If you're a first-time home buyer or landlord, how do you decide if a home warranty is worth the investment? As with most decisions, it comes down to your specific details, including budget, availability, and know-how to take on the repairs (or outsource to competent providers).
Depending on the homeowner’s circumstances and the condition of the property, a home warranty can be a huge relief and provide a sense of comfort. But some experienced homeowners may consider the coverage unnecessary because they feel they can handle the repairs on their own more quickly and cost-effectively.
Deciding whether to buy a home warranty is usually one of the first steps to buying a house and building an accompanying budget. If you're considering purchasing a home warranty, these are the essential questions to ask.
What Exactly Is a Home Warranty?
The concept is actually very straightforward; it's not until you get into the minutiae of the contract that the devil lurks in the details. A home warranty is a service contract with a company to cover the repair and/or replacement of home systems.
The basics of coverage are similar across the board from service provider to service provider, such as the length of the coverage (usually one year) and, in broad terms, what's covered: kitchen appliances, water heaters, plumbing, electrical, and heating systems.
Commonly covered in a home warranty:
- Attic and exhaust fans
- Built-in microwaves/range hoods
- Plumbing stoppages
- Sump pumps
- Smoke detectors
You can augment basic coverage, at a higher cost, to address additional breakdowns in pool and spa equipment, washer/dryer, refrigerator, air conditioning, and well pumps. The region of the country where the property is located also affects the service contract terms and pricing, and whether the contract is a negotiating piece of a real estate transaction.
How Does a Home Warranty Work?
In an ideal scenario, you’d make a few phone calls, and the repair or replacement would go smoothly and quickly.
- When a fix is needed, first call your provider to report the problem.
- Next, your company will send a professional who has contracted with your chosen warranty provider.
- A pre-designated fee is paid to the contractor, and they will begin the task of identifying the problem and determining the best solution.
- After completing the repair, the contractor is then paid by your warranty provider.
Sometimes, this description is very much the case, and everybody wins. Other times, the recommendations given by the contractor suffer through a slow approval process appointed by the warranty company. Scheduling difficulties can also arise from availability issues between the warranty provider, homeowner, and contractor.
If you’re a first-time home buyer, take note—you may be denied the repair for a multitude of reasons, including a preexisting condition, which can result in a rejected claim. To re-attempt coverage, you must follow up with rebuttals and claim resubmissions. If you're unhappy with the contractor who initially arrives, some warranties allow you to request another. But if another contractor returns to the house, you’ll likely pay another service fee to reassess.
You don’t know what you don’t know, right? 6 Plumbing Tips for First-Time Homeowners will teach what to look for.
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What's the Difference Between a Home Warranty and Homeowners Insurance?
Homeowners insurance and warranties are commonly misunderstood when compared to one another. They sound very similar, but actually provide different coverage and cannot be used interchangeably.
Homeowners insurance is designed to protect the structure of the home from major risk factors such as severe weather, theft, and the resulting problems that occur from system or appliance failures (like fires). Homeowners insurance also provides liability coverage in case there is an accident on your property and results in legal proceedings. Homeowners insurance is so important that the vast majority of mortgage lenders require the coverage.
Home warranties, on the other hand, were created to cover the systems and appliances that are in use every day, like a water heater and air conditioning unit. It's normal for these to have a limited lifespan and eventually fail. Home warranties provide a buffer and protection from paying full price from your bank account for these typical problems.
Tips for Choosing a Homeowners Insurance Policy will help you decide on an insurance provider.
Who Should Buy a Home Warranty?
Traditional Homeowners
As a homeowner, you can only do so much to protect your assets, and buying a warranty is one of the proactive steps when buying a house. Purchasing a home warranty is a good way to prepare for unexpected breakdowns. If peace of mind is a significant factor in creating a household budget, a home warranty could be a good fit for you. Knowing you're covered from expensive repairs or replacements is a valuable way to get a better night’s sleep.
Appliances that are over four years old are usually no longer covered by the original warranty from the store, meaning any repairs are entirely up to you. In this age of rapid technology, your appliance might become outdated and unfixable in less time than in the past, simply because the parts aren’t made anymore or the model is updated way beyond the current appliances’ capabilities.
Long-Distance Military Landlords
Long-distance military landlords often benefit from buying a home warranty, and your tenants will be relieved not to bear the burden of upkeep. A major crisis will inevitably occur on your property if you're deployed or stationed far from the house, leaving your renters with the cleanup and nuisance of finding quality repair companies.
A home warranty eliminates the need to search for providers. However, you should consider the legitimate concern as to who pays for the service calls, how often, and how much. The only way to avoid confusion about payment is to explicitly write in the lease how the warranty is handled, including renter reimbursement.
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What Are the Downsides of a Home Warranty?
The benefits of a home warranty are obvious: peace of mind and the potential to save money as a homeowner. But it's wise to prepare for the downsides of purchasing a home warranty.
Understanding Coverage Limits
The chief complaint of those who buy a home warranty is the misunderstanding of what exactly is covered. The fine print is strewn with exemptions and complex legal language.
It's critical to reread any portion you're unsure of and ask the provider as many questions as necessary, especially regarding coverage limits. A trusted real estate agent is a good source for reference.
Cancellation and renewal clauses vary between warranty providers. Military families on the move need to be aware of transferability measures or the ability to end coverage.
Maintenance Requirements
Routine maintenance is required for any system or appliance to be repaired under the warranty terms. This might be a professional service provided by an HVAC company or assistance from a plumber, or it could be as simple as changing and cleaning filters.
In some circumstances, the lack of maintenance will be apparent, and the contractor is required to report this condition, which leads to non-coverage.
Repair vs. Replacement Delays
The home warranty company will always try to repair the issue instead of immediately replacing the broken item or parts. This is frustrating because timeliness is not on your side when it comes to ordering requests, waiting for part delivery, and rescheduling an installation appointment.
The warranty provider may research a particular problem to see if it's been addressed previously, even if it was a DIY job attempted by the homeowner. If so, they aren’t required to cover the repairs or replacement. The warranty company’s research techniques include investigating previous home inspections and exploring previous service calls related to the same issue. Appliances in particular leave paper trails from previous contractors.
Is a Home Warranty for You?
The biggest takeaway from deciding if a home warranty is beneficial to you is understanding the details of the contract. Expecting an issue to be covered and finding that it's not defeats the purpose of a warranty.
In the end, warranties are as inclusive as you’d like to pay for, so it makes sense to compare quotes from industry leaders in your area to get the best coverage and premiums.
Homeownership isn’t always easy. Sometimes, a home warranty is a tool that can make owning a house a little less challenging. Before buying coverage, you’ll have to consider your budget, availability to work on repairs, and your home’s current condition to decide if a home warranty will work in your favor.
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