Is a home warranty worth it?
A plan is only as good as its coverage
A home warranty is a service contract that covers specific repairs or replacements due to normal wear and tear. In theory, it can give anyone the peace of mind of not worrying about how they would pay for unexpected home repairs. It’s also worth considering for the convenience factor and cost benefits when buying or selling a house.
- A home warranty could be worth it if you’re buying a new house or selling an old house.
- Comprehensive plans start around $60 per month ($1,200 to $1,400 annually).
- Most home warranty company complaints relate to unpaid claims.
Is a home warranty worth the money?
Whether a home warranty is worth the money “ultimately depends on your individual circumstances and the age and condition of your appliances and systems,” according to David Light, chief development officer at Land Broker Co-op. Often, it’s worth it in a couple of scenarios:
- When you’re selling an old home: Incentivizes potential buyers because it guarantees the home's systems and appliances
- When you’re buying a new home: Financial protection during the first year of homeownership, when unexpected repairs can be costly
According to Eddie Martini, a strategic advisor at Real Estate Bees, warranty plans can be a great investment for homeowners, “especially a first-time homebuyer who may not be used to having unexpected expenses like an oven needing to be replaced or bigger-ticket items like an HVAC system."
Martini continued: “Once you start to see that the cost of a home warranty would be a fraction of these big-ticket appliances, you see the value in transferring that risk to the home warranty company."
On the other hand, Light said, it's worth noting that home warranties aren’t always worth the cost: “It may not be necessary if you have newer appliances or a larger emergency fund.” The cost of a home warranty will likely outweigh the benefit if you do not need major repairs.
So, you should probably skip it if you’re buying a brand-new home with new appliances that are under a manufacturer’s warranty or you already have enough savings to pay for repairs and replacements out of pocket.
» CHECK THE NUMBERS: Home maintenance costs
How home warranties work
A home warranty helps cover costs to repair or replace certain systems and appliances in your home when they break down. The contract usually lasts for one year, but some companies offer multiyear plans for a discount or month-to-month plans with no commitment.
When you file a claim, you contact the home warranty company, and it sends out a contractor from its network. You pay a service call fee, which is specified in your contract. As long as the repair is covered under the terms of your agreement, the contractor makes the repair or replacement, and the home warranty company pays for the cost.
Home warranty contracts do have payout limits and restrictions, which is why it’s important to read the fine print carefully before you sign up. Here is what’s typically covered and not covered.
- HVAC system
- Plumbing system
- Electrical system
- Water heater
- Clothes washer
- Clothes dryer
- Range, oven and cooktop
- Structural elements
- Preexisting conditions
- Improper installation or maintenance
- Code violations
- Unusual wear and tear
- Anything covered by insurance
How is a home warranty different from insurance?
A home warranty is never required by law.
A home warranty seems similar to homeowners insurance, but there are key differences. Warranties cover breakdowns caused by normal use, while insurance covers damage from perils.
- Home insurance coverage: Applies to damage and loss caused by natural disasters or unexpected events (fire, storms, theft, vandalism, etc.) and covers your liability if someone is injured on your property
- Home warranty coverage: Applies to appliance and system breakdowns from routine use
For example, if your air conditioner suddenly stops working, you can call the home warranty company and it will send someone to fix it or replace it for you. But if your air conditioner is damaged in a fire, you would call your insurance company to pay for a replacement.
If you have a mortgage, the lender will require you to purchase a home insurance policy. Home warranty plans, however, are always optional. In this way, a home warranty is more like an extended car warranty than home insurance.
» MORE DETAILS: Home warranty vs. home insurance
Home warranty pros and cons
Appliances can break down, pipes can burst, and HVAC systems can malfunction, leaving you with unexpected repairs or replacements that quickly add up. In the best-case scenario, you have a home warranty to cover the expenses.
- Predictable costs
- Peace of mind
- Potential savings
- Repairs might take longer
- Confusing fine print
- Service call fees
- No coverage for preexisting conditions
One of the potential downsides is that repairs can take a long time. A ConsumerAffairs reviewer in Texas got coverage for their washer and dryer, and the company “gave us back $1,300. We still had to put $700 out of pocket on the replacement, but it was better than nothing. The only thing was the process was a little bit painful and it was too slow.”
But what if the company doesn’t honor your claim at all? Then you’ve paid hundreds of dollars toward nothing. In some cases, you might be better off looking into alternatives to pay for home repairs, like a credit card, personal loan or home equity line of credit (HELOC).
Frequently asked questions
Does a home warranty cover roof repairs?
Some home warranty companies offer limited roof leak coverage as part of an upper-tier plan or as optional add-on coverage. Check the contract for exclusions and limitations— specifically, about the maximum payout, which types of roofs are excluded, items that penetrate the roof, gutters and downspouts.
How much does a home warranty cost?
