Home Repairs and Maintenance Budget question

[braumeister]

In our house, the bold makes the rest of the question kind of moot. We know we're going to replace the roof, furnace, AC, washer, dryer, hot water heater, dishwasher, stove, fridge, microwave, and garage door opener when the fail. We know we'll withdraw from the IRA if monthly income doesn't cover a big expense.

That pretty much covers it.
You know how long a roof or a water heater or a furnace or a car, etc. is expected to last, so you can budget for them on a pro-rata basis each year.

Or you can just take the expense out of your assets and treat it the same as if you had a lousy year in the stock market.

Not much difference in the long run.

 

[Ken11]

REWahoo
How much did you budget for house repair in the event of an asteroid strike?

Id note that FIRECalc would treat this a a successful retirement since you would not outlive your assets. LOL

 

[UserRequested]

REWahoo
How much did you budget for house repair in the event of an asteroid strike?

That is what Insurance is for. Although not sure if Wahoo's insurance policy specifically exempts "Acts of God" or "Acts of Aliens"

 

[bondi688]

Did anyone take out a home warranty service policy that covers home repair expenses? How do they work? Why do you take the the policy out? Why do you decide against taking out those policies? Thanks.

 

[arky]

I take a simpler (but probably dumber) approach. I keep about $20K in a savings account that allows transfers to my checking account within minutes. I use it for "unplanned" expenses. Just had to replace the water heater this past week !! Funny how often travel shows up in the "unplanned" category !

 

[samclem]

Did anyone take out a home warranty service policy that covers home repair expenses? How do they work? Why do you take the the policy out? Why do you decide against taking out those policies? Thanks.

In my opinion, about the only time they make sense is to put a buyer at ease when selling a house (increase the asking price and offer the warranty, drop the warranty in the negotiations). When buying a house I've gone 50/50 with the seller on buying a policy, since I didn't know what kind of unexpected repairs might be hidden in the new house. In general these policies are a bad deal (obviously, or the sellers of these policies would not stay in business).

As a general rule, don't buy any insurance to cover a risk that you can cover yourself without undue hardship.

 

[ChainsBeGone]

Did anyone take out a home warranty service policy that covers home repair expenses? How do they work? Why do you take the the policy out? Why do you decide against taking out those policies? Thanks.

We received a warranty on our home last year when we purchased our house, as part of the negotiation. It added to our comfort level during the purchase. However, I doubt that we'll renew it as we have funds set aside to pay for home repairs. Also, there seemed to be a lot of caveats in the home warranty policy that made me less than confident that it would come through if needed.

 

[bondi688]

Thanks for discussing pros and cons of warranty insurance policy with me. What you guy said made sense.

 

[ChainsBeGone]

Each policy is different. What is covered depends, the more that is covered the higher the premium. Silver, Gold, Platinum levels, for example. The coverage is very detailed in what is and what is not covered, and to what degree. A real pain to read.

We had to submit our home inspection to the warranty company before the warranty was activated. Our heater was noted as "dust in heater chamber" by the home inspector, and our warranty company wouldn't cover it unless we had an HVAC repairman certify it (at our cost) as operational (no, I didn't think to demand it be cleaned before the purchase).

When a covered item breaks, we're supposed to call the warranty company. The company sends out a repairman who is immediately paid a deductible ($50 on our policy). The repairman then inspects the item, determines what is needed, and calls the warranty company to get permission to make the repair. This is all spelled out in the contract with the warranty company - I've not had to use it as nothing has broken since we bought the house.

 

[Texas Proud]

Did anyone take out a home warranty service policy that covers home repair expenses? How do they work? Why do you take the the policy out? Why do you decide against taking out those policies? Thanks.

In 30 years I have bought a total of two houses.... I had home warranties on both for the first year...

For me, it was a comfort to know that if there were something wrong, that it would not cost me an arm and a leg to get it fixed...

My first house had an electrical problem... I will try and keep it short, but it will be a bit long... One day I had a section of the house electricity go out... I did not know what happened.... it was (for ease of telling) the far side of the house, the garage and half bath... but, if I turned on my kitchen light, the circut worked.... an electrician came in to fix the problem... he could not figure it out... the next day two came... same result... the third day we had four guy looking at different parts of the house... finally, one of them found the problem(s)....

The first problem was that the wire that was attached to the fuse snapped. You could not see that it was, but when it was moved it was easy to see.... that is why the section did not work... now, my kitchen was on a three way switch.... but, for some reason they connected one of the switches to the wrong fuse section.... IOW, one wire was with one section (kitchen light) and the other with the garage.... they rewired that section and reconnected the broken wire... so, what would be the cost of 7 man days of an electrician (30 years ago)..... much more than the cost of the insurance...

My last house... I had another electrical issue... similar to the other, my son's electricity was off... paid the guy to come and he found that the ground fault plugs were wired incorrectly... IOW, they turned off the whole section instead of just the plug at the sink... this probably would have been a wash.... but again, having the insurance to make sure things like this would be fixed and a reasonable rate was worth it to me...


I would not (and did not) renew either and have been happy that I did not....

