No matter how many precautions a new homeowner takes, there's always going to be an element of risk with such a major purchase. Find out how home warranties work for both brand-new and resale homes, so you know what you're getting into.
How Home Warranties Work
Warranties work to protect buyers from mistakes that may have been during the construction process. If a new homeowner moves into the house to find their electrical wiring is faulty, they would invoke clauses in their home warranty to get it fixed. The company that issued the home warranty will call a third-party investigator to check on the validity of the claims. Once the investigator has verified that the electrical system needs an upgrade, the home warranty company will call their insurance company to finance the repairs. Unlike home insurance, home warranties protect the buyer from known structural defects as opposed to unpredictable weather disasters or criminal activities. They may also protect buyers should large appliances in the home break or need repair.
What to Expect
Each home warranty is based on home's province, and the price of it is generally included in your mortgage. All new home builders are required to enroll in some type of Warranty Program if they expect certain privileges. Builders may not able to accept offers from buyers with high-ratio loans if they don't have a home warranty, or they may not be able to build at all. In Manitoba, home warranties are optional. In British Columbia, builders can't even get a permit if they don't have warranty protection. The maximum for a single-family home or condo is usually between $100,000 and $300,000. The highest level of protection is in Ontario at $300,000, whereas the lowest is in Manitoba at $50,000.
What It Covers
Each warranty will state specifically what is covered and for how long. In Ontario, the warranty can last for up to seven years and will cover everything from labour mistakes to structural problems. In British Columbia, the homeowner can expect two years worth of protection on the workmanship and materials plus five years of protection on the building envelope, and 10 years on the entire structure, though this might vary in places like Griesbach or elsewhere. Since the building envelope (e.g., walls, roof, etc.) and the structure share many of the same components, the homebuyer is essentially getting a more comprehensive warranty than if buying in Ontario.
You may wonder if you should get a warranty on a resale home, considering that structural defects can be found in every house (regardless of when it was made). The good news is that home sellers will often bake in their own warranty protection when they're trying to unload their property, so the homebuyer doesn't actually have to take this expense into account. If the owners already had an active warranty, then it will transfer over to the buyer as soon as the sale is complete. (However, it will not be extended on behalf of the buyers.) There are additional warranty protections that homebuyers can get for resale homes if the seller doesn't offer one. These are flat fees that you'll pay upfront based on the purchase price of the home
Playing the Odds
As nice as a home warranty is to have, it may not be everything homeowner's hoped it would be. If a reputable company isn't used, requests may be met with nothing but resistance—from both the warranty company and 'third-party investigators' used by the warranty company. This is just one of many reasons why it's so important to check out the builder's reputation before buying any home, and why doing a proper inspection before buying is worth its weight in gold.
By Justin Havre