Florida Treasure Coast Real Estate Resource

Is a home owners warranty worth buying? It depends. My neighbors have them as do my in-laws and most have been pleased with the service. But when it comes to a seller offering a home owners warranty my opinion is: not so much.

A home owners warranty may seem like a nice incentive to offer a potential buyer but there are several gotchas. Typically the seller pays around $400 for the warranty, with coverage starting while the home is on the market and then conveying to the buyer, sometimes for an additional fee. Should the seller or subsequent buyer need service there is usually a deductible and nominal service call charge.

There is also the fine print on the back of the contract, which can virtually nullify coverage on an old appliance. If the service company deems the equipment to be obsolete, they may not fix it at all or charge a pro-rated fee to do the repair that could equal more than half the cost of replacement. In some cases the providor may offer a discount to replace the unit.

I recently sold a foreclosed property where FreddieMac actually provided a two-year home owners warranty as part of the deal. They even paid to fix the broken air conditioner before settlement. My buyers were thrilled to get the added value and increased their offer to ensure the deal was theirs. But less than a week after we closed the AC unit failed again so a call was placed to the warranty service provider. After paying the $100 service fee they were informed that the unit needed to be replaced but would not be covered for the following reasons:

1. They claimed it was a pre-existing condition (but passed inspection)
2. The owners had not been in the house long enough (that was not even mentioned in the contract)
3. It was an obsolete piece of equipment

Even after providing proof that the unit was in fact working when they closed, the service company simply walked away without any attempt to negotiate a solution or offer a discount on a replacement. My clients may have purchased a new system through them but they vowed never to deal with them again, in spite of the two year warranty. The $5,000 purchase went to a local HVAC company instead and the home owners are filing a complaint against the warranty company.

Buying a home owners warranty may be a good value for an established home owner but a call to the Better Business Bureau or a quick Google of the warranty company will reveal their track record. As for me, I passed on the warranty and have spent less than $1,000 on appliance repairs in my five years of home ownership so I am ahead of the curve (for now).

With the goal of landing a bargain many buyers in today's market are interested in purchasing short sale properties. But not all buyers are ideal candidates for such transactions. If your home buying criteria includes any of the following you may not be a good candidate:

• You have a lot of contingencies
• You need to sell your current home before purchasing another
• You need to close quickly
• You do not have resources to repair and rehab the property, if needed
  

If you determine that you are a good candidate for buying a short sale and want to make an offer, here are some guidelines (among others):

• Attach a "Short Sale Addendum" to the contract that stipulates the amount of time you are willing to wait for the lender to review and process the short sale package (but if the timing is too short, the lender may not approve the short sale).
• When it comes to pricing, if the offer is too low, the lender may not approve the sale. Your Realtor should prepare a competitive market analysis (CMA) so you can be realistic with your offer.
• In negotiating a short sale contract, request that the listing agent not submit multiple offers.
• The lender may ask that you contribute to deficiencies due to second lien holders, unpaid home owner association fees, etc. These are negotiable items that can make or break a deal.
  
• Inspections, financing and other details require the same regimen you would follow in a "normal" transaction. Once the short sale has been approved it is crucial that time lines be established and followed.

With patience, due diligence and the guidance of your Realtor, buying a short sale can save you 10-40% over the price of similar properties in a normal sale.

Learn more about the facts and myths about buying a short sale and how to be a winning buyer in today's market. Click here to download my free handout "Winning with Foreclosures".

The home was in one of Palm City's better neighborhoods, a leafy gated community with a variety of home styles. My clients were seeking a pool home under $250,000 and we had looked at several, all at the top of their price range. I suggested a short sale or foreclosure as an option, but they did not want to take on a renovation. When I spotted this Freddie Mac foreclosure I knew it could be just right for them.

As we pulled up to the home I warned them about what could be lurking inside: missing appliances, fixtures ripped from the walls or even owner inflicted vandalism. We entered the house and my concerns evaporated as I realized the house was largley in tact. Sure, the appliances were gone and the water heater was missing, otherwise it appeared to need only patching and painting. It had 20" tile laid on the diagonal and plantation shutters throughout the entire house.

Outside was a screened pool and a large private backyard. But the pool was green and the deck covered in mold. I assured them that it would clean up easily and judging by the water depth from recent heavy rains it looked like it was holding water. Upon closer inspection we discovered that the pool pump was missing and the owner had severed the air conditioner lines in a failed attempt to remove it.

But at $169,000 this was obviously a good deal and the couple decided to make an offer. I urged them to go in at full price or slightly above as banks will dismiss low offers. I also discovered there were already two offers in ahead of us, so I suggested we go in with an offer of around $172,000. To my surprise they offered $174,000, which the bank accepted the next day.

It gets better. My buyers were planning on wrapping the repairs into a 203K mortgage when I received a call from the listing agent telling me Freddie Mac would be contributing $6,000 towards closing costs, fixing the pool, A/C, and water heater and throwing in a two year home owners warranty for good measure.

So we are on our way to a successful closing. Barring any unforeseen inspection or financing issues, these transplanted Northerners will be enjoying their Florida dream home in just a few weeks.

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Contact Eric Slifkin for information about Fannie Mae or Freddie Mac foreclosures and special financing programs.

With a myriad of distressed properties on the market and more looming, many home buyers are clamoring to purchase foreclosed homes. But you need to be aware of the potential pitfalls in purchasing a distressed property, especially the risk associated with the cost to repair any deficiencies that a buyer assumes in an as-is foreclosure transaction.

Here are 10 areas to watch out for when considering a foreclosed home:

1. No power to the house. If the home has been without power for some time then chances are it has not been properly air conditioned. With our hot humid Florida climate prevailing most of the year, there is a good chance the house may have mold issues. Most banks are now requiring their asset managers maintain power to the house but it may still have sat vacant and powerless for several months prior to foreclosure.

2. Peeling or discolored paint, swelling in walls or ceilings, stains around windows or baseboards indicate water damage and possibly the presence of mold.

3. Mold growth or stains inside cabinets, behind drawers and built-ins. This is another sign that water damage may have occurred.

4. Missing sinks, toilets and other fixtures- check on repairs needed to replace any fixtures that were improperly ripped from walls and floors.

5. Plumbing or wiring issues. Check for blocked drains, broken or stripped pipes and wiring.

6. A cracked foundation, sagging roof or other structural issues may require costly repairs. Lenders may deny loans on such properties.

7. A "re muddled" home or a home with extensive renovations. Check for code violations and that permits were pulled.

8. A malfunctioning water heater, A/C unit or other mechanical equipment (pre-closing repairs may be required to satisfy FHA loan requirements).

9. Owner inflicted vandalism. Acts of vengeance by the former owner can be expensive to fix. Seemingly simple repairs can morph into a major renovation. Some banks are now addressing these issues and may perform the repairs when they acquire the "asset".

10. Air quality issues- testing should be considered with your home inspection, especially when water damage is observed or there is a musty odor in the house.

These and other pitfalls can be minimized by employing a qualified home inspector to assess the structure's soundness and uncover potential problems.