 

[Tyro]

Did anyone take out a home warranty service policy that covers home repair expenses? How do they work? Why do you take the the policy out? Why do you decide against taking out those policies? Thanks.

We've always just put a clause in our purchase contract that all mechanical systems (spell them out if you like) are warranted by seller to be in good working order at closing (exact wording specified by attorney). There were some questionable items (a roof leak) on our current home, so we negotiated an amount (estimated by home inspector/engineer) to be held in escrow for a limited time.

These two "protections" have never caused any problems with sellers (and in one case got us a whole new plumbing system), and may likely be as good as a home warranty service policy, without upfront cost.

Tyro

 

[Texas Proud]

We've always just put a clause in our purchase contract that all mechanical systems (spell them out if you like) are warranted by seller to be in good working order at closing (exact wording specified by attorney). There were some questionable items (a roof leak) on our current home, so we negotiated an amount (estimated by home inspector/engineer) to be held in escrow for a limited time.

These two "protections" have never caused any problems with sellers (and in one case got us a whole new plumbing system), and may likely be as good as a home warranty service policy, without upfront cost.

Tyro

Heck, I could get around that language for a lot of ills...

'Nope, the roof was just fine when we sold the house. It must have started to leak the next day'...

Unless you have a time period, the language you put in is useless.... also, if something happened, good luck getting the other party to pay... I am really surprised that someone paid to put in a new plumbing system...

With me, I made the seller pay for the policy.... you can say 'well, you really paid it'.... but I would say, nope, I paid what I wanted for the property... if the seller was willing to sell cheaper, so be it... I did not know...

 

[Tyro]

Heck, I could get around that language for a lot of ills...

'Nope, the roof was just fine when we sold the house. It must have started to leak the next day'...

Unless you have a time period, the language you put in is useless.... also, if something happened, good luck getting the other party to pay... I am really surprised that someone paid to put in a new plumbing system...

With me, I made the seller pay for the policy.... you can say 'well, you really paid it'.... but I would say, nope, I paid what I wanted for the property... if the seller was willing to sell cheaper, so be it... I did not know...

IANAL. As I said, the specific language was either drafted, or approved by, our atty. It's also a good idea to make a P.O. contingent upon an atty's approval. Many have a clause saying "subject to atty approval as to form". It's those last 3 words that can sink you. If the approval is not just "as to form" your atty can get you out of a bad situation for any number of reasons.

In the case of the leak in the roof, I stated in my O.P. that the escrow was for a time period. At pre-closing inspection, there was a water stain on the ceiling, and despite the seller's assertions/assurances, we had the reasonable cost of repair held (out of the purchase money) in escrow for a reasonable time. I think it was 30 days, because IIRC, it was highly unlikely in that area and time of year for it to go that long without rain. Sure enough, it rained a few days after closing, the roof leaked, and we got the repair cost paid out of the escrow.

In the case of the plumbing (different house than above), the seller obviously wasn't the sharpest tool in the shed. He had already relocated out of state and turned off the water, but did not drain the pipes (in the northeastern U.S. ). You can imagine; when his agent turned the water on a few days before closing, every pipe in the house blew because they had all burst the previous winter. This was a very old house with old iron plumbing, so the whole system had to be replaced with new copper at the seller's expense -- even some of the drains. We heard from people who knew the seller (DW was in the same field at the time) that he had gone to law school, but had failed the bar exam 7 times. We don't know if he ever tried #8.

I think that generally, as long as both parties have acted in good faith and aren't trying to weasel out of the deal, then looking to the intent of the parties (rather than just the wording of the contract) can usually result in a fair and reasonable compromise, which is almost always less expensive than litigation. YMMV.

Tyro

 

[bondi688]

Tyro
Just make sure not to get the seller of the second house to do approval of your contract, after he finally passed the bar exam.

 

[Tyro]

Tyro
Just make sure not to get the seller of the second house to do approval of your contract, after he finally passed the bar exam.

Ya think?

 

[Texas Proud]

IANAL. As I said, the specific language was either drafted, or approved by, our atty. It's also a good idea to make a P.O. contingent upon an atty's approval. Many have a clause saying "subject to atty approval as to form". It's those last 3 words that can sink you. If the approval is not just "as to form" your atty can get you out of a bad situation for any number of reasons.

Same caveat.... but lawyers write things all the time that are taken to court for interpretation, or where you spend a lot of money on lawers to get an opinion... when I was a trustee (corp trusts), one of my trusts had to spend many thousands of dollars to try and get the meaning on ONE sentance... the question had to do with a comma... did the second part modify the first or did it modify the third (or something similar to that)... It made a HUGE difference to the company... they were maxed out in their borrowing and wanted to 'sell' future revenue... which looks like a loan.... (we are talking about a $100 million issue for them)...

All I was trying to point out is that if it were based on a point in time, it can be difficult to prove that it was not broke when it was sold...

Both of your example were easy IMO... you put money aside for the roof and when proof came, easy.... the pipes were even easier as they were leaking before you bought the house....


But, what if there were no water stains in your first example.... and the first time it rained nothing happened... but the second time you got water inside the house... I would argue that the roof was just fine when sold and something happened after....

