Are home warranties worth it?

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Imagine that a week after moving into your home, you turn on the air conditioning and it doesn’t work — or your dishwasher suddenly quits, or the furnace goes out in the dead of winter.

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

What is a home warranty?

A home warranty is not an insurance policy, but rather 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 doesn’t cover windows, doors or other structural features.

Separately, homeowners insurance covers losses incurred if your home and belongings are damaged or lost due to fire, theft or other perils.

“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, vice president of operations at America’s Preferred Home Warranty, based in Jackson, Michigan.

At her listing appointments, Coleen Smith, a real estate agent with Portside Real Estate Group in Falmouth, Maine, routinely suggests a home warranty to home sellers as a way to attract prospective buyers. She also recommends them to buyers.

“It depends on what I hear my clients saying their potential pain point is,” Smith says. “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.’”

Are home warranties worth it?

The cost of a home warranty in can range anywhere from $220 up to $1,767, according to HomeAdvisor. You can imagine more if you want enhanced coverage for such things as washers and dryers, pools and septic systems.

In addition to the annual premium, expect to pay a fee for service calls, anywhere from $60 to $100, depending on your provider and the type of contract you purchase.

Without a home warranty, you could spend hundreds or thousands of dollars repairing or replacing major appliances or systems. If you don’t have money set aside for these expenses, a home warranty can more than pay for itself.

According to HomeAdvisor, here are the average national costs to replace some major home systems:

  • Central air conditioner: $5,000 – $12,500
  • Gas furnace: $3,800 – $10,000
  • Water heater: $812 – $1,569
  • Appliance repair: $105 – $240

Of course, if you never have a problem, then you’d have shelled out money unnecessarily. Ultimately, you have to decide if the peace of mind matters more than the expense.

Who should buy a home warranty?

If you’re buying a previously owned home, you might want to consider getting a home warranty, and one from a reputable company, especially if your home inspection reveals that several of the home’s appliances and systems are nearing their lifespan. Make sure you understand the terms and conditions of the home warranty, how long the coverage lasts and what it will and will not cover.

Home sellers might also want to consider offering a home warranty to buyers to sweeten the deal. In the event a major appliance suddenly stops working, it can be repaired or replaced at little cost, which a new buyer will appreciate.

When to skip a home warranty

It’s not worthwhile to purchase a home warranty for a newly built home because you’ll wind up with duplicate coverage. 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 — for one, two or up to 10 years.

Appliances aren’t usually covered by the builder, but they generally come with a manufacturer’s warranty. Also, some credit cards offer extended warranties on top of the manufacturer’s warranty with new appliance purchases, so if you remodel your kitchen and pay for new appliances with a credit card, it may not make sense to buy a home warranty for those appliances.

Pros of home warranties

  • A home warranty can provide peace of mind if you’re purchasing a home with used appliances and older systems.
  • If you’re new to an area, it’s unlikely you’ll have established relationships with local contractors or mechanics to help with repairs. Your home warranty company generally takes care of finding and hiring a trusted professional.
  • Not all homeowners have the DIY skills to handle repairs on their own, so having a home warranty to fall back on alleviates that worry. Older homeowners especially might appreciate the convenience of making a single phone call if something breaks or falls into disrepair.

Cons of home warranties

  • Home warranty companies impose dollar limits per repair or per year. This can vary greatly, and generally, the sky is not the limit.
  • Claims can be denied by the home warranty company if an item has not been properly maintained, and this can be a sore point since a record of proper maintenance may be difficult to provide, especially for homeowners who just assumed occupancy of a home. Be forewarned that some home warranty firms use “improper maintenance” as an excuse to dispute justifiable claims.
  • Home warranty companies determine whether to fix or replace a system, and you may or may not agree with the decision.
  • If an appliance needs to be replaced, you might not have a say, in some cases, about the make or model of the replacement. Under certain circumstances, such as a power surge, an appliance likely will not be covered.
  • Not all costs are always covered by the home warranty, and you’ll have to pay for a service call fee each time you have an issue. It’s imperative to know what’s covered and what’s not. Check the protection plan to see the list of exclusions and to determine if you want to upgrade your contract.

Beware of home warranty reviews

Be wary of online search results for home warranty reviews. Some appear to be sham rankings, likely paid for by the touted companies.

For instance, some sites with generic domain names pop up in a search, ostensibly listing the best home warranty companies. One company appears as “best overall” on one site and is the top-listed home warranty company on another site with a slightly different domain name.

If you look up the company through the Better Business Bureau, though, you can see it has received more than 10,000 complaints in the last three years, and more than 4,000 in the last 12 months alone. Despite these complaints, it gets a B rating from the BBB.

Don’t trust the customer testimonials that appear on a home warranty company’s website, either. You’ll likely find mostly five-star ratings and rave reviews. One company offered glowing reviews on its website, but on the BBB’s website, the firm received a one-star rating on average based on 593 customer reviews. It, too, got a B rating from the BBB.

The BBB’s ratings are based on:

  • The number of complaints
  • The size of the business
  • How well the business responded to complaints, how quickly the complaints were resolved and whether the business made a good faith effort to resolve complaints

A better approach might be to look at BBB’s website for companies rated A or A-plus and contacting them directly.

Bottom line

If you decide to go with a home warranty, be sure to check its rating with the Better Business Bureau, and don’t assume a B rating means “above average.”

Also, take the time to closely review the contract describing standard coverage, optional coverage and upgraded items. Understand the limitations. It may not be necessary to pay a higher premium for optional or upgraded coverage. Premiums, exclusions and caps on benefits vary widely, so shop around.

You have a choice of paying annual premiums for peace of mind or building an emergency fund for unexpected expenses later on. It may be better to rely on an emergency fund than to pay premiums for a home warranty contract that may or may not be needed.

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Written by
Barbara Whelehan
Contributing writer
Barbara Whelehan is a contributing writer for Bankrate. Barbara writes about a range of subjects, including homebuying, real estate, retirement, taxes and banking.
Edited by
Mortgage editor