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Is a Home Warranty Right for You?

Buying a home is an exciting milestone, but it can also be an expensive one. And the costs don’t stop once the closing paperwork is signed. Appliances can break, air conditioners quit, and leaks happen. So what does that mean for you and your wallet? Bringing out a professional repairperson usually isn’t cheap, and that’s not even counting what a replacement part might cost you. However, if you have a home warranty, there’s a chance you might be spared from a hefty bill. Home warranties are becoming more popular, especially with first-time homebuyers. How do you know if it’s right for you? There are several things to consider before signing on the dotted line.

What is a home warranty?

If you’ve bought or sold a home recently, you may already be familiar with a home warranty. However, if you’re not, let me break it down for you. Unlike homeowners insurance, (which covers disasters like fires, extreme weather, break-ins, etc. that could affect the entire house and your personal belongings) a home warranty covers discounted repair and replacement on your home’s major systems. Those can include items like your heating and air conditioning units, the electrical system, plumbing, refrigerators and other major appliances.

Here’s how it works: a homeowner pays a yearly premium to the home warranty company as well as a flat service call fee for each repair. The average premium is usually between $350 and $500 (sometimes you can find them cheaper) and the service call fee is generally between $50 and $75. When something breaks, the homeowner calls the warranty company, and the company then sends out an approved repairperson to look at the problem. If the service provider concludes that the needed fix is covered by the warranty, he or she completes the work. The homeowner is only responsible for the flat service call fee and not any additional costs for the parts and labor. That doesn’t mean that you won’t ever have to spend any cash on repairs. Not all items and appliances are covered under the warranty. Each plan is different, so you’ll want to read the fine print carefully and make sure you understand what’s included and what’s not. Some companies have a base warranty plan that you can buy and then you can add other items to the policy for an additional fee.

The Pros

  • Piece of mind – People who have a home warranty will tell you that one of the biggest benefits is that it allows them to not stress about home repairs. Not all homeowners are handy and able to save money by making the necessary repairs themselves. With the warranty, if something breaks, all they have to do is pick up the phone and help will soon be on the way.
  • Protect your savings – If you’re one of those people who doesn’t have an emergency fund saved up, you know you can’t afford to take a huge financial hit. If your air conditioner breaks, it could set you back thousands of dollars. The last thing you want is to drain your savings or have your credit rating suffer. A home warranty can provide some reassurance that you can avoid big debt if something goes wrong.
  • Essentially pays for itself – According to U.S. News & World Report experts predict that homeowners will spend on average “between 1 to 4 percent of a home’s value annually on maintenance and repairs.” If your house cost you $250,000 that means you’re likely facing at least $2,500 in repairs a year. Compare that to the yearly premium and service call fees for a home warranty and you’re already potentially saving money.
  • Incentive for buyers and sellers – If you’re putting your home on the market, including the home warranty as part of the deal could help sway potential buyers in your favor. A recent study by the Service Contract Industry Council found that homes covered by warranties “spend 11 fewer days on the market on average” and sell at a higher price. It gives buyers reassurance that repairs have been made regularly and that they will be covered as well once they move in.

The Cons

  • The warranty won’t cover it all – While a home warranty could save you some big repairs, it doesn’t guarantee everything. Any pre-existing conditions or items that didn’t receive proper maintenance (even if it was before you owned the house) will not be covered. And it can get tricky since “proper maintenance” can be fairly subjective. A warranty company or one of their contractors can potentially use the “improper maintenance” excuse to deny a claim and there won’t really be much you can do about it.
  • Major components cost extra – Not all warranty contracts are the same and some of your biggest items may not be included in your base policy: refrigerators, septic system, swimming pool, etc. Many companies will allow you to add them to your plan, but it will cost you more money to do so. Depending on how much more, it may not be worth it in the long run.
  • You can’t choose your repairperson – Warranty companies each have their own list of approved service providers that they use to take care of repairs. While it saves you time searching online for a plumber or electrician, you don’t have an alternative if you don’t like the person they send out. It can also make repairs take longer since the provider has to consult with the warranty company before they proceed with a fix.
  • Warranty may cost more than fixing yourself – If you’re not afraid to grab your toolbox and tackle a DIY project, then you know how much you can save by handling repairs on your own. While you may not have the skill level to handle major fixes with complicated systems, the minor repairs might be right up your alley. A $50-$75 service call fee is minimal on its own, but if you have to make a lot of calls in a year, it definitely adds up. Some experts recommend putting the money you’d spend on service calls (and even the yearly premium) into your own “repair fund” instead.

The bottom line

When it comes to home warranties, do your research. If you weigh the pros and cons and decide you do want to sign up for one, make sure the warranty company you choose is reputable and has a history of paying for necessary repairs and quick response times. And once you get a contract in-hand, read the fine print. Make sure you understand the extent of what is covered in your policy.

 

 

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