Selling a Home Warranty?
Know the Rules
Industry confusion persists with regard to pitching financial
protection for home systems and appliances. By Melissa Dittmann Tracey
Some real estate professionals consider home warranties a security blanket for everyone involved in a
real estate transaction—the buyer, seller, and agent.
Warranties o;er a measure of financial protection
if certain home appliances need to be repaired or
replaced. They can help buyers feel more confident
about their purchase and may reduce sellers’ liability if something goes wrong after the keys have been
handed over. Real estate agents often find they play
an intermediary role in answering questions about
warranties and can even assist in filing claims.
But the long-standing relationship between real
estate brokerages and home warranty providers—
with regard to how compensation
can be o;ered to practitio-
ners—was called into
question in 2008 in
an informal letter
from the U.S. Department of Housing and Urban
Development. The letter suggested that brokers
and agents could be violating the Real Estate Settle-
ment Procedures Act if they accepted a fee for sell-
ing home warranties. That’s because referral fees for
“settlement services” are banned under the federal
law, and confusion has reigned ever since over the
acceptable conditions for receiving compensation.
Even a clarification letter from HUD two years later,
which said warranty sales were permissible as long as
sales e;orts constituted more than simply referrals
and fees were reasonable, did not stem the confu-
sion, since the follow-up guidance continued to sug-
gest that warranties were a “settlement service.” The
conflicting interpretations led to lawsuits, including
a class-action case against American Home Shield.
The company denied any wrongdoing but settled its
suit in 2011 to avoid further litigation costs.
Pursuit of Clarity Last year, it looked like the real estate industry and home warranty companies were getting closer to clarity on the issue. In August 2012, the House of Representatives passed a bill that said home war- ranty purchases were not a settlement service under RESPA—legislation that the N;;;;;;; A;;;;;;- ;;;; ;; R;;;;;;;® strongly supported. But the leg- islation died in the Senate last year, and Congress has yet to take it up again. Still, NAR continues to advocate on the issue, and has asked the Consumer Financial Protection Bureau—which now enforces RESPA—to weigh in on the issue. The agency has yet to respond. In the meantime, the industry is following the lead of HUD’s 2010 interpretive rule addressing the conditions for agents and brokers to receive compen- sation for selling the warranties, says Ken Trepeta,
Photos: iStockphoto / house: John1179 / umbrella: Natalia Lukiyanova ©2013
8 REALTOR® MAY/JUNE 2013