Do You Need a Home Warranty?

While your home is brand-new, it is likely that you'll be offered a home warranty as a monetary protection against very costly, unanticipated repairs. It may initially seem like an easy way to financially hedge against costly, unexpected repairs, but is that actually the only thing that they're suitable for? Let's find out if home warranty are worth it.

Key Takeaways

• A home warranty provides the buyer and the seller with protection against home defects that arise after the sale. 
• The customer isn't really protected with the improper maintenance clause common in home warranties, as the seller may not have adequately maintained the property.
• Homeowners may not have a great bargaining power when it comes to the model and brand of a replacement component, or may not like the contractor they hired. 
• Instead of purchasing home protection insurance, it may be more beneficial to put funds in an emergency fund to use as a reserve for necessary repairs.

What Is a Home Warranty?

A home warranty is not the same as home insurance, which does not insure against destruction generally, fires, hail, thefts, and certain types of water damage such as to the structure of the house or personal possessions.

A home warranty is a contract between a homeowner and a home warranty company that provides for discounted repair and replacement service on a home's major components, such as the furnace, HVAC, plumbing, and electrical systems. A home warranty may also cover major appliances, such as washers and dryers, refrigerators, and pools.

Homeowners insurance coverage frequently does not cover the expenses of repairing these kinds of appliances. Or, the expense of repairing them (if they're pricey) might not meet the existing deductible by the time the insurance kicks in.

For instance, most insurance policies have some basic coverage that gives people buying one with some protection. Homeowners may also purchase one or more additional optional components that give increased coverage at an additional cost.

Home warranty agencies affiliate themselves with authorized service providers. If a product that is covered by a home warranty breaks down, the homeowner calls the home warranty agency, which dispatches one of its service providers to inspect the issue. If the provider realizes that the repair work requested by the homeowner is covered by their warranty, they complete the service. The homeowner only pays a small service fee, plus the money already spent on the warranty.

What Does a Home Warranty Cost?

A house warranty costs several hundred dollars per year. The deal costs differ depending on the type of property (a single-family detached home, a condo, a townhouse, or a duplex), as well as whether homeowners purchase a basic or an extended warranty.

The sum of the premium typically does not increase in direct proportion to the age or size of the home, except if the home is new. The property value of the home has no bearing on the premium price unless the home is more than 5,000 square feet. The mobile country cottage is usually covered under the basic policy or can be added for an additional fee. Garages need to be included as standard features of the warranty.

Some home warranties cost customers a fee of around $60 to $100 if they request a service technician to check things out. If the problem requires more than one type of specialist to visit (e.g., a plumber and an electrician), the homeowner may have to pay the service fee for each.

Having a homeowner's warranty doesn't imply that the home-owner will never have to pay any money for home repairs. Some conditions will not be covered by the warranty, whether because the homeowner did not purchase protection for that object or because the house warranty company does not offer protection for that item. 

Home warranties do not cover repairs to parts that have not been properly maintained. (Also about this policy, find out more below.) Furthermore, although the warranty company denies a claim, you will have to pay for the service fee and will also be accountable for repair costs.

The Benefits of a Home Warranty

A home warranty is supposed to be utilized to protect against unforeseen repair costs and provide peace of mind. For a homeowner who does not have an emergency fund or is saving it for something else, a home warranty can serve as a buffer.

Home warranties can also make sense for people who are not handy or do not want to think about finding a contractor when something is wrong with them. Home warranties may be useful for people who desire costly technological appliances.

The subject of the implicit warranty of homes is likely to be a major topic of conversation during the purchasing and selling of a home. The presence of a warranty in a home can provide added peace of mind, particularly to an homebuyer who has limited knowledge about a home's components and about the quality of the construction materials that were used for the building of the home. People who have just run out of credit cards and extra cash might benefit from warranties.

Offering home sellers an added warranty along with the sale of their home may help home sellers protect themselves from buyer complaints about any discovered problems or defects after the sale. Nevertheless, a home warranty does not excuse home sellers from disclosing any known concerns to the property.

The Drawbacks of Home Warranties

Some of these disadvantages of home warranties.

Maintenance Gray Area

One prominent problem with a home warranty is that it does not cover items that are not properly maintained. Depending on the make of your home, what is paid for maintenance can be a gray area that results in many disagreements between home warranty companies and warranty holders.

Incorrectly maintaining guarantees may enable the guarantee company to deny valid claims in a dangerous scenario. Conversely, the homeowner and the contractor who constructed the house may simply disagree over what counts as proper maintenance.

Another issue is that purchasing a secondhand home may bring with it an old furnace that the previous owner didn't keep up. At that point, no matter how properly maintained the new homeowner attempts to look after the furnace, the previous neglect can't be resolved and any loss can't be recovered. Warranties have a variety of exclusions and limitations, depending on the type, purpose, and price of the service.

A home warranty generally is not expensive compared with the high cost of totally repairing or replacing a home's most important components, making this a main selling point. In most cases, however, the house does not malfunction or wear out for a long time.

Opportunity Costs

In these years, the homeowner gets absolutely nothing (apart from, perhaps, peace of mind) in exchange for her premium. If that money had been invested in an emergency fund, it would at least have accrued interest. A homeowner who has her claim denied will also feel like the money spent on the premium and the call service fee were wasted.

Home warranties won't force you to hire a contractor every time something goes wrong, but they take away your right to choose your own skilled and novice electrical contractor of choice if you don't want to use the warranty to cover the repair or maintenance. If you do not like the contractor or the job done, you're out of luck. The homeowner usually has limited say in the building or type of a required replacement component, but the warranty should specify appropriate treatment for a duplicate or interoperable product of equal function.

Furthermore, the procedure of handling a third party (the home warranty provider) may be more complicated than it is when a homeowner deals with a contractor directly.

Conclusion

Buying a home warranty can't compensate homeowners for all the dangers and hidden fees they endure. In case a seller is eager to offer you a home warranty, it is all right, but you shouldn't purchase it without studying the fine print from the contract carefully.

Homeowners and home sellers who would want to offer a warranty to a buyer may also desire to do careful research to locate a reputable home warranty company that uses reputable contractors and will pay legitimate costs for service when they're made.