As a new homeowner or investor, you may be asking yourself, “are home warranties worth it?” When you’re buying a home, chances are, you’ll be offered a home warranty. A home warranty can cover both new and old homes alike. Initially, they sound great — a safety net against unexpected repairs that could otherwise drain your pocket. But do home warranties provide the safety net they promise? Are you a savvy investor? A novice homeowner? Find out if home warranties are worth it to you.
What Is A Home Warranty?
A home warranty is a contract between a home warranty company and a homebuyer. The warranty provides coverage for repair and replacement services on the major functions of a home. We’ll go through a full list of things that are typically covered, but for now, you can think of things like appliances, plumbing, and HVAC as examples.
If anything in your home breaks down, and the warranty covers it, you would call the warranty company. They would then send in one of their pre-approved service providers to examine the problem. If the problem is determined to be something covered by your warranty, then the item will be repaired or replaced at the cost of a service fee. A home buyer’s warranty should not be mistaken for a homeowners insurance policy.
Home Warranty Vs. Homeowners Insurance
Home warranties and homeowners insurance plans cover very different things. While a warranty protects against general wear and tear, insurance covers your losses if your home and personal belongings were damaged because of a fire, theft, and other disasters. Insurance is typically required, while warranties are optional.
A warranty and an insurance plan operate similarly; you pay for an annual policy, with a deductible that must be met before the coverage kicks in. However, the deductible for homeowners insurance is typically much higher. It’s always a good idea to thoroughly review your warranty and insurance plans to know exactly what is covered and what your deductibles are.
What Does A Home Warranty Cover?
A home warranty covers the repair or replacement of something that malfunctions in your home.
Each warranty is unique, so you’ll want to review what’s included. Here is a list to show you an example of things that are commonly covered:
Washers & dryers
How Much Is A Home Warranty?
A home warranty typically costs a few hundred dollars per year, in the ballpark of around $350 to $600. These policies can be paid upfront, in installments, or through monthly payments, based on the types of payment plans offered by your home warranty company.
The cost of the warranty first depends on the type of property being covered. The price can vary based on if you live in a single-family detached home, a condo, a duplex, or a townhouse, to name a few examples. The cost also varies based on how much coverage you opt for. A home warranty company will typically offer different packages, such as basic coverage or more comprehensive coverage.
If your property has a separate structure, such as a guest house, then you may need to pay an additional cost to include it in your plan. Finally, each time you call your warranty company for a service request, you’ll be charged around $50 to $125 for them to send someone out to look at your problem. This fee does not include the cost of any repairs or replacements that aren’t covered by the warranty.
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Are Home Warranties Worth It To You?
Whether or not home warranties are worth it depends on your unique circumstances. A warranty could offer a significant layer of protection if you’re buying a previously-owned home. This is especially true if the inspection reveals that the appliances and other systems, such as plumbing or electrical, are nearing their life expectancies.
You could probably skip a warranty offer if you’re buying new construction. A warranty is typically already included by the builder, and manufacturer warranties almost always cover new appliances.
Home warranties can also be turned down if you’re handy yourself and have confidence in your ability to inspect and repair things when they break down. If you are planning a remodel with new appliances, your credit card company might even offer warranties on top of the existing manufacturer’s warranty. The point here is that you should check if you’re already protected. If you do, buying a warranty might not make any sense.
However, if the seller offers to pay for the warranty, is it worth it? We’ll explore this question next.
Are Home Warranties Worth It If The Seller Pays?
Sellers will sometimes offer to pay for a home warranty to sweeten the deal for a prospective buyer. If they’re offering, then there’s no reason to turn it down. This is especially true if you weren’t planning on buying a warranty yourself.
However, before you say “yes,” research the home warranty company the seller is going through. They won’t be incentivized to choose the best possible company. If anything, they’ll go for the cheapest one.
If you are actually in need of a warranty, carefully review the product and make sure it meets your needs. Otherwise, you might get stuck in a situation where your seller doesn’t follow through, or the service provided by the home warranty company isn’t up to par. No one wants to go through the trouble of taking someone to court, especially when you’re just trying to enjoy the home you’ve just moved into. You’ll likely find that it would be best to go through a reputable provider that you’ve hand-selected.
Pros Of A Home Warranty
A home warranty can greatly benefit some homeowners by giving them peace of mind. A warranty is designed to protect you when expensive, unforeseen repairs come up. You’ll know how much your premium, deductible, and service fees will cost. You can budget for these set costs in advance, so when something breaks, you’ll be financially prepared.
