When you purchase a home, real estate agents often recommend that you also buy a home warranty. A home warranty is a service contract that a home owner takes on to protect and maintain household systems and appliances for a specified period of time. It’s different than home owner’s insurance, which covers losses in the event of theft, fire, or other causes. You might be wondering whether you need one when buying your next home. Let’s look at the pros and cons.
Pros
When entering into a home purchase contract, 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 $75-100 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.
Do Some Homework and Use Your Judgment
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.
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.