Why should a real estate rehabber give a homeowner a warranty?
Most real estate rehabbers want to finish rehabbing a property and sell it as quickly as possible for a profit. That is understandable given the costs of maintaining the property and the money that is “stuck” until the property is sold. Selling the property often comes down to the quality of the rehab work and the buyer’s comfort level with buying an older property that might have problems down the line.
To overcome any troublesome rehab issues, skilled rehabbers offer buyers at least two types of home warranties. The costs of these guarantees can be easily controlled, and in one case, there are actually no out-of-pocket costs.
In the first case, the rehabber can connect to Internet sites that sell home warranties. These warranties can cover basic appliances on the property to plumbing and electrical issues. The cost of these “insurance” policies varies depending on the benefits received. If the rehabber purchased new appliances for the property, each appliance will have its own manufacturer’s warranty, so no additional warranty will be needed for these appliances.
In a property where the rehabber is doing a quick patch and paint and the original appliances remain, an appliance warranty can be a wise investment. People buy homes because of their emotions, not because owning a home makes business sense. Being able to move into a property essentially “worry-free” and not miss a beat in buyer’s life is what 99% of buyers want.
The cost of these guarantees ranges from less than $200 to $600 depending on the length of the policy and the coverage of mechanical items or systems (HVAC, plumbing and electrical). The future homeowner could purchase a policy for each of the mechanical and appliance systems, but most will not. They wait for something to happen and pay the most expensive repair costs.
At first, it may not seem logical for a rehabber to put an extra $500 on a property to get a warranty, but the advertising benefit is many times this amount. If I choose not to put any more money into the rehab, but still want the advertising benefit, I simply post “Warranty Available.” This means that I give the buyer the option to purchase the warranty for themselves and add it to the purchase price. This is for buyers who have concerns about not having new appliances or new mechanical systems on the property. If they are faced with buying the warranty themselves, they rarely want to pay for it.
In addition, or as a replacement for the previous warranty, I offer the buyer the second form of warranty that I mentioned. This is a six week “fix anything” guarantee where I personally take care of any issues. The terms of this self-insured policy must be in writing and must exclude appliances and anything that you, as a rehabber, did not repair yourself.
In hundreds of rehabs I have done and given buyers this guarantee, they have never called me back. If the rehabber does his job correctly in the first place, he should have few or no problems in the first few months, especially the first six weeks. Again, this warranty is another great sales tool and extremely profitable when the rehabber does his job correctly in the first place.