A basic home warranty typically costs between $450 and $600 per year and can often be paid monthly, with an average monthly cost of $40 to $60. In addition to the yearly cost, there are also service call fees charged by home warranty companies each time a repair is needed, typically ranging from $75 to $150.
The cost of the home warranty can vary based on several factors, including:
- Level of coverage: Home warranty plans typically offer different levels of coverage — higher levels of coverage cost more than basic plans. Comprehensive coverage costs between $1,200 and $1,400 per year.
- Age and condition of the home: The age and condition of the home can affect the cost of a home warranty. Older homes or homes with older systems and appliances may have higher costs due to a higher likelihood of repairs or replacements being needed.
It's important to compare the cost and coverage of different home warranty plans from different providers to find the best option for your needs and budget. Some home warranty providers may offer discounts or promotions, so it's also a good idea to ask about any available deals.
» MORE DETAILS: How much does a home warranty cost?
In what scenarios does a home warranty make sense?
According to Theresa Raymond, a real estate professional and broker who has been involved in hundreds of home, cabin and lot transactions, a home warranty can make sense if you have an older house with older appliances, a limited emergency fund or a busy lifestyle.
- Older houses with older appliances: Buying a home warranty makes perfect sense if you have an older home with older systems and appliances. These systems and appliances are more prone to breakdowns, so you may need more frequent repairs. In this case, a home warranty can be a good investment for you to get peace of mind and to protect against unexpected expenses.
- Limited emergency fund: A home warranty can be an excellent investment for you to protect against unexpected expenses if you don’t have a good amount of savings or an emergency fund to cover your unexpected repairs and replacements.
- Busy lifestyle: If you don’t have the time to handle repairs and maintenance, a home warranty might be the most convenient way for you to manage the repairs and replacements.
» COMPARE: Best home warranty companies
Does a home warranty cover roof repairs?
Some companies offer limited roof leak coverage as part of an upper-tier plan or as optional add-on coverage. Read the contract for exclusions and limitations — specifically, check the maximum payout, which types of roofs are excluded, whether it covers items that penetrate the roof and what coverage is available for gutters and downspouts.
What are some common misconceptions about home warranties?
Too many people think that a warranty will cover everything in their house — it won’t. Others still get it confused with home insurance. We asked Jon Morgan, CEO of Venture Smarter, a consulting firm that works with startups and small businesses, to clarify these three common misconceptions:
- A home warranty covers everything in the home: While a home warranty does cover many major systems and appliances, it does not cover everything in the home. Items like outdoor fixtures, structural components and preexisting conditions are typically not covered.
- A home warranty will pay for all repairs: A home warranty will only cover repairs that are specifically listed in the contract. It is important to read the contract carefully to understand what is covered and what is not.
- A home warranty is the same as homeowners insurance: This is not true. A home warranty is a service contract that covers the repair or replacement of major home systems and appliances that break down due to normal wear and tear. Homeowners insurance, on the other hand, covers damage caused by unexpected events like fire, theft or natural disasters.
Are there different types of warranties?
Yes, there are several types of warranties. When you buy something new, it might come with a manufacturer's warranty. This is a guarantee of performance — if a product doesn’t function as advertised or promised, then the company pays to repair or replace it.
Like extended car warranty companies, home warranty companies are third parties that offer coverage after the original manufacturer’s warranty expires.
There are also different types of home warranties. For example, a homebuilders warranty is a type of warranty that is offered by the builder of a new home or newly constructed property. It provides coverage for structural defects or issues that may arise with the home's major components, such as the foundation, framing and roof, within a specified period of time after the home is built.
Additionally, seller warranties are typically offered as an incentive to potential buyers; buyer warranties are purchased when you buy a new home.
» COMPARE: Buyers vs. sellers home warranty
What should I look for when comparing providers?
A home warranty is only as good as the coverage it provides. That’s why it’s so important to choose a good provider and understand the plan before you buy.
“To avoid confusion, it's essential for homeowners and homebuyers to thoroughly read and understand their home warranty contract, ask questions and clarify any doubts before purchasing or relying on a warranty for repairs and replacements,” said Jordan Woolf, CEO of We Buy Houses In Bama, a real estate development company in Huntsville, Alabama.
Bottom line: Should I get a home warranty?
A home warranty can help homeowners on a tight budget by providing coverage for unexpected repairs, which can be especially important for major systems or appliances.
It also makes sense for home sellers to offer a home warranty as an incentive to potential buyers, as it can give buyers confidence in the condition of the home's systems and appliances.
However, if you’re buying a new house, it’s likely that your appliances are still under the manufacturer’s warranty. Still, you might consider getting coverage for your systems (heating, interior plumbing, etc.).
For some, it’s also worth it for the sense of security. You have to pay a little bit of money every month or every year for the warranty, but it can save you a lot of money in the long run if something in your house breaks and you need to get it fixed or replaced.
Like a lot of things, maybe you’d rather have one and never use it than need one and not have it.
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