When buying a home, we would like to think all the home systems and appliances are in good condition and will last a long time. But unfortunately, that is not always what happens. When buyers end up spending all our available money on the down-payment and closing costs, they simply can’t afford to replace an HVAC system, refrigerator, or range in the first couple of years they own a home. Many Realtors are offering home warranties as part of the incentive to purchase the home. This is a great idea.
What Is a Home Warranty?
A home warranty is often called a home protection plan. This is an annual service agreement that is designed to cover major appliances and working systems in the home. When a covered appliance or system breaks down over the period of the contract, the homeowner saves the expensive repair costs. The homeowner will pay a small monthly or yearly fee and then a set service fee each time a repair is needed. Who may need a home warranty?
When Buying a Home Warranty is a Good Idea
People most likely to benefit from buying a home warranty include homeowners who:
- Want to limit the amount they must pay out of pocket for unexpected repairs or even worse, replacements, of home appliances or systems
- Own an older home with older appliances and systems
- Are first-time buyers who want all the home appliances and systems protected
- Sellers want to purchase a home warranty for the home buyer as an enticement to buy
- Are new to the area and are not familiar with local repair companies
- Are in a demanding profession with no time to take care of broken appliances or home systems and want the convenience of a home warranty service
- Are handicapped or otherwise physically or developmentally challenged and need the support of a home warranty service provider to live independently in their home.
- Do not want the hassle of looking for a repair service for each system or appliance that breaks down. With a service contract, it only takes one phone call and the home warranty company takes care of everything.
When It Doesn’t Pay to Buy a Home Warranty
Some people will not benefit from purchasing a home warranty. They include:
- New home buyers because everything is new and under builder and manufacturer’s warranties
- People who buy fixer-upper homes planning on remodeling and replacing systems and appliances as money allows
- People who may not have a lot of extra money but are good at doing their own appliance and home system repairs
- Homeowners who have just remodeled their homes, replacing old appliances and updating systems
- Home buyers who already have seller’s guarantees on the condition of the home’s appliances and systems
When a homeowner is deciding whether to purchase a home warranty, they must consider the likelihood of appliances and home systems malfunctioning. Then they should compare the home warranty cost with the common repair or replacement costs for major appliances or systems. If the person is in the process of purchasing a home, having a home inspection can help with the decision by inspecting every appliance and home systems such as roof, electrical, and plumbing.
How Does a Home Warranty Differ from Homeowner’s Insurance?
Homeowner’s insurance is required by most home lenders and covers major risks such as hail, fire, some water damage, property crimes and other disasters that could harm the whole structure and the possessions inside it. Homeowner’s insurance policies come with deductibles.
A home warranty is like a contract agreed to by a homeowner with a home warranty company that promises reduced repair costs or replacement service for the home’s appliances and major operating systems. These could include HVAC, electrical and plumbing systems, covered appliances, washers and dryers, swimming pools, and more. These items may not be covered with homeowner’s insurance or the repair costs would be less than the insurance deductibles.
You do not choose one or the other, you choose only homeowner’s insurance with its limitations or purchase both to be better protected from unexpected repair bills. The home warranty has a small monthly or yearly fee and a small service fee for each repair. The home warranty company has repair professionals under contract and calls them for the customer. The contractors work for the home warranty company for fixed fees that are negotiated periodically.
What Do Home Warranties Cover?
It is important to read each home warranty company contract when deciding who to sign up with. All contracts are not created equal. Often a contract will list certain systems and appliances that are covered and then optional appliances or systems to add at an additional cost. They will also list the limitations and rules of coverage.
The systems covered may include:
- Air conditioner and furnace
- Electrical panel wiring
- Water heater
The appliances covered:
- Built-in microwave
- Wine cooler
- Well pump
- Washer and dryer
- Septic system
- Stand-alone freezer
- Pool and spa equipment
- Extended pipe leaks
- Water softener
- Beams, lintels, and girders
- Roof and framing system
- Load-bearing walls and partitions
- Floor framing
- Distribution systems
- Footings and the foundation system
It is the responsibility of the homeowner to make sure everything they want to be covered is in the contract. Then, a person must know what the added items add to the contract. Once the items to be covered and the added cost are agreed to, it is time to read the fine print and warranty limitations.
Home Warranty Limitations
Home warranties have written limitations that include cosmetic damage is not covered, appliances that have been misused or neglected are not covered, and damaged appliances or systems covered under homeowner’s insurance are not covered. Home warranties will not cover appliances that have been modified. Appliances or systems that were broken before the contract was signed are not covered. The home warranty company may send an inspector out to look at all the covered items before the contract is finalized.
Home warranties generally do not cover damages from pests, items under the manufacturer’s warranty, or items that were installed improperly or not maintained as recommended. Home warranties also do not cover secondary costs for installing replacement appliances or systems such as an electrician, a plumber, or secondary damage caused by a malfunctioning appliance such as flooded floors.
Before signing on the dotted line, read the home warranty carefully and understand the coverage. When there is a problem with an appliance or a home system, reread the warranty contract before calling for service to make sure the problem is covered. If a repair service comes out and your repair is not covered, you will still be charged the service fee.