Are Home Warranties Worth The Cost?
It is no secret that buying a home is a huge expense to most people. Once you have finally found the place you want to live in and negotiated with the sellers, it is time to consider your warranty options. At first glance, it seems like just another large payment that you might want to forego. If you do not purchase a policy at close, you are sure to get a ton of offers in the mail after you have moved into your new home.
The advantage of a home warranty, of course is being covered when you encounter something like a plumbing issue with your brand-new home, or the air conditioning going out in the middle of move-in day. As with a lot of big decisions, you should weigh the pros and cons of your warranty before making any decision. We have tried to outline both of those for you in the information below to hopefully take some of the burden off your shoulders.
What is a Home Warranty anyway?
While it is easy to get the benefits of homeowner’s insurance and a home warranty confused, they are different. A warranty is an agreement that covers home repairs on items that naturally stop working overtime due to wear and tear. What is covered under your warranty depends on the policy you have chosen and sometimes where you live. Some of the items typically covered are appliances, plumbing, and HVAC systems. Whereas, your homeowner’s insurance only covers your items that were lost or damaged due to an event, like acts of God or theft. Items that typically are not covered under home warranties are non-mechanical, like windows and doors. You’ll want to check your policy to see if it covers your garage.
A home warranty is also different than a manufacturer warranty. The biggest difference here is that the manufacturer’s warranty will cover the part or parts of an appliance/item. This means you have to find the appropriate serviceperson to install/fix the broken part. With a home warranty, it covers the cost of the part and the labor. Most home warranty policies will allow you to add on additional coverage for an additional cost.
Usually coverage begins at the time of closing and lasts a year unless you have chosen a policy that states an extended amount of time. If you choose to purchase a home warranty, pay attention to the expiration date and mark it on your calendar as you want to ensure you are utilizing all the benefits before you are ineligible.
Cost of a Home Warranty
The cost of a warranty varies anywhere from $350-$600 a year. You can pay more for additional coverage if you want to include thins like your pool or septic system. Typically, the cost is not dependent on the age of the home, which is a common misconception. The size of the house also usually does not impact the cost of your premium, unless it is a massive property.
Additionally, you will be required to pay a fee for service calls, sometimes called a trade fee. So, while you are covered under the warranty, it is not completely free. Some home warranty policies will also require payment for multiple service calls and/or visits, if the issue requires one. On the flip side, without the warranty, you could be spending thousands of dollars on an unexpected repair.
HomeAdvisor put together some national averages around the cost to replace some common household items that are covered under warranties. They indicated that to replace the central air conditioner, it would cost $5,467, while if your furnace goes out, you can expect to pay around $4,286. Your water goes ice cold in the middle of a relaxing shower? That will be $889 for a new water heater tank and around $3,000 if you have a tankless water heater.
How do I Get a Home Warranty?
Many times, sellers will offer a home warranty to some buyers to entice them a little more to seal the deal. If this was/is not an offer when purchasing your home, you can always purchase one through a reputable source. It is important to do your own research and it would not hurt to ask your home owning friends if they are happy with theirs. Again, pay very close attention to the date of expiration. In fact, pay close attention to all the terms and conditions. If the verbiage is confusing or just not making sense, it may be beneficial to seek legal counsel. It could be devastating if you choose to purchase a warranty but neglect an important detail that leaves you a giant cost for home repair.
When you need/don’t need a warranty
It is standard practice to get a home inspection prior to closing on a house. Once the inspection is complete and you have decided to move forward with the purchase, look at the inspector’s notes. Are there items in the house that are nearing the end of their life? You can ask your inspector to take a look at specific appliances ahead of time and if you do not have enough information the first time around to make your decision, it never hurts to have them come back to the house or seek a second opinion. If there is a lot on the list of items that are adequate but have the potential to break or need repairing in the near future, maybe a home warranty is a good idea for you.
If you have chosen a new home that has recently been built, you will probably be offered a special type of warranty that covers more than a typical home warranty. For example, things like workmanship and construction will be covered. In this case, it would not be worth it to take advantage of an addition home warranty, because you would be spending more for the exact same coverage.
Why Doesn’t Everyone Have a Home Warranty if They Are so Great?
As mentioned in other areas of this article, some home warranties have major downsides. If the company does not feel that your item has been cared for inadequately, they may not cover the cost of repair. This gets tricky when everyone’s standard for proper care differs. While this isn’t indicative of every home warranty company, it is not extremely uncommon for homeowners and warranty companies or contractors to get into squabbles on this topic. What makes this even more troublesome is that there is a possibility that you inherited a poorly maintained item (like furnace) from the previous owners. Ideally you catch this in the inspection and work it into your closing costs/deal, but that is not always the case. You could put all the blood, sweat and tears you have into fixing the furnace, but the home warranty company might not think that it is good enough. Something else to note: we mentioned that warranties come with exclusions, but they also often have a price limit; meaning, you can only have a certain number of repairs per year. Be sure to examine that in your terms and conditions prior to signing.
The fact that you cannot usually pick your own contractor really bothers some people when dealing with home warranties. Typically, you spend a decent amount of time looking up service providers, reading reviews, and doing your own research before you pick one that you trust to do a good job. Home warranty companies pick the contractor for you. If you do not feel like they did an adequate job, you can certainly complain, but you are also often stuck. Furthermore, homeowners might not get to have any say in how the repairs are done or the caliber of items used replace broken parts.
On the flip side, some people hate doing their research and would rather someone else decide for them, which is okay, and a home warranty company might be that person’s new best friend.
At the end of the day the answer to “Are home warranties worth it?” is not so simple. Under certain circumstances, yes, absolutely a home warranty is worth your money. Other circumstances, like purchasing a brand-new home, may not be worth your money, as you have coverage elsewhere. You have to decide what option is going to give you the most peace of mind. The bottom line is that you need some type of coverage, but your situation is going to be unique to you and only you can decide with what you are most comfortable.