real estate

Do home warranty programs pay off?

  • Home warranties cover appliances, heating and air conditioning.
  • Some question whether policies are worthwhile.
  • Proponents say policies offer peace of mind to homeowners.

When your 20-year-old refrigerator springs a leak, what do you do? Your first instinct may be to decide between a costly repair and an even costlier replacement.

But if you have a home warranty policy, a repair could be free.

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Home warranty policies are a perk of many home purchases. They cover repairs on specific home elements, such as built-in appliances, heating and air conditioning systems, and plumbing.

"A home warranty contract promises to keep working items working for a certain time period, usually one year," says Carl Knighten, CEO of HMS Tri-Region, a 30-year-old home warranty company based in Fairfax, Va.

Learn the details

Two types of home warranties are available:

  • Homebuilder warranties on newly built homes. The cost of the warranty is included in the price of the home. Builder warranty policies typically cover up to 10 years of structural defects; one year of coverage on items such as stucco, drywall and paint; and two years of coverage on HVAC, plumbing and electrical systems. Appliances are typically covered for about six months.
  • Home warranty company polices for existing homes. Companies also sell policies to purchasers of existing homes. In most cases, a home seller or real estate agent pays for these policies -- which typically cost a few hundred dollars -- as part of the sale of the home. These policies usually cover one year of repairs on various appliances in the home, along with its furnace, air conditioning and plumbing.

Many home warranty policies have a deductible of around $100 or the cost of a repair, whichever is less. The deductible applies to each repair that occurs.

Home warranty policies also are available directly to homeowners and homebuyers, who may purchase them in certain circumstances -- such as after buying a foreclosure, Knighten says.

"Banks do not typically pay for a home warranty on a foreclosure or short sale, so homebuyers can purchase one for these homes if they wish," he says.

However, Knighten says that less than 1 percent of his business comes directly from homeowners.


Home warranty criticisms

Although home warranty policies would appear to offer peace of mind, some people have misguided expectations about what a home warranty policy will cover, says Angie Hicks, founder of Angie's List, an online review site with more than one million members that provides tips and consumer reviews on contractors and other businesses.



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