In recent years, home warranties have grown very popular with homebuyers and homeowners who are looking to protect themselves from paying for expensive home and appliance repairs down the line. But are they worth the money?
The answer is: maybe. Ultimately, it depends on the company issuing the warranty and the homeowner’s needs.
Home warranties are especially common in real estate transactions. A home warranty can help sell a house faster and for a higher price because it provides the buyer with protection against the unknown. Combined with a solid home inspector, a home warranty can give a homebuyer the level of comfort needed to seal the deal.
What Is a Home Warranty?
For a set premium ranging from $350 to $500 or more per year, a home warranty company will issue a home warranty policy to a homeowner. In this policy, the company agrees to repair or replace certain appliances and major home systems if or when those appliances or systems break down.
If a breakdown occurs, the homeowner files a claim online or by phone. Then the company sends a contracted service provider, or has the homeowner call a professional on his or her own time. The homeowner pays a service fee – typically $50 to $100 for each repair. The service provider may fix the problem on the spot or may need to order parts and OK the repairs with the warranty company.
Depending on the policy, the homeowner may pay for the entire repair up front, then get reimbursed by the warranty company for the portion covered by the policy.
Should You Buy a Home Warranty?
When buying a newly constructed home, you probably don’t need a home warranty. Many states require the builder to repair defects in materials and workmanship for a few years – typically two to 10 years. And the new appliances in those new homes are almost always protected by one-year warranties.
Existing houses, however, may have considerable wear and tear, and tend to be equipped with older appliances. If the house is filled with over-the-hill systems that may require repair instead of replacement, a home warranty may make sense. Homeowners who think they’ll be able to upgrade appliances to newer and better models with coverage from a home warranty are usually disappointed to learn that’s outside their policy’s reach.
What Does a Home Warranty Cover?
A typical home warranty company offers more than one tier of coverage, depending upon price. A basic home warranty will cover a very specific list of appliances and systems such as the plumbing and electrical systems, heating and duct work, water heater, refrigerator, dishwasher, range or oven, built-in microwave, trash compactor and garbage disposal.
Some packages also cover the doorbell, burglar or fire alarm, ceiling fans, exhaust fans, central vacuum, washer, dryer and garage door openers.
An upgrade on your coverage, costing an additional $100 to $300, might include exterior pools and spas, septic tank pumps, sprinkler systems and well pumps.
Read the fine print when considering a home warranty – the devil is in the details. A home warranty probably won't cover anything that isn’t specified in your contract. And it may not pay for some of the covered items if certain conditions are not met.
For example: Most home warranties will not cover repairs that existed before the policy, and most have a 30-day waiting period. If you buy a house and something goes wrong with an appliance in the first 30 days, the warranty probably won’t cover it.
A home warranty may not provide coverage if an appliance was incorrectly installed or poorly maintained, or if it has been worked on before.
In addition, the entire cost of an expensive repair may not be covered. Many policies have a yearly limit – $1,500 to $2,500 per year, for example – and may have a deductible.
Finding a Reputable Home Warranty Company
Search “home warranty reviews” online. In the results, look for the review sites that don’t appear to sell advertising or leads to the companies they’re reviewing. Read through the reviews and pay special attention to the bad reviews (some warranty companies load some sites with false “good” reviews).
You’ll find home warranty companies vary in quality, but many are notorious for balking at service. If you work with the wrong company, it may drag its feet when you need a repair. If your home is without hot water, air conditioning, heat or electrical power, delaying repairs may force you to handle the problem yourself, which may be exactly what the warranty company is hoping will happen.
Be sure the home warranty company you choose is actually a company, not a local affiliate or lead-generation site. Search the company name online and make sure it has a real address, and note the contact information you’ll need if you have a problem.
Before you sign anything, ask whether you have to call the home warranty company to request a repair in order for it to be covered. If so, does the company have around-the-clock phone service?
Find out who will be providing repair services in your area. Large national companies are more likely to have an extensive list of service providers. Then check out the local service providers on online review sites to make sure they're reputable.
Ask a lot of questions before you sign up, and confirm all of the answers you receive in writing. Everything should be detailed in the contract. Watch out for contract wording like “at our sole discretion” or “we reserve the right.” These can be the first steps toward denying claims.
If you file a claim, get the name and contact information of the service person who comes to your home. Try to stay in the middle of the process so the warranty company can’t claim delays are caused by the contractor’s failure to send paperwork. Make copies of everything you receive and send them yourself via email, if necessary.
If you run into frustrating delays, tell the claims representative that you will be filing complaints with the Better Business Bureau and online review sites unless your case is passed to the “escalations team” or other supervisors. Get the names, direct phone numbers and email addresses of everyone you talk to.
Though many home warranty companies have less than stellar reputations, careful research and oversight can ensure that the policy you select is a worthy form of insurance against unforeseen repairs.
Don Vandervort is the founder of HomeTips.com.
Teresa Mears | May 3, 2019
Conventional wisdom says 20%, but you can buy your first home with much less down.