What is a home warranty?
If you recently bought a home, chances are you were offered a home warranty. A home warranty is a service contract, not an insurance policy. The company offering the home warranty promises to repair or replace specific components of your home if the need arises.
In 2017, most homebuyers spend between $243 and $1,702 on a home warranty, with an average cost of $969 for a one-year warranty. Features of your home not covered under the home warranty can often be added at an additional cost.
A home warranty should cover features of the home that an insurance plan will not cover, such as kitchen appliances, plumbing, roof leaks and the electrical system. By purchasing a home warranty, buyers hope to have coverage in case anything not found during the home inspection suddenly breaks down.
When a feature listed in your home warranty agreement fails you, contact the company that issued the warranty and turn the matter over to it. That company will provide a prescreened service contractor from its vendor network to diagnose the problem. If it cannot find someone in your area who is part of its network, it will use an outside contractor.
Here are some of the advantages of a home warranty:
- When combined with what homeowners insurance will cover, a warranty plan can fill in the gaps, covering a host of potential problems.
- Even a newer home can have unforeseen problems and benefit from a warranty. An old home almost certainly will.
- If you find yourself in a buyer’s market, you may be able to negotiate for a home warranty as part of the sales price. Sellers often offer a year’s coverage in hopes of luring potential buyers.
- Some lucky buyers have received a home warranty from their Realtor as a thank you. It would not hurt to ask friends and family whether their Realtor gave them such a gift, and if so, work with that Realtor.
There are also disadvantages to a home warranty. Here are some of them:
- Home warranties top the list of complaints received by organizations like Angie’s List. Buyers complain about the quality of service they receive and the divide between their expectations and what the warranty company actually delivered.
- Unless you read the warranty from top to bottom, you cannot be sure what it will cover and under what conditions it will cover those items. For example, some contracts state that the warranty will not cover an appliance that has “too much wear and tear,” or one that you did not properly maintain. Whether you “properly” maintained an appliance is highly subjective and easily can be a bone of contention.
- You cannot assume that your warranty will cover the entire cost of a repair or replacement. Read the terms and conditions of a home warranty like you would any legal document, and if you do not understand something about the document, ask until you get the answers you seek.
Example of home warranty
There are dozens of home warranty companies vying for your business. If you do decide to take out a policy, do yourself a favor by checking out as many as possible. Sites like CompareHomeWarrantyQuotes and Consumer Affairs will allow you to compare one company with another in order to determine which is best for you.
Before shelling out money for a home warranty, check out the company with the Better Business Bureau, your state attorney general’s office, and/or your state insurance commissioner. Even though they are not insurance companies, in 32 states home warranty providers must either register or be licensed by the department of insurance.