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Home warranties on foreclosed properties are booming

Posted by: Peter Coy on June 8, 2009

Good post by Steve Cook on his blog Real Estate Economy Watch on the boom in home warranties, especially the ones that buyers of foreclosed properties are paying for.

Not having looked into this myself, I’d guess there are pros and cons to spending money for a warranty on a foreclosed property. On the one hand, it’ll give you some peace of mind and maybe save you a bundle in case there’s something wrong with the property and it’s covered by the warranty. On the other hand, my experience with warranties is that they tend to be pretty expensive for the amount of coverage you get. That’s why sellers of home appliances push you so hard to get a warranty on, say, a microwave oven—they can make more money on the warranty than they do on the oven itself.

I would love to hear what Hot Property readers can say from their own experience.

Reader Comments


June 8, 2009 5:03 PM

Warranties on houses are mostly a marketing tool for the seller. Whether it's a resale house or new construction, a warranty policy gives the buyer a sense of security that may get them to buy that house. The sense of security is an illusion in many cases. Few consumers see the ACTUAL policy they'll be bound to, much less have an attorney look it over. If they did, they'd see it excludes so much it's practically worthless. And if the homeowner wants to dispute a claim that's denied, they will be forced into the warranty co's private arbitration--they cannot sue. Without the leverage that one's legal rights normally afford a consumer, the warranty co, builder, seller, and real estate agent, are all covered, but the homeowner isn't.

BTW, a buyer who uses FHA or VA financing CAN, with effort, still sue when a home warranty co is denying a claim. Title 24 of the Code of Federal Regulations, Section 203.204(g) says that judicial resolution must remain an option. But, getting it enforced can be difficult and sadly, few consumers' lawyers understand the importance of this, and merely reject the cases because they are unprofitable or they see no hope of getting out of arbitration. Not all lawyers even realize how privatized and biased corporate arbitration has become. By the time they find out, it's too late for the homebuyer.


June 9, 2009 1:42 AM

Housing bubbles like the one from 2001 to 2008 may not be as good for the economy as once thought, in view of the fact the nation must now bail out the banks sucked into those high value, high risk loans.

Just as the stock market has a system to stop market trading to prevent inflationary bubbles, and deflationary troughs in hopes of creating a stable market, it's possible that housing needs a similar protective system, if the housing busts of 1989 and 2008 are examples of the outcome.

For those who cashed in on those inflated values, the subsequent securities market crash may have wiped out much of those gains, and now the entire country is subsidizing the losses from the exuberant real estate market.

Once, real estate was thought to be a stable investment since people lived in their homes; now the prospect of few jobs, and the crumbling housing market has eroded that confidence, leaving taxpayers to shoulder the burdens of that irresponsibility of not recognizing the real estate market as the reality of the real assets market.

Where paper markets are allowed to inflate the market of real assets, it amounts to a highjacked land/nation.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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