policy.