What is a Home Warranty? Do I Need One?
Just as there is a warranty for your car, wristwatch, and other essentials there is such a thing as a home warranty. The question becomes do you need one at what exactly is it and what does it warranty. Think about what might happen if you move into your new home and start the dishwasher to do a load of dishes and the appliance doesn’t work. Surely a pain and an inconvenience, and something a new homeowner doesn’t want to have to deal with.
However, before you start handwashing those dishes you might want to think about purchasing a home warranty. Purchasing a home warranty might help you when a major appliance or home system goes kaput. A warranty isn’t free and you will need to pay for it before getting a repair or claiming an issue, but the savings could be well worth it if you didn’t have a warranty.
What is a home warranty?
Don’t be mistaken, a home warranty is not an insurance policy, but a service contract that pays the cost of repair or replacement of certain covered items, such as major kitchen appliances, electrical, plumbing, heating, and air conditioning units.
A warranty doesn’t cover windows, doors, or other structural features. Separately, homeowners insurance covers losses incurred if your home and belongings are damaged or lost due to fire, theft or other similar events are also covered.
In essence, a home warranty is for covering items that are in a satisfactory, good-working condition when you take occupancy, and then fail because of the typical normal wear and tear.
Many Realtors and agents often suggest to their clients to purchase a home warranty -- home sellers and buyers – in case the above hiccups could arise during or after a sale.
Are home warranties worth it?
The cost of a home warranty ranges from $350 to $600 a year – of course, you can pay more if you want even more coverage for appliances like washers and dryers, pools, and septic systems.
In addition to the annual premium, you will most likely need to fork over a fee for service calls at a cost depending on the contract you buy.
Keep in mind without a home warranty, you could easily spend hundreds or thousands repairing or replacing major appliances or systems. If you don’t have money squirreled away in special savings account for such unexpected expenses, a home warranty would be a good option.
Depending on where you live and the type of appliance and how bad the damage is prices vary for everything from AC repair to water heaters. A good place to start is HomeAdvisor, to find the average costs to replace major home systems in your area.
Who should buy a home warranty?
Are you someone who should think about being a home warranty?
Well, if you’re buying a used-owned home, you might consider a home warranty from a reputable company, especially if the home inspection reported several of the home’s appliances and systems are questionable.
Before signing, make sure you read the fine print of the contract and understand the terms and conditions of the home warranty, how long the coverage lasts and what it will and will not cover.
Home sellers also might want to consider offering a home warranty to potential buyers to help move the deal along. If a major appliance suddenly comes to a halt, it can be fixed or replaced, which a new buyer will appreciate.
When to skip a home warranty
Homebuyers who purchase new construction usually get some type of warranty from the builder for the home’s materials and workmanship, including plumbing, electrical, heating, and cooling systems for a certain timeframe, again ask before you sign.
Appliances are usually not covered by the builder, but they usually come with a manufacturer’s warranty. As you can see, it may not be worthwhile to purchase a home warranty for a newly built home because it could duplicate coverage.
Pros of home warranties
A warranty can provide peace of mind to new home buyers of a home that has used appliances and older systems. Also, if you’re new to a neighborhood, you won’t have any idea of which local contractors or mechanics can help with repairs. Your home warranty company typically will find and hire a trusted technician.
Also, if you aren’t a DIY type, to do repairs, a home warranty could be helpful. And older homeowners often like being able to call the home warranty company if something breaks or needs repair.
Cons of home warranties
Again, before signing for a home warranty, know what’s covered and what’s not. Check the protection plan to see the list of exclusions and decide if you want to upgrade your contract.
Some potential drawbacks
Home warranty companies often add dollar limits per repair or per year. This can vary big time, and generally, there is no limit.
Claims may be denied by the home warranty company if an item has not been properly maintained, and tough especially for homeowners who just took occupancy of a home. Be aware some home warranty companies use “improper maintenance” as an excuse to dispute justifiable claims.
Home warranty companies will decide whether to fix or replace a system, and you may or may not agree with the decision.
If an appliance needs to be replaced, the homeowner sometimes may not have a say about the make or model of the replacement. Also, under certain scenarios like an unexpected power surge, an appliance will not be covered.
Don’t believe all home warranty reviews!
Be wary of online search results for home warranty reviews if you decided to do your research. Some could be faux rankings, perhaps paid for by the company itself.
Don’t trust the customer testimonials that appear on a home warranty company’s website. You will mostly see five-star ratings and great reviews. Check out the Better Business Bureau instead to see the companies ratings.
The BBB’s ratings are based on:
· The number of complaints.
· The size of the business.
· How well the business responded to complaints, how quickly the complaints were resolved, and whether the business made a good faith effort to resolve complaints. Look at the BBB’s website for companies rated A or A-plus and contacting them directly.
If you want to purchase a home warranty, be sure to check its rating with the Better Business Bureau. Also, it’s imperative to take the time to peruse and review the contract describing standard coverage, optional coverage, and upgraded items. Understand the limitations; it may not be necessary to pay a higher premium for optional or upgraded coverage. Be leery of premiums before you sign.
Shop around as consumers have a choice of paying annual premiums to feel secure or think about building an emergency fund for unexpected expenses. It may be better to rely on emergency money than to pay annual premiums for a home warranty contract that might never have been needed.