By Megan Wild, author of Your Wild Home blog
Should you buy a home warranty when buying a home? There are several considerations to think about when making the decision.
What a Home Warranty Is and What It Covers
Home warranties are essentially service contracts that cover your home. They cover repair on large systems and appliances within a home. For example, warranties commonly cover heating, ventilation and air conditioning (HVAC) systems, hot water heaters, plumbing and electrical systems and major appliances.
Do not confuse home warranties with insurance on systems and appliances. Insurance on a system or appliance will pay the insured party if there is a malfunction or if the item doesn’t perform as advertised. As a homeowner, you’d receive an insurance payout that would enable you to purchase a replacement item.
Under a home warranty, if a covered system or appliance does not work properly or breaks, the homeowner gets in touch with the warranty company. That company, in turn, gets in touch with the contractors they employ to make the repair. Those contractors are the ones who will come to your house to look at the system or appliance.
If the contractors cannot make a repair, but the system or appliance needs to be replaced to work properly, the contractor will also replace it under the terms of the home warranty. They will replace an item if the malfunction is due to normal wear and tear.
But the home warranty will not cover a repair or replacement that the contractors deem due to actions of the homeowner, pre-existing conditions or misuse. If the HVAC stops working because children have stuffed toys in the vents, for example, the damage will not be covered by the warranty. If the boiler’s damage occurred before a homeowner bought the home, the warranty may not cover it, because it is pre-existing damage.
The homeowner pays for the cost of the warranty per year. Home warranties cost from $350 to $500 per year. In addition, the contractor charges a service fee, usually approximately $100.
Sometimes, real estate agents or sellers add a home warranty to a home being purchased, because malfunctioning or breakage of major systems shortly after a sale is often the seller’s responsibility.
Several companies offer home warranties. Sears, for example, offers them, as does American Home Shield® and Total Protect.
Are They a Good Idea?
Now that we’ve explained what a home warranty is and what they cover, it’s time to consider whether they are a good idea.
From a consumer standpoint, a home warranty may not be necessary if the home you’re buying is new construction or the home is relatively new. Many states require the structure of a home be guaranteed for 10 years. Modular homes often come with a 10-year warranty as well. So, if your roof on a new home suddenly develops leaks, for example, the builder is likely required to repair or replace it.
Major systems like HVAC and major appliances are all likely under warranty in new home construction. It’s a good idea to check into the warranties for individual systems and appliances. Some may last a year, and others may last more. If all the individual appliances and major systems are already under warranty, purchasing another one would be a waste of money.
If you are buying an older home, however, a home warranty might make sense. Most systems and major appliances in a home need to be replaced when they reach a certain age, ranging from 15 to 30 years. The roof and siding need to be replaced every 15 to 20 years. If you believe a warranty would help cover the cost of replacement, it may be a good idea.
Warranties may also provide peace of mind to first-time homebuyers who are worried about the cost of maintenance and repair on a home.
Just be aware of what they do not cover. Leaky faucets, for example, are almost never covered by a warranty.
There might also be difficulties with the quality of the contractors. Some consumers complain the contractors home warranty companies send perform less-than-ideal repair and maintenance work.
Poor workmanship can be frustrating. It may result in either the system or appliance not working properly, or in the homeowner having to replace it or hire another contractor to fix it despite the warranty.
It’s a good idea to read reviews of warranty companies and their contractors before purchasing a home warranty.
While home warranties may be a good idea for buyers of older homes, especially for first-time home buyers, they may be redundant for purchasers of new homes. Many states require builders to guarantee the structure of new homes for a decade, and new appliances may already have individual warranties. Homebuyers should consider the pros and cons of purchasing home warranties.