Real estate agents often recommend that you buy a home warranty with the purchase of a new home. A home warranty is a service contract to protect and maintain household systems and appliances for a specified period of time. It’s different than homeowner’s insurance, which covers losses in the event of theft, fire, or other causes. You might be wondering whether the $400+ cost for a home warranty is worth it. Let’s look at the pros and cons to better understand the warranty’s purpose.
Pros
When buying a home, you might not have all of the background on age and condition of your appliances and HVAC system. Sometimes sellers provide lots of details and sometimes they don’t. While your home inspection may reveal some problems, there’s usually no way to predict that a refrigerator’s cooling system is about to break or that your furnace will stop heating two months down the road in the middle of winter. Here are some benefits home warranties offer.
▪ Home warranties typically cover some costs for major kitchen appliances, electrical systems, plumbing, water heater, furnace, sump pump, and sometimes washer, dryer, and whirlpool tubs. For additional premiums, they may also cover things like swimming pools and septic systems. The service contract is usually in place for one year and companies offer an extended period for additional fees.
▪ Home warranties can offer a huge savings to an owner if a major appliance that is covered under warranty can be replaced. This alone could justify the cost of the warranty.
▪ For many, having a home warranty offers convenience and peace of mind in the event that something breaks down. Rather than guessing what needs to be done or who to call, your home warranty company sends someone to make an assessment of what’s needed. Then the company sends their service provider to make the repair or replacement.
▪ Often times a seller will offer to pay for a home warranty as an incentive for you to buy their home. Sometimes real estate agents will purchase one for you as a thank you for doing business with them.
Cons
If you buy a home warranty, read the contract carefully to understand what it covers and what it does not. Some companies won’t cover appliances that were not properly maintained, were not installed properly, or were subject to too much wear and tear. If you discovered any faulty issues that were revealed in your home inspection and went forward with the purchase without repair, the known defect won’t be covered. It can be very disappointing to pay the typical $400-$550 for a warranty and have a situation where it’s of no financial benefit. Here are some situations you should look for in your warranty before you buy:
▪ You may have to pay $50-75 for each service call.
▪ If you have a faulty component, the company might only cover the repair rather than the replacement.
▪ Your favorite service provider may be different than the one your company uses.
▪ Your home warranty might not give you full coverage of your repair or replacement. You could be responsible to pay some or most of the cost, depending on the circumstances.
▪ Your warranty might have exclusions in the contract. For example, they might cover a refrigerator’s basic components, but not the ice maker.
Know Your Coverage and Research More than One Company
Find out what your warranty covers and what it doesn’t. Also, vet the company that you choose. Look for reviews and accreditation. Not all companies have the same offerings or reputation. Find out which companies they contract for repair and review their performance. Also, make a list of items that are covered in the warranty you’re considering and find out the age of each in the home you’ve bought. Compare the actual age to the average life span of these items. If expensive appliances are near or past their average life expectancy, a home warranty could be a great benefit.
Some of the biggest complaints about home warranties are based on consumer misunderstandings. These include expecting the warranty company to repair something that was already broken or expecting the replacement of a faulty appliance instead of just a repair. Read the fine print and temper your expectations.
Finally, if the seller is paying for your home warranty, take it! You can still try to negotiate what type of warranty you’re getting or what company it’s from. And if the seller only pays up to a certain amount of coverage, you can determine whether or not to add on to that coverage yourself.