Home buyers face many important decisions as they prepare to close on their new house. You may be offered a home warranty in the agreement with the seller, or you may consider purchasing one yourself.
If you’re in the process of buying a home, you should know what a home warranty is, how it works, and what its benefits and limitations are.
What Is a Home Warranty?
A home warranty is a contract that covers repairs and replacements for the major systems in your home, such as your HVAC, plumbing, and electrical systems. Most warranties have a term of one year, but the details can vary from contract to contract.
The seller of the home typically pays for the warranty. This can make the deal much more attractive for the buyer because it provides confidence and security, especially when they don’t know how old the house’s systems and appliances are.
However, buyers sometimes choose to purchase a warranty even though it’s not part of the agreement with the seller.
Most home warranty providers offer a basic, general plan with the option of adding extra components. If something that’s covered under the warranty breaks, all you have to do is call the provider.
The company has an agreement with local contractors and other professionals, so they’ll send someone to your home to fix the problem. If the system isn’t fixable, the warranty company will provide the replacement.
A home warranty offers extra support for homeowners in case they run into unexpected repairs in their new house. After you buy a home, much of your savings may be depleted due to closing costs and other fees. A major repair can be a big financial obstacle for new homeowners, so the warranty gives peace of mind.
Warranties also make the repair process simpler because you don’t have to research or reach out to local contractors. You simply call the warranty company, and your representative should take care of the rest.
Unfortunately, there are limits to what the warranty will cover. In most cases, items that aren’t properly maintained are not covered under a home warranty.
This can cause issues since proper maintenance isn’t a black-and-white concept, and you and your provider may have different ideas about whether a system has been properly maintained.
You also can’t control how the previous owner treated the home. If they didn’t maintain the appliances, you may not be able to use the warranty.
What Does a Home Warranty Cover?
Not all warranties offer the exact same coverage, but most cover at least the following components:
- Heating and AC units
- Water heaters
- Washing machine and dryer
- Oven, refrigerator, and other kitchen appliances
Your provider may offer add-ons for an extra fee. For example, you could opt to have your pool, sprinkler system, or septic system covered if you’re worried about those components needing repair in the near future.
Home Warranty Cost
As of 2021, home warranties usually cost between $300 and $800 for one year of coverage. Most homeowners or sellers pay for the warranty upfront, but some choose to pay in smaller monthly installments.
Like an insurance policy, your home warranty cost may vary based on the type of property and the amount of coverage you opt for. However, warranty prices aren’t usually affected by the age or size of the home unless the home is very large or brand new.
Most warranty providers charge a service fee on top of the premium. You should expect to pay between $75 and $125 each time a service provider visits your home. If you need more than one type of contractor for a repair, you may have to pay this fee multiple times.
If you’re paying for the warranty yourself, you can compare the cost of the premium and fees with the cost of common household repairs to decide whether a warranty is worthwhile. Heating systems cost about $4,000 to replace, and replacing a plumbing system can cost $5,000 or more. Clothes washers and dryers cost around $1,000 each. If you anticipate needing more than one major repair in your first year of owning the home, the warranty will likely save you money.
Most warranty companies do set cost limits or maximum payouts. Once you reach the limit, you can no longer receive the benefit. Be sure to read the fine print of your agreement to see exactly how much coverage you can expect from the warranty.
Home Warranty vs Home Insurance
It’s important to know the difference between a home warranty and a home insurance policy. While both help you cover expensive repairs, they serve different purposes.
Home insurance typically covers damage from events like fires, hailstorms, theft, or vandalism. It doesn’t usually cover the repair or replacement of old or worn out appliances.
A home warranty is not meant for assistance after an external event that damages your home. Instead, it’s intended for malfunctions that can happen when your home’s appliances or systems are old and used. Also, home warranties are optional for buyers, but home insurance is not.
When to Get a Home Warranty
It can be difficult to decide whether or not a home warranty is a smart purchase. Some people buy a home warranty and get great use out of it, and others purchase a policy and never use it.
If you’re buying a home with older appliances, a warranty is probably a good idea. Even if these items have been properly maintained throughout their lifespan, they may start to wear down soon. With a warranty, you don’t have to pay thousands of dollars to replace everything right after you purchase the home.
For some homeowners, the convenience of a warranty is the selling point. If you don’t know any professionals in your area, it can be easier to use a warranty provider as the middle man when scheduling repairs.
Although the premium and fees are relatively inexpensive compared to the other costs of buying a house, it is an extra expense on top of everything else you encounter as a home buyer. If you don’t end up using the warranty before it expires, it may feel like you’ve wasted hundreds of dollars.
A warranty may also not be ideal for people who are particular about brands. If you need an appliance replaced, you may not get much say in the brand or model. This can be frustrating for homeowners who are loyal to specific appliance companies.
A home warranty isn’t always a perfect solution, but it can be a great way to have peace of mind during your first year of homeownership, especially if the seller offers to buy it. If it’s not a part of your agreement, you could pay for your own warranty if you’re worried about facing costly repairs.
Be sure to do careful, thorough research into warranty companies to find the best provider, and ask for an opinion from a realtor or other professional who’s familiar with home warranties.