When you purchase a home, you can expect to have several added expenses. You expect and can plan for the mortgage and insurance, but most homeowners don’t anticipate the cost of repairs. Unfortunately, unexpected issues are bound to happen. When the summer heat hits, the air conditioner inevitably goes out, the dryer breaks or the water heater suddenly no longer heats the water. It’s times like this that homeowners question if it pays to have a home warranty.
A home buyer often negotiates with the seller to pay for a home warranty, but you don’t have to be a new to home ownership to purchase a home warranty. Some believe it is well worth it to renew a warranty year after year, while others believe it’s a waste of money. The reality is, it depends on the policy.
6 Things you need to know about a home warranty:
What is a home warranty?
A home warranty is a contract between a homeowner and a company that provides discounted repair and replacement service on a home’s major components. This usually includes the furnace, air conditioning, plumbing, electrical system and in many cases, even appliances and swimming pools.
Why do sellers offer them?
The seller may offer to purchase one on a buyer’s behalf to provide peace of mind that any component of the home that fails can be fixed affordably. If not, you will likely receive numerous mail solicitations to purchase a home warranty once the sale closes.
How much do they cost?
A home warranty typically costs a few hundred dollars a year, plus any service fees. When something breaks down, that is covered by the policy, the homeowner reports the problem and the home warranty company sends a repair person from a contracted service provider. This service fee typically runs anywhere from $75 to $125. If the repair requires two contractors to fix a problem, such as a plumber and a dishwasher repair expert, then the homeowner may have to pay the service fee for each contractor.
The benefits of a home warranty
A home warranty is not expensive compared to the cost of repairing a major appliance or component in the home. It can offer a financial buffer to cash-strapped home buyers who have used any and all liquid assets to purchase their house and have no emergency fund for expensive repairs. People with a taste for pricey appliances or those who don’t want to mess with finding a contractor when something breaks would likely benefit from a home warranty. A policy may also make sense for a home buyer who doesn’t have much information on how the property and its components may benefit. Home sellers can also use paid up home warranty policies to sweeten a purchase deal. For home sellers, offering the buyer a paid-up, one-year home warranty with the home purchase may provide a measure of protection against buyer complaints about any home defects that arise after the sale closes. However, providing a home warranty does not exempt the seller from her legal requirement to disclose any known problems with the home.
The Cons of having a home warranty
Having a home warranty doesn’t mean the homeowner will never have to spend a penny on home repairs. Some problems won’t be covered by the warranty, whether because the homeowner didn’t purchase coverage for that item or because the warranty company doesn’t offer coverage for that item. Also, home warranties usually don’t cover components that haven’t been properly maintained. Furthermore, if the warranty company denies a claim, the homeowner will still have to pay the service fee and will also be responsible for repair costs.
Another major problem with a home warranty is it will not cover items that have not been properly maintained. Figuring out what “proper maintenance” is has been a source of major conflict between home warranty companies and policy holders. One woman bought a home warranty. When her air conditioning unit died in the middle of the summer, she called in the repair only to be told, she hadn’t been changing the filters in her unit so the company would not repair or replace the unit. By not changing her AC’s filters, she had unknowingly violated the proper maintenance clause in her policy.
While having a home warranty eliminates the hassle of finding a someone to repair whatever is broken, it also takes away your freedom to choose an independent contractor, so if you don’t like the contractor, the work they do, or the brand of a replacement component you may be stuck.
The bottom line
Do your research before buying a home warranty policy. Find a reputable company and read customer reviews. Finally, read the fine print before making any purchase. Know exactly what the policy covers and what any coverage is contingent upon. Under the right circumstances, a home warranty has the potential to protect homeowners from unexpected and expensive financial hits.
If your home purchase does include a home warranty, it will be included in the information we receive at Landmark Title, when we sit down with you to sign documents and we transfer title. Should you have any questions about that process, we recommend contacting our Senior Escrow Officer in our residential department, Jonie Alden. For any other questions, contact our office at (602) 748-2800.