Is a Home Warranty worth the money you pay?
A new way to “protect” home buyers and enrich insurance companies is available in South Africa in the form of a “home warranty”!
The “Voetstoots Clause”
Thousands of homes are sold without any guarantee that the homes are free of defects. These homes are all older homes sold with the “voetstoots” clause in the “offer to purchase”. The Consumer Protection Act does not protect you, the buyer, in this case. Selling his home is not the seller’s normal course of business.
The seller’s disclosure is required to declare all known defects. Can you trust that document?
I would not!
You have to prove that the seller was aware of the defects and did not disclose them!
The defects could be maintenance issues or latent defects that the seller knows about, but that is hidden from view. Such defects can cost a lot of money to fix. Furthermore, the legal process is expensive and frustrating if there’s any doubt that the seller did not disclose known defects.
About the home warranty
An insurance company is offering a “home warranty” to protect you from issues and defects for a two year period. In addition, the premiums are determined on an individual basis according to the insurer. However, the cost of this home warranty apparently ranges from R12,000 for a one million Rand home to R28,000.00 for a five million Rand home!
The seller can include the cover as a feature of the sale, or the buyer may insist upon the home warranty as a condition of the sale. In both cases, payment for the warranty forms part of the offer to purchase.
There are costs like certificates of compliance, levies and rates clearances, bond cancellation fees and the estate agent’s commission on the sale that all come off the selling price. Then there are the costs the seller has of buying a new property and moving to it as well!
I can only wonder how many sellers will want to cough up such a large amount of money?
Which leaves you, the buyer, to protect yourself by buying into the home warranty!
But what does the “home warranty” work and protect you against?
Apparently, the key benefits of the home warranty are a cover against:
- Roof, structure or workmanship defects.
- Defects with foundation design, structure or workmanship.
- Faulty electrics, plumbing, drainage, sewerage and gas installations.
If you will have a bond on the property you want to buy, your bank will insist you have a homeowner’s insurance. Furthermore, except for the foundation and structure, a homeowners insurance will cover most of the defects mentioned above. This includes flood water or storm damage to the structure.
In addition, the insurer’s home warranty includes a property inspection beforehand!
A home warranty will provide a professional inspection report that lists any exclusions or defects so you know what you are dealing with when it comes to negotiation time.
So what does that mean?
It probably means that your home warranty will exclude all the defects and maintenance problems listed in the report. At best, should they worsen, some defects will have a limited cover!
So what is the best course of action?
As a buyer or a seller, your best course of action is to create your own home warranty. Have a professional property inspection done! Firstly, you can choose your own inspector. Secondly, the cost of a property inspection is going to cost you far less than a quarter of the cost of a home warranty.
As a seller, you should have your home pre-inspected when you list your home. You can then have your home “move in certified” by a certified InterNACHI home inspector. Move-In Certified™ yard signs, free from your InterNACHI inspector, will attract potential buyers touring homes in your neighbourhood.
As a buyer, you should include an escape clause in the “offer to purchase” as follows:
The sale is dependant on a satisfactory home inspection report.
A home inspection will protect you, as the homebuyer against the “voetstoots clause”. You will receive a home inspection report detailing the defects in the property from an inspector of your choice. In addition, you will know about maintenance which you will need to budget for. No insurance policy or home warranty covers maintenance issues!