With foreclosures and short sales being offered for far less than their market price in many parts of the country, buying and flipping these homes can provide local investors with a unique opportunity to earn a large profit over a fairly short renovation period.
However, those who have financed this real estate through high-interest means may need to make a sale before a balloon payment comes due. Having a home sitting on the market for weeks or months at a time can be a costly prospect.
In some cases, offering potential homeowners the promise of hassle-free ownership through a home warranty can be the difference between a home that’s snatched up quickly and one that languishes on the market for months.
Read on to learn more about the coverage afforded by a home warranty, as well as some of the factors you’ll want to consider when deciding to purchase a warranty for a home you’re planning to flip.
What a Home Warranty Covers
A home warranty is a type of insurance policy designed to protect home buyers from any sudden and unexpected costs upon the purchase of a new home. After spending money on a down payment, moving expenses, and the other costs inherent in moving a household, the last thing a home buyer wants to deal with is an expensive HVAC repair or leaking dishwasher.
By offering a home warranty as part of the sale, sellers can provide buyers with peace of mind, which is especially important when selling a recently renovated home.
Most home warranties offer coverage that complements a homeowners’ insurance policy. While homeowners’ insurance can pay to replace appliances that are damaged in a fire or when a tree crashes through a window, a home warranty will pay to replace appliances that malfunction or stop working entirely, even paying to replace the damage that can result from a leaking refrigerator or clogged dishwasher.
Home warranties can cover larger home systems like the furnace, air conditioner, and water heater as well. During the time period for which the home warranty is in effect (usually a year or two after purchase), any problems with these systems should be covered unless subject to a specific policy exclusion.
Although home warranties are meant to benefit the buyer by protecting from unforeseen expenses, they can provide benefits to the home seller as well. In today’s litigious environment, many home buyers won’t hesitate to file a breach of contract lawsuit if they run into problems with their new home that arguably should have been disclosed prior to sale.
Lawsuits are particularly a problem when it comes to home flipping, as the quick renovation and sale process often doesn’t provide enough time to see whether any plumbing, insulation, or other problems develop.
What to Consider When Flipping a Home
There are a few factors you’ll want to take into account when deciding whether to offer a home warranty on a flipped home that you’re hoping to sell. Although home warranties can be a low-cost way to offer peace of mind to a buyer, they’re not right for every sale transaction.
Local Market Conditions
In some hot markets, like San Francisco and Seattle, homes are being snapped up at well above listing price hours after they hit the market. If you live in one of these areas, or another part of the country experiencing a real estate boom, you may not need to worry about a home warranty as a selling point; it’s likely your home will quickly sell regardless.
On the other hand, those who are in slower-moving real estate markets may want to consider offering a home warranty to provide a bit of an edge over similar homes in the area. The longer a home sits on the market without any “bites,” the more it may become a turnoff to prospective buyers, so doing all you can to make your home marketable before it hits the market can be the key to a quick sale.
Manufacturer Warranty Coverage
If your flip included replacement of your home’s HVAC system or appliances, it’s likely these items are covered by their own manufacturers’ warranty; offering a home warranty to cover these items could be redundant, costing you extra without providing any added benefit.
Instead, if you choose to offer a home warranty, you may want to exempt appliances and other items that are already covered in favor of adding renovations that aren’t subject to their own separate warranty.
By keeping these factors (and the ebb and flow of your own local real estate market) in mind when flipping a home, you’ll be in a prime position to gain as much profit as possible from your recent foreclosure or short sale purchase.
If you’re interested in learning more about home warranties, contact High Tech Home Warranties so you can fully understand your options.