One of the things a real estate agent should discuss with you during your home purchase is the home warranty. A home warranty can potentially alleviate financial strain during homeownership, but is it worth it?
Although sometimes mistaken for an insurance policy--a home warranty provides a service contract through selected vendors for replacement or repair of things such as: major appliances, HVAC systems, plumbing, etc. Unlike insurance, home warranties do not cover structural features or damage from a flood, fire, theft, or other natural disasters.
The items covered by home warranties are meant to be in good working condition but may break down because of normal wear and tear. Home warranties can help with larger issues like HVAC repair/replacement or septic issues (note that septic is usually an additional fee and has limited coverage by home warranty companies).
Most home warranties can cost from $350 to $600 per year. Home warranty companies usually charge the lower amount the first year but will increase every year after that because of the increased probability of claims. If you’re looking for additional coverage for things such as septic systems, wells, or pools – these are also an additional premium that can be from $50-$125.
In addition to these costs, there are service call fees for repairs-- which range from $50 to $150-- depending on the company and the contract.
Although the up-front home warranty cost may feel like a lot, you may want to take into consideration the following prices for replacements:
Water heater (40-50 gallons): $1100 – Tankless: Between $1000 and $3000.
Buyers purchasing a previously owned home may benefit from getting a home warranty. To determine if a home warranty would be advantageous, a professional home inspection should be done-- the inspector can help determine the remaining life of the appliances/systems. It's important to read the fine print of the home warranty contract—you need to know the coverage and terms and conditions.
Also, a lot of agents recommend asking for home warranties in a real estate purchase contract. Buyers can stipulate that sellers will pay for a home warranty from a company of buyer’s choosing. If you’re purchasing a home warranty, this is a great way to negotiate that first year free.
Buying a home warranty can provide buyers with the peace of mind when it comes to older appliances. If you struggle with home repairs, a home warranty that offers contractors/repairmen may help!
If you’re purchasing new construction, you may reconsider buying an additional home warranty. With a new build, there is usually a warranty from the builder for workmanship, structure, and materials. These warranties are usually either for one year, two years, or ten years. Before you decide not to buy, read over the terms and conditions of the builder warranty contract – some builders can be shady on their coverage and repairs.
New appliances usually come with a manufacturer warranty, so if you’re purchasing all new appliances, it may be just more money out of your pocket for no reason. Double-check your manufacturer warranty to help decide the best path for you!
As I mentioned before, make sure that you do your research and due diligence before purchasing a home warranty. There are some cons to home warranties:
* Home warranty companies ultimately decide whether or not to repair the appliance--and it can be denied.
* Different companies (and even different areas) are managed better than others; sometimes it’s a crapshoot on how well you’re covered!
* Home Warranty companies usually have monetary limits on covered repairs per year—and it’s not always a big enough number!
* There is a lot of fine print missed by homeowners, which can cause a lot of frustration.
There is some “buyer beware” to consider when searching for a reputable home warranty company. Even some online reviews are paid reviews. A better way to research companies is to look at the Better Business Bureau’s website. By looking there, you’ll get a better (and real!) feel of different companies’ customer satisfaction ratings.
If you’re considering buying a home warranty for your home, there are many things to consider. Researching the companies, reviewing the contract, and ensuring the coverage is appropriate are all important items.
Also, reviewing your budget to ensure that the coverage is affordable. Some companies do offer monthly premiums for (usually) an additional processing fee.
Don't go into this purchase blindly! The best thing you can do is make an informed decision on if a home warranty is right for you. Through research and preparation, you can make a great decision.