Is a Home Warranty Worth the Cost?

Is a Home Warranty Worth the Cost?

Whether you are buying your first home or selling a home and moving into another, a home warranty could be a valuable protection for your finances and your peace of mind.

Many buyers opt to purchase home warranties, which average $350 to $500 for a basic warranty and $100 to $300 more for a warranty with extra protection. Buyers, particularly first-time buyers, like the fact that they can rely on a warranty to pay for repairs during the first year while they are settling into a new home. In some cases, a real estate agent will purchase a home warranty for the buyers as a settlement gift or thank-you for their business.

Home sellers, particularly if they are selling a home with older appliances and systems, can purchase a one-year warranty that will protect them while their place is on the market and can then be transferred along with ownership of the house to their buyers. Not only does the home warranty provide an extra incentive for buyers who are concerned about potential costly repairs, but it is available for the sellers in case a water heater, oven or some other appliance needs to be fixed.

Home Warranty vs. Insurance

Newly built homes typically come with a one-year warranty on appliances and systems and a 10-year warranty on structural elements paid for by the builder, but an existing home does not normally have a warranty at all. Whether you are a buyer or a seller, you should be aware that a warranty covers specific items under a service contract. If something goes wrong, you will need to contact the warranty company and they will send a repair person of their choice. You will pay a service fee, generally about $50 or $75, to have the appliance or system checked and fixed.

Your homeowners’ insurance covers the house itself and your personal possessions in case of a fire, theft or damage from another cause, but you won’t be able to make a claim if your heat pump fails or your washer and dryer break down.

Home Warranty Coverage

Some homeowners get frustrated by a home warranty because they assume they can hire anyone they want to make a repair and that if something is broken or old they can simply have the item replaced by the warranty policy. Home warranties offer important protection from unexpected repair bills, but they won’t usually be enough to replace an item that has worn out, had preexisting problems or were improperly maintained.

Warranties vary from company to company, but in general they cover:

§  Kitchen appliances such as your range or oven, dishwasher and built-in microwave

§  Garbage disposals

§  Plumbing including a whirlpool tub

§  Sump pump

§  Water heater

§  Ceiling fans and exhaust fans

§  Heating and electrical system components

An enhanced warranty is usually needed to cover your air conditioning system, refrigerator, washer and dryer, and a garage door remote. You can also pay for optional coverage of items such as a swimming pool or septic system. 

Should You Buy a Home Warranty Policy?

As with any legal document, you should read the terms and conditions of your warranty before determining whether purchasing it is a good investment. It is important to understand what is covered, the limitations of your policy and any fees you will need to pay.

Of course, if a seller or real estate agent is purchasing one for you, it makes sense to accept it. If you are the seller, it may be worthwhile as one more incentive for your buyers.