Should I get a home warranty? Are they worth it?

A home warranty can help alleviate some of the financial burden new homeowners face when a major appliance or home system fails. You’ll pay for the warranty upfront, but the savings could be worth the added expense. Here’s an overview of what a home warranty is, how much it costs and whether it’s worth it.

What is a home warranty?

A home warranty is a service contract that pays the cost of repair or replacement of covered items, such as major kitchen appliances, as well as electrical, plumbing, heating and air conditioning systems. A warranty does not cover windows, doors, floors or other structural features, nor does it cover smaller or freestanding appliances.

“The warranty is designed to cover items that are in satisfactory, good working condition upon occupancy, and then fail due to normal wear and tear,” says Mike Sadler, senior VP of operations at America’s Preferred Home Warranty, based in Jackson, Michigan.

Coleen Smith, an agent with Portside Real Estate Group in Falmouth, Maine, says that she suggests home sellers purchase a home warranty as a way to help attract prospective buyers. She also often recommends them to buyers, whether the seller offers one as a part of the sale or not.

“It depends on what I hear my clients saying their potential pain point is,” says Smith. “What is their concern or heartache about a property? Someone might say, ‘I love this house except it’s on private systems, like a septic tank or a well, and I don’t want to deal with it if it breaks.’”

Realtors can be a great resource when you have questions about buying a house. Keep in mind, though, that home warranties are not mandatory — you’re under no obligation to buy one, even if your real estate agent recommends it.

What do they cover? What isn’t covered?

Are home warranties worth it?

The cost of a home warranty can range from about $222 to $1,877 per year, according to HomeAdvisor, with the typical annual cost being $1,049. Plans can cost more if you want extra coverage for areas like a guest house or swimming pool. Along with the plan cost, you’ll pay another fee for service calls, ranging from $75 to $125.

Compare these amounts to the cost of, say, replacing a central air-conditioning system, which averages $5,500 per HomeAdvisor. If you don’t have money set aside for such unexpected expenses, a home warranty might more than pay for itself.

One caveat, however: If the home is older and its systems are long-outdated, it might not be possible to repair something that breaks, since the parts might not be available anymore. In this case, a home warranty likely won’t give you the protection you’re looking for. Ask the provider what your payment obligation would be if something can’t be fixed.

Of course, if you never have a problem, then you’d have shelled out money unnecessarily. Ultimately, it’s like any warranty cost: You have to decide if the peace of mind outweighs the expense.

When to skip a home warranty

One instance when it’s typically not worth bothering with a home warranty is if you’re buying brand-new construction. Homebuyers who purchase new construction usually get some type of warranty from the builder for the home’s materials and workmanship — including plumbing, electrical, heating and cooling systems. The builder warranty typically doesn’t cover appliances, but those often come with a manufacturer’s warranty.

In addition, some credit cards offer extended warranties on top of the manufacturer’s warranty with new purchases, so if you remodel your kitchen and pay for the new fridge or stove with plastic, it might not make sense to buy a home warranty for those appliances. And if you’re diligent with maintenance and have your home’s systems annually serviced, that could help you avoid the problems a warranty might address.

Pros and cons of home warranties

While home warranties can be beneficial, they also have limitations and do not cover everything. Here are some of the benefits and drawbacks to keep in mind.

Pros

• A home warranty can provide peace of mind if you’re purchasing a home with older appliances or systems.
• Similarly, if you don’t have the DIY skills to handle repairs on your own, they ensure you’ll have the help you’ll need if something goes wrong.
• Some home warranty companies will take care of finding and hiring trusted professionals for you, which is helpful if you’re new to an area and don’t have established relationships with local contractors.
• Home warranties tend to offer broader coverage than a manufacturer’s warranty, and often last for a longer period of time. They can also be renewed.

Cons

• Home warranty companies impose dollar limits per repair, per item or per year. These restrictions can vary greatly by provider.
• You’ll have to pay a service-call fee each time you have an issue.
• Home warranty companies determine whether to fix or replace a system or an item. If replacing an item, they might go with the cheapest model or one otherwise not to your liking.
• They can also potentially deny your claim if it determines that an item has not been properly maintained.

FAQs

• Is a home warranty different from homeowners insurance? 

  Yes. Although they both offer financial protection, home warranties and homeowners insurance policies are not the same thing. While a home warranty covers normal wear and tear on certain systems within a home, homeowners insurance extends to the structure of your home and covers damage due to unexpected events like fire or theft. In addition, home warranties are optional, while if you’re getting a mortgage, your lender will require you to secure a homeowners insurance policy.

• Is it really worth having a home warranty?

  That depends on the home you’re buying and the condition it’s in. For older homes or those with outdated appliances or systems nearing the end of their lifespan, a home warranty can make good financial sense. Make sure you understand the warranty’s terms and conditions, how long the coverage lasts and what it will and will not cover. But if you’re buying a new-construction home, it’s probably not worth it, as the builder is likely to issue its own warranty.