More Protection for Home Buyers.

What happens when you move into your newly purchased home and discover that your dishwasher is a lemon? If you're among the growing number of homebuyers taking advantage of a recent trend -- the home warranty -- chances are that you'll pay only about $35 to $50 to fix the broken appliance.

In 1993 alone, more than half a million homeowners took advantage of home warranty contracts. Home warranties are optional service agreements that cover the costs of repairing or replacing major appliances and/or mechanical systems in your home if they become faulty after you move in.

Much as a presale inspection helps identify flaws before you buy, a home warranty provides an extra measure of security after you move in. For many buyers, the comfort of knowing that future repair bills are covered does wonders to ease some of the anxiety of the home-buying process. Because this extra security can be an incentive for prospective buyers, many sellers are offering to cover the costs of a warranty for the first year following the sale of their home.

How Warranties Work.

Home warranties can be purchased for $250 to $500 per year. Most plans require you to call the warranty company directly when an appliance covered by the contract breaks down. The company then sends a technician to make the service call (many warranty companies won't cover the cost of repairs unless their own contractors are used). Although you can expect to pay from $35 to $50 for each service call, all other repair costs - such as those for parts and labor - should be covered by the warranty.

What Do Warranties Cover?

Before you buy or accept a warranty, make sure you know how much coverage the plan actually provides. Knowing this helps avoid surprises later, when something breaks that may not be covered. For example, a warranty company may cover the plumbing system, but won't assume the repair costs if a pipe freezes and breaks. Some protection plans may cover roof repairs only to a certain dollar amount, while others may charge extra for repairing even basic items such as washers, dryers or refrigerators.

Unlike home insurance, home warranties won't cover major structural defects, damage or preexisting conditions. Warranties usually cover items that home insurance excludes, such as broken plumbing, electrical systems, appliances, garbage disposals, well pumps and other items listed in the sales agreement. Furthermore, warranties are typically based on the concept of "working order": items that are operable on the day you close the sale are covered; those that don't work will most likely be excluded from coverage.

Be Cautious.

On paper, home warranties seem like a good deal for buyers and sellers. However, because no national regulations exist for this fairly new business, keep the following points in mind before buying or signing a warranty contract. . Your warranty may offer limited coverage. The quality and cost of the coverage may vary according to the company and where you live. Some warranties may involve higher service call charges than others; and, homeowner warranties are unregulated in many states.

If you are interested in finding out more about home warranties, the National Home Warranty Association can help direct you to companies that provide coverage in your state. Information is available by writing to:

National Home Warranty Association
P.O. Box 12038
Marina Del Rey, CA 90295 (please include a self-addressed, stamped envelope)

Charles M. Reid is president of Mortgage Insurance Companies of America (MICA).

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Here are three home warranty companies offered in the Maryland area.