director of NAR’s Real Estate Services. Consumer
lawsuits have decreased, as real estate brokerages and
home warranty companies have tweaked their relationships. Here are recommendations to avoid potential RESPA violations in the marketing and sale of
home warranties to consumers.
b DO make sure your services are “actual,
necessary, and distinct.” You can receive compensation from a home warranty company, but
your warranty-related services must be necessary
and distinct from required other real estate duties. Many home warranty companies now require
agents to document pre-existing conditions in the
home that could a;ect coverage and obtain serial
numbers from appliances and systems that would
be covered by the warranty. In exchange for this
work, agents can be compensated if the client decides to purchase a warranty.
b DON’T accept compensation for referrals.
Just promoting a home warranty company via a
sales pitch about the benefits of a particular product or distributing a promotional brochure to clients is considered a “referral,” which isn’t eligible
for compensation. You can still do such marketing; just don’t accept payment for it.
b DO make sure any fees collected are “
reasonable.” Merely taking an application from a
client who wants to purchase a home warranty
does not justify a fee under RESPA, according to
HUD. Payment must be in line with the services
b DO disclose to clients any fees collected.
Disclose to consumers that you are receiving
compensation from a home warranty company.
Make clear to them that they can purchase a
home warranty from other vendors and that they
aren’t required to purchase one at all, according
to HUD. Scott Geller, ;;;, ;;;, associate broker
with RE/MAX Centre, R;;;;;;;®, in Jamison,
Pa., has been promoting and selling home warranties to his clients for the past two decades. His
brokerage includes a clause in the sales contract
about the availability of warranties from third-party vendors and notes, among other points,
that “buyer and seller understand that a broker
who recommends a home warranty may have a
business relationship with the home warranty
A Worthwhile Incentive
It’s one of the most disheartening calls you can get: You close a sale, and within days, the new owners call to tell you the furnace has stopped working or another major home system has failed. They’re worried that their new home is a lemon. This is where home warranties come into play: A warranty can reduce buyer emorse and provide some after-sale protection to sellers against disclosure liabilities. Warranties are becoming a mainstay in real estate transactions and are the most popular incentive that sellers use to attract buyers. Of the 40 percent of sell- ers who use incentives, nearly a quarter used home warranties, according to the 2012 NATIONAL ASSOCIATION OF REALTORS® Profile of Home Buyers and Sellers. And whether or not they accept fees from providers, real estate professionals ay they discuss home warranties in their buyer consultations and listing presen- tations. Home warranties, which typically range from $250 to $500, cover repair or replacement of malfunctioning systems and major appliances. They typically cover heating and cooling systems, plumbing, and electrical systems. Scott Geller, ABR, CRS, associate broker with RE/MAX Centre, REALTORS®, in Jamison, Pa., says he reviews the pros and cons of various plans with his buyer and seller clients. “I tell them the pluses and minuses. Warranties don’t cover everything, and there are di;erent vendors that supply them. Some coverages are better than others, but none are perfect.” Some warranty plans can be custom- ized to include extra coverage, such as for pre-existing conditions, pools, private septic systems, or permit violations. “When a system or appliance breaks down unexpectedly, it can be very inconvenient and stressful to home owners, and potentially devastating to a household budget,” says Lelia Chapman, vice president of field sales for American Home Shield, the nation’s largest home warranty provider. On average, AHS customers use their warranty service at least two times a year, Chapman says. And the $75 to $125 cost for the service fee is often much less than, say, a furnace repair of several hundred dollars, let alone thousands of dollars for a replacement. Bob Patterson, broker-owner of The Bob Patterson Group in Hamilton, Ga., says he writes a home warranty into all of his o;ers. When he’s working on the listing side, he suggests them to sellers, too. “When sellers understand that in Georgia a buyer can sue them for fraud up to four years after a sale, they usually are happy to provide the coverage,” Patterson says.
company that provides a financial benefit to the
b DON’T be exclusive. Don’t enter into an exclusive service agreement between a home warranty
company that prohibits you from performing services for other home warranty companies. Have
information about more than one home warranty
company available for your clients to choose from.
b DO consult an attorney. As a precaution, have
an attorney carefully review your relationship
with the warranty provider to make sure you are
in compliance with RESPA. W