You have probably seen commercials for ‘Home Warranties’ or ‘Home Buyer Protection Plans’ but might not know what they are or what they do. If you are in the process of buying a new home you should definitely know what they are and if you should purchase one, or better yet have the seller provide one as part of the deal.
What are they?
The term ‘Home Warranty’ is a little misleading. When you think of a warranty you think of buying a new item with the guarantee from the maker of the product that it will work correctly for 5 years, or whatever the warranty period is, and that if anything goes wrong in that time, as long as it’s their fault (usually referred to as ‘manufacture defects’) you will get a new one.
With a house, this doesn’t directly transfer, since the home you are buying is probably re-sale and isn’t actually new and the company selling you the warranty didn’t build it. So a home warranty is more like extended home insurance that covers systems in the house instead of the house itself. If a tree falls on your garage, or a pipe bursts and destroys your wall, you call your home insurance, you pay your deductible and they contract to get it fixed. If your air conditioner just stops working, or a wired circuit in your main breaker panel keeps shorting out and tripping the breaker, your home insurance most likely won’t fix this and you will be paying everything. If you have a home warranty with this coverage, you pay them a deductible and they pay a contractor to fix or replace it.
This depends on a lot of things. When you consider the average plan cost around $400 a year, that really adds up over the period you live in a house. On the flip side, a new HVAC unit, or ever major repairs to one can cost thousands.
Factors you should consider:
- How old is the house and the major systems? Is the HVAC newer and still under manufacture warranty, or 20 years old and just waiting for an excuse to break.
- Do you have systems in the house that can still be repaired? (See my article ‘New HVAC Standards Could Cost Home Owners’)
- How handy are you? If your garbage disposal breaks can you replace it? Can you repair plumbing leaks?
- How many major appliances are toward the end of their expected life? (Water heaters, Stoves, Heating and Cooling units all have expected life spans)
- Do you know contractors you can trust, or would you just call one and hope for the best?
Having coverage is not always the most cost effective protection since you always have the option to put your own money away for systems you expect are close to needing repairs but one failed AC unit that has to be replaced because of new regulations or no access to repair parts covers the cost of a warranty for several years.
Your best bet is to talk to someone with experience in this area.
If you are considering one of these, make sure you go with a reputable company, and rely on the expertise of your agent. I get a lot of feedback from my clients on how their company handled a claim, and I also have home warranties on all my rental homes, so first hand experience is key. There can be a big gap between what you think is covered and how it’s covered and what the company will actually do when something goes wrong.
If you would like more information on Home Warranties or have questions about them, contact me.
I’ve worked directly with or have clients who have had experience with most of the major companies in the area, and my experience renovating homes has given me a lot of experience with the costs associated with repairing or replacing major systems.