What is a home warranty, and do I need one?

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After buying a home, you eventually learn that appliances and major systems can break down and need a repair when you least expect it. These fix-its can seriously set you back — but one way to guard against sticker shock is to have home warranty coverage.

What is a home warranty?

A home warranty is a type of service contract that at least partially pays for certain home repairs not covered by your homeowners insurance policy. A home warranty provides repair and replacement protection for many of your home’s most important appliances, mechanicals and systems.

“A home warranty can take the stress away from coordinating a repair with a maintenance contractor,” explains Chuck Hattemer, co-founder and CMO of Onerent Property Management in San Francisco. “Homeowners have the option of using their home warranty to repair their home appliances and systems rather than paying from pocket.”

What does a home warranty cover? 

Depending on your service contract, your home warranty can cover repair and replacement bills for:

  • Washer and dryer
  • Refrigerator
  • Oven and stove
  • Water heater
  • Plumbing system
  • Electrical system
  • Heating, ventilation and air conditioning (HVAC) system

“Home warranty plans come in all shapes and sizes. Some are narrow in scope, while full-service plans include all appliances and systems as well as things like pools, spas and septic systems,” Dan DiClerico, home expert with HomeAdvisor, says. “But they usually don’t cover structural items like windows, roofs and fences.”

Many restrictions may apply, however, such as how the appliance or system failed.

“The biggest stipulation with home warranties tends to be circumstances leading to the repair or replacement of the faulty equipment,” says Shane Dutka, founder and general manager of Review Home Warranties. “Warranties kick in only if a system or appliance was in full working order prior to receiving a home warranty in the first place and if the damaged system is a result of inevitable wear and tear, not a specific incident. Most warranty claims get denied if they don’t meet these criteria.”

Read the fine print on a service contract carefully for specifics.

“You might find that the warranty covers your refrigerator but not the icemaker — an item that breaks down frequently. Or the warranty will cover your central vacuum but not the cost to access damaged parts through your floors or walls,” DiClerico notes.

Also, most service contracts will specify a ceiling they are willing to pay to replace a failed piece of equipment.

“In most instances, these limits are within normal ranges and will adequately cover the replacement cost for most home appliances,” says Kathleen Kuhn, president of Somerville, New Jersey-headquartered HouseMaster. “But homeowners need to review these limits very carefully.”

How much does a home warranty cost?

The annual premium you’ll pay for a home warranty service contract varies depending on its contract inclusions and your location, but you can expect to pay at least $350 to $650 a year, Dutka says. According to HomeAdvisor’s True Cost Guide, the average cost of a home warranty is closer to $1,000.

You may also have to meet a deductible before coverage kicks in, and most home warranty programs require you to pay a service fee when you submit a claim.

“This fee ranges from $75 and up,” Kuhn says. “In most instances, you’ll only pay one service fee per claim regardless of the number of visits it may take to have the service provider complete the repair. But you need to read your warranty agreement carefully to ensure this is the case.”

Who pays for a home warranty?

A home warranty is often purchased by a homeowner at some point after moving in, but many homebuyers get this coverage free for the first year, compliments of the home seller.

“You’ll often see sellers offering to pay for home warranties to sweeten a closing deal, particularly if they’re selling an older home or looking to get off the market quickly,” Dutka says. “Likewise, homebuyers can push for a home warranty paid for by the seller as part of their negotiations on an older home that needs updates.”

Note that a home warranty service contract (also referred to as a homeowner warranty) is slightly different from a homebuyer warranty. The latter provides coverage for a person who is actively buying or selling a home and can be purchased up to 30 days after closing on a property. Both types of warranty plans usually cover the same equipment and systems, but a homeowner warranty may be more expensive and have different coverage limitations.

Do I need a home warranty?

Generally, first-time buyers are good candidates for home warranties.

“The first year of homeownership tends to come with a lot of unexpected home repairs, so having a service plan in place provides peace of mind and could also save some money,” DiClerico says.

If you are long settled into your home, getting a home warranty could be a smart move, as well.

“During uncertain economic times, a warranty may be helpful in terms of budgeting and hedging your bets against older appliances and systems that will eventually fail,” says Kuhn.

Home sellers are often advised to include homebuyer warranty coverage to entice buyers.

“Not only will this likely get you a maximum selling price, but it will relieve you of any further obligations should repairs or replacements become necessary after the final purchase is completed,” DiClerico adds.

Is a home warranty worth it?

To help determine if a home warranty is a good value, it pays to weigh the pros and cons.

“The benefits include coverage on common household appliances and systems, the convenience of sourcing a home warranty vendor for quotes and servicing, and the likelihood of lower or free services compared to what the average handyman will charge,” Hattemer says.

On the other hand, you may have steep annual premiums, deductibles and service call fees. Your choice of service professionals may be limited, as the service contract may require you to use repair professionals the home warranty provider partners with, and some warranties don’t cover replacements.

“As with any kind of insurance, you might end up losing money in the long run,” DiClerico says. “But it’s good knowing you have a plan in place if the furnace conks out in the dead of winter or your central air conditioning stops working on the hottest day of the year.”

How to shop for a home warranty

If you decide to purchase a home warranty, it’s important to shop around for home warranty companies and compare service contracts carefully.

“Try searching online and compare warranty providers in your state,” advises Dutka. “There are major differences in costs, coverage and liabilities, depending on where you live. You can also try contacting real estate agents or brokers themselves. Real estate companies and home warranty providers often work together.”

In addition, check to see if the Better Business Bureau has any complaints associated with a provider before committing to the company.

Featured image by MasterPhoto of Shutterstock.

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