Although building an emergency fund should be at the top of your priority list, not everyone can afford to do so. If you find that you fall into this category, a warranty can provide you with a safety net to prevent you from getting into a deeper financial hole.
Unlike homeowner’s insurance, home warranties protect major appliances as they age. This is especially if you have expensive taste in appliances.
A warranty can also be a huge savior if you aren’t handy at all, or you don’t know how to screen and hire contractors. All you have to do is place a phone call to your warranty company, and they’ll take care of the rest.
Cons Of A Home Warranty
Home warranties don’t come without potential drawbacks. First, these warranties won’t always cover absolutely everything in your home. You might find yourself at the mercy of Murphy’s Law and find that your plan doesn’t cover the one thing that breaks in your home.
First, we discussed that home warranties are easy to budget for, which is a benefit. However, on the flip side, this means that you’re paying a premium for coverage that you might not end up needing.
Even if the plan covers the item, you might find yourself at odds with your warranty company. Many plans include a clause regarding proper maintenance, in which previously covered items lose coverage if they weren’t maintained properly. What constitutes “proper maintenance” is defined by the warranty, and is often a grey area that causes arguments.
Experts recommend that you go with a reputable company that won’t try to pull a quick one on you. Keep in mind that this clause will apply to the appliances in a previously-owned home. The way the previous owners treated the home might create complications for you down the line.
Finally, be mindful that you’ll be stuck with the contractors, replacement parts, and quality of work selected by the warranty company. You won’t get a say in the process of repairing or replacing things that break down in your own home. Again, it’s important to go with a reputable company with good reviews.
Common Problems With Home Warranty Contracts
Home warranty contracts get a bad rap, and for good reason. The Office of the Attorney General has received many complaints regarding home warranty companies, so much so that they have a website with a published list of these complaints. Here are some of the most common problems with home warranty contracts:
Claim caps: Warranty contracts often put a cap on how much you can claim against an item. For example, let’s say that your washing machine breaks down. The warranty caps the claim for this item at $500 when it would cost at least $1,000 to replace it.
Hefty deductibles: Each home warranty comes with a deductible that you have to meet of every claim. If you do the math, you’re paying for the warranty itself and service fees, plus the deductible on each claim. It’s best to analyze whether you’re saving any money.
Service fees: Mentioned above, home warranty contracts come with service fees. Each time you call the company, they will send out one of their contractors to your home to examine the problem. Regardless of the result, you’ll have to pay a service fee of around $50 to $125.
Exclusions: Each warranty will exclude certain types of items from its coverage. It won’t be helpful if the item you need to get fixed is excluded from your plan. Make sure you get a comprehensive list of exactly what is and what isn’t included before purchasing a warranty.
Repair-only: Some warranty companies will push to fix broken items instead of replacing them entirely. They are incentivized to save on costs, while you’ll naturally prefer a replacement. This has caused many disputes between warranty companies and their customers.
Brand limitations: When the warranty company does opt to replace a broken appliance, you might find that they’ll only use specific brands that you probably wouldn’t pick out for yourself.
Poor work or service: Consumers have reported poor work or poor service from the service providers that are pre-selected by the home warranty company. Unfortunately, you’re stuck with them unless you decide to hire your own contractor out-of-pocket.
Grey areas: Mentioned earlier, consumers have also reported problems around grey areas. Arbitration has been a common result of disputes stemming from definitions of contract phrases such as “proper maintenance.” Frequently, the warranty company and the customer will have very different definitions of terms, with both parties being driven by their own set of incentives.
At the beginning of this article we asked ourselves, “are home warranties worth it?” You’ve probably gleaned that there are certain advantages and disadvantages associated with home warranties. There is no right or wrong in this situation. Instead, some homebuyers will find a home warranty highly beneficial, while others won’t. You might want to spring for the warranty if you’re buying a previously occupied home, or you don’t have a handy bone in your body. On the other hand, if you are handy or plan to totally remodel the home, then a warranty might not make much sense. The complaints reported by the Office of the Attorney General paint a classic picture of “buyer, beware!” There are great house warranty companies out there. To find them, you have to do your homework, read the fine print, and make sure you’re going with a reputable entity.
Do you feel like home warranties are worth it or not? Share your argument here!
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