In recent years, home warranties have grown very popular with homebuyers and homeowners who are looking to protect themselves from paying for expensive home and appliance repairs down the line. But are they worth the money?
The answer is: maybe. Ultimately, it depends on the company issuing the warranty and the homeowner’s needs.
Home warranties are especially common in real estate transactions. A home warranty can help sell a house faster and for a higher price because it provides the buyer with protection against the unknown. Combined with a solid home inspector, a home warranty can give a homebuyer the level of comfort needed to seal the deal.
What Is a Home Warranty?
For a set premium ranging from $500 to $1000 or more per year, a home warranty company will issue a home warranty policy to a homeowner. In this policy, the company agrees to repair or replace certain appliances and major home systems if or when those appliances or systems break down.
If a breakdown occurs, the homeowner files a claim online or by phone. Then the company sends a contracted service provider, or has the homeowner call a professional on his or her own time. The homeowner pays a service fee – typically $50 to $100 for each repair. The service provider may fix the problem on the spot or may need to order parts and OK the repairs with the warranty company.
Depending on the policy, the homeowner may pay for the entire repair up front, then get reimbursed by the warranty company for the portion covered by the policy.
What Does a Home Warranty Cover?
A typical home warranty company offers more than one tier of coverage, depending upon price. A basic home warranty will cover a very specific list of appliances and systems such as the plumbing and electrical systems, heating and duct work, water heater, refrigerator, dishwasher, range or oven, built-in microwave, trash compactor and garbage disposal.
Some packages also cover the doorbell, burglar or fire alarm, ceiling fans, exhaust fans, central vacuum, washer, dryer and garage door openers.
An upgrade on your coverage, costing an additional $300 to $1000, might include exterior pools and spas, septic tank pumps, sprinkler systems and well pumps.
Read the fine print when considering a home warranty – the devil is in the details. A home warranty probably won’t cover anything that isn’t specified in your contract. And it may not pay for some of the covered items if certain conditions are not met.
For example: Most home warranties will not cover repairs that existed before the policy, and most have a 30-day waiting period. If you buy a house and something goes wrong with an appliance in the first 30 days, the warranty probably won’t cover it.
A home warranty may not provide coverage if an appliance was incorrectly installed or poorly maintained, or if it has been worked on before.
In addition, the entire cost of an expensive repair may not be covered. Many policies have a yearly limit – $1,500 to $2,500 per year, for example – and may have a deductible.
Before asking a Seller to pay for a home warranty for you, keep all this in mind AND remember the cost of the warranty comes out of the Seller’s bottom line. That means, your “purchase price” isn’t as high or as strong as it could be.