Also, not all people you buy from has money.... kind of hard to get money from someone who has none.... which is why I would rather have the insurance company than the individual I bought the house from...

 

[Retire2013]

One way to handle irregular categories is to put a cap on certain categories. For example, let's use veterinary expenses. I do accumulate that category from year to year. However, I put a cap on it and once I reach the cap then I don't keep adding to the category unless I "use" some of the category. So, let's say my cap on a category was $1800 and I was adding $100 a month to it. Once the category got to $1800 I wouldn't keep adding to it unless I had an expense to take it below $1800. Same thing for accrual accounts for various expenses. Once I reach the cap then I don't keep adding to it unless I spend something.

When you do spend something, do you replenish the amount spent in full? Or do you just start adding $100 a month to it as budgeted until it reaches the cap again?

 

[Tyro]

All I was trying to point out is that if it were based on a point in time, it can be difficult to prove that it was not broke when it was sold...

That's why the point in time is "at closing" -- not "at time of sale".

Both of your example were easy IMO... you put money aside for the roof and when proof came, easy.... the pipes were even easier as they were leaking before you bought the house....

The pipes did not leak until the water was turned back on, which had to be done to prove the mechanicals were in good working order at time of closing. Technically, we had contracted to buy the house. The clause protected us against such discrepancies.

But, what if there were no water stains in your first example.... and the first time it rained nothing happened... but the second time you got water inside the house... I would argue that the roof was just fine when sold and something happened after....

...and I would be inclined to agree. The place most deals run into trouble is the time between signing the contract and closing (DW's first career was as a real estate paralegal). "At closing" is reasonable; after closing is not. Some things did go wrong after closing that weren't wrong beforehand, but that's (IMO) inherent in the risk of homeownership. The line has to be drawn someplace. Extending it for a year does not avoid the inevitable -- it just postpones it, and at (IMO) a pretty hefty price.

Also, not all people you buy from has money.... kind of hard to get money from someone who has none.... which is why I would rather have the insurance company than the individual I bought the house from...

Exactly. Not all people have money to put an older house in sufficient working order to pass the inspection required to get such a policy, or the price of the policy with coverage sufficient to satisfy every buyer.

Nowadays, many states have full disclosure laws, making clauses such as I mentioned redundant (depending on state & law). Buying a house -- particularly an old(er) one -- has always entailed a certain amount of implied risk. While it used to be caveat emptor, now it's full disclosure, home inspections, and warranties, and there are still implied risks.

If you can get that insurance, great, but the buyer will be the one paying for it, along with any repairs/updates reqired to get it (and if they're not savvy about real estate contracts, may continue paying for it -- with interest -- for the life of a mortgage, but that's another ball-o-worms). IMO, it's like the extended service warranties on consumer electronics -- a scam.

I understand we differ on this viewpoint, and that's ok -- both sides/opinions have been presented for folks to consider.

Tyro

 

[Texas Proud]

That's why the point in time is "at closing" -- not "at time of sale".



The pipes did not leak until the water was turned back on, which had to be done to prove the mechanicals were in good working order at time of closing. Technically, we had contracted to buy the house. The clause protected us against such discrepancies.



...and I would be inclined to agree. The place most deals run into trouble is the time between signing the contract and closing (DW's first career was as a real estate paralegal). "At closing" is reasonable; after closing is not. Some things did go wrong after closing that weren't wrong beforehand, but that's (IMO) inherent in the risk of homeownership. The line has to be drawn someplace. Extending it for a year does not avoid the inevitable -- it just postpones it, and at (IMO) a pretty hefty price.



Exactly. Not all people have money to put an older house in sufficient working order to pass the inspection required to get such a policy, or the price of the policy with coverage sufficient to satisfy every buyer.

Nowadays, many states have full disclosure laws, making clauses such as I mentioned redundant (depending on state & law). Buying a house -- particularly an old(er) one -- has always entailed a certain amount of implied risk. While it used to be caveat emptor, now it's full disclosure, home inspections, and warranties, and there are still implied risks.

If you can get that insurance, great, but the buyer will be the one paying for it, along with any repairs/updates reqired to get it (and if they're not savvy about real estate contracts, may continue paying for it -- with interest -- for the life of a mortgage, but that's another ball-o-worms). IMO, it's like the extended service warranties on consumer electronics -- a scam.

I understand we differ on this viewpoint, and that's ok -- both sides/opinions have been presented for folks to consider.

Tyro

An interesting discussion, thanks...

I would argue that closing is time of sale... prior to that you only have a contract, but no legal sale has occured... I can see that the different interpretations can make a difference in thinking...

As for your pipe example, I would say that it would not pass inspection if it were leaking prior to closing even if after an agreed contract is signed...

I still disagree on who is paying for the insurance, but in the end that does not matter...

I just know that I have bought two houses, both having insurance (that was pretty cheap IMO) and both times I had them fix something in that timeframe...

I do agree that buying insurance for electronics is not good... too expensive for what you get...

Yep, a good discussion for others to make up their minds....