Home Warranty Pros and Cons
If you’re buying a house, you’ve probably heard your realtor talk about getting the seller to include a home warranty. If you’re selling your house, you’ve probably been encouraged to offer one in the negotiations. Or perhaps your home included a warranty in the sale and it’s ready to expire.
So what is a home warranty? How is it different from homeowners insurance? How does it work? Is it worth the cost? Should you extend that coverage?
We’re here to help answer all of your questions. Let’s start with the first and most basic question.
What Is a Home Warranty?
A home warranty is a year-long contract, usually with a third party rather than with an insurance company, that covers repairs and replacements on the parts and components of your electrical, plumbing, heating and air conditioning systems, and appliances in your home. Many plans can also allow additional coverage for well pumps, pools, spas, and even deep freezers.
Don’t confuse a warranty with homeowners insurance, though. A home warranty protects your home’s appliances and systems from breakdowns and failures from day-to-day wear and tear, like a broken down washing machine. A home warranty only covers those things if they are in good condition when you purchase the plan. Homeowners insurance, on the other hand, covers damages and losses caused by unforeseen events like fires, flooding, or severe weather.
To look at it another way, a home warranty covers the small problems, and homeowners insurance covers the big problems.
The Pros and Cons of a Home Warranty
There are benefits and drawbacks of home warranties. Weighing these will help you decide the right choice for your situation.
Peace of mind
You know that if and when something breaks (and let’s face it, something in your house is destined to break sooner or later) a professional will be there to fix it. This is ideal if you’re not very handy or if you’re a first time home buyer who is unsure of how everything works in your house. A home warranty can be especially helpful if you’re coming from a rental situation where the landlord handles any and all of the problems.
Fewer unanticipated costs
Home warranties are ideal for people on a strict budget. You’ll know both the premium and deductible costs up-front, eliminating any sort of catastrophic surprise that may come with, for example, your water heater dying at the most inopportune moment.
If the service technician isn’t able to repair that broken water heater (from our last example), the warranty company will replace it with a new one. That takes the frustration that comes with shopping for a replacement yourself, as well as having it delivered and installed. It’s all taken care of for you!
Despite what it sounds like, a home warranty does not cover everything in your home. You’ll have to carefully read over the warranty to see what is and isn’t included. It can prove to be a bone of contention between you and the provider at a later date, so make sure you’re clear on everything before you commit.
Here’s the tricky part. The majority of available warranties won’t cover a system, appliance, or other item that hasn’t been properly maintained. So, if the previous owner didn’t take care of that water heater before you bought the house, the warranty isn’t going to cover it.
Just because you pay for it doesn’t mean you’ll use it. You can pay the premium on your home warranty every month for a year, and nothing could go wrong. Some people may see this as a waste of money.
Home Warranty Alternatives
While there are no formal plans or options that are like a home warranty, you can take a variety of steps to get similar results.
The most obvious solutions are to save or take out a line of credit for the express purpose of covering home repairs. Some have found that saving the equivalent of a potential monthly premium will yield better results and the money won’t have “gone to waste.”
You may also be able to get better service for a lower cost by hiring contractors directly, rather than use the warranty company’s crew and procedures. This will require you to do a larger amount of work, since finding and researching a reliable and recommended contractor is no easy task.
Is a Home Warranty Right for You?
There’s no easy answer to that question. However, before you agree to a warranty, make sure you review your contract before you need it so you’re clear on what is covered and what isn’t, the cap limits on coverage, any deductibles, and any fees associated with having a professional diagnose the problem.
If a seller isn’t offering a warranty, ask your realtor to include one for the first year in the negotiations. Once that year is up, it’s entirely up to you to continue that coverage on your own.
Interested in adding a home warranty to your next real estate sale or purchase? Let’s talk! Contact us today to discuss your options.