Do You Need a Home Warranty?

Great you’ve just bought your first home! It is likely that you will be offered a home warranty for protection against expensive, unforeseen home repairs. But is it really the safety net homeowners expect?

Depending on your situation, a home warranty could definitely be worth the investment. It is important to understand the purpose of a home warranty before you speak with a trusted financial advisor to determine if you need a warranty and which reputable companies in your area offer reasonable prices.

What is a home warranty?

A home warranty is a contractual guarantee which covers the costs of repairing or replacing most malfunctioning systems in your home due to normal wear and tear during the coverage period. Should certain appliances or mechanical systems fail, those items will be repaired or replaced, subject to a small deductible. Coverage terms will vary depending on where you live.

Typical items covered under a home warranty:

  • Central air conditioning & heating systems
  • Kitchen appliances
  • Washer and dryer
  • Plumbing
  • Electrical system
  • Roof leaks

Let’s say your water heater fails, the dishwasher starts leaking and the motor on your washer burns out. With a home warranty, you won’t have to hassle with finding a repair service and comparing quotes. Simply call up your home warranty provider and they arrange with their contractor to set up an appointment for fixing or replacing the malfunctioning appliance. The home warranty would cover the costs minus any copay indicated on your policy.

A Home Warranty is not the same as a Manufacturer Warranty

For the first year of owning a newly built homes, a manufacturer warranty covers costs for a failed part but not the necessary labor to properly repair or install the part. You may also have a manufacturer warranty on your major home appliances – such as refrigerators, stovetops and washer/dryers. The terms of those warranties are often limited in scope and come with a number of exclusions. A home warranty will cover the cost of parts and labor.

How Much Can You Expect to Pay for a Home Warranty?

The cost of a home warranty varies depending on where you live and your property type e.g., single-family detached, condo, townhome, duplex, and whether the homeowner purchases a basic or extended plan. An annual plan will put you back a few hundred dollars (around $300 to $500) a year, which can be made in a lump sum or payments (should your warranty provider allow).

A brand new home may increase the cost of coverage, but generally the property’s age is not a factor. The home’s square footage also does not affect the price in most cases, unless the property is more than 5,000 square feet. Garages should be covered by the basic policy and separate structures, such as guest houses and barns can be covered for an additional fee.

The cost of a home warranty will also vary by provider. Most home warranties will ask the homeowner to pay a copay or service fee every time a contractor is called to the property (typically $30 – $50 per incident). If the problem requires more than one type of contractor to visit (e.g., a plumber and an electrician), the homeowner may be responsible for a fee on each contractor.

Overall, a home warranty is not expensive compared to the cost of repairing or replacing most of a home’s important components

Do You Need to Buy a Home Warranty?

You already have homeowners insurance – how is different?

Homeowner’s insurance and a home warranty work together to protect your real estate. If your washer leaks, your homeowner’s insurance would pay to replace any damaged wood floors or walls,

but home insurance won’t pay for a repairman to fix the leaky washing machine. A home warranty will cover the labor needed for repairs.

The Benefits of a Home Warranty

Home warranties can be a great idea for…

  • Busy, first-time home buyers who may not have the experience with home repairs or the time to shop for contractor quotes and bids.
  • Real estate investors or landlords who don’t have a network of repair contractors but still want to minimize stress and keep tenants happy.
  • Someone buying or residing in a home over 15-years-old, with aging appliances and systems.
  • New homeowners who want to protect their emergency savings from major unforeseen repair costs.
  • Homeowners with expensive tastes in appliances, such as high-end ranges and washer units.
  • Home sellers who want to protect against buyer complaints regarding any home defects arising after the sale (legal disclosures still apply).

Like all warranties, a home warranty is supposed to protect against expensive, unexpected repair bills and provide peace of mind. Home buyers and real estate sellers may find

Potential Problems with a Home Warrant

Purchasing a home warranty does not exempt the homeowner from having to spend money on home repairs. Some repairs will not be covered by the warranty because that particular appliance/system wasn’t named under warranty. And some claims may be denied when components haven’t been properly maintained.

Which appliances or systems are excluded, and what constitutes as proper maintenance will differ between warranty companies. In the worst case scenario, a claim may be denied and the homeowner is still responsible for paying the contractor for repairs and the service fee to the warranty provider.

Home warranties also eliminate the homeowners’ freedom to choose their own repair contractor or pick the appropriate model or brand of a replacement component. In addition, there may be many years when there is no need to make a claim; the homeowner gets nothing but peace of mind in exchange for his premium.

Think You Need a Home Warranty?

A home warranty is not a perfect solution but it can provide some homeowners and investors peace of mind. Before purchasing a home warranty, speak with a trusted financial advisor to determine if you can benefit from protection, and at what cost. Then ask your real estate agent for referrals and reviews of home warranty companies in your area.
Ask each provider exactly what is and is not covered, and ask if you can purchase additional coverage, and if so, at what cost. Read the fine print of each contract and carefully consider whether the warranty is likely to pay off. With a reputable home warranty company, homeowners can ease the pain of unforeseen and expensive home repairs

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