When you purchase a home, even a home that isn’t new, there is a very good chance that you will be offered a home warranty as a safety net against expensive, unforeseen repairs. Repairs are an inevitable part of living in a home. Appliances break, faucets leak and HVAC units can stall in the middle of a heatwave. It may sound like a great form of financial protection—but is it really the safety net that homeowners expect?
What Is a Home Warranty?
Most home buyers and sellers find buying a home warranty to be an effective way for all parties to mutually benefit from a home protection plan. Whether you buy, sell, or rent property, buying home protection plans are an ideal way to access a network of licensed and qualified professionals. Buying a home is usually the biggest purchase of your life and making sure the property is covered from unforeseen repairs is typically a must-have for most homeowners particularly first-time home buyers with no experience maintaining a home.
Home sellers eager to sell their property but also protect it from major damages during the selling process are increasingly buying one-year home warranty plans as part of the home sale offer. As a way to protect a property from damages while the home is listed for sale, real estate agents are also interested in purchasing home warranty plans. They may also purchase a plan to entice or thank the home buyer as well. To help protect the property while renting, rental property owners can receive optimal protection of the home while also shouldering those home protection plan costs to the renter.
A home warranty is not the same thing as homeowners insurance, which covers major perils such as fires, hail, property crimes, and certain types of water damage that could affect the entire structure or the homeowner’s 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 swimming pools.
Often homeowners insurance doesn't cover these components. Or, the cost of fixing them (while expensive) wouldn't meet the policy's deductible—the dollar point at which insurance coverage kicks in.
Most plans have a basic component that provides all homeowners who purchase a policy with certain coverages. Homeowners can also purchase one or more optional components that provide additional coverage at additional cost.
NOTE: Home warranties often come up when purchasing a home. The seller may offer to purchase one on your behalf to provide peace of mind that any component of the home can be fixed affordably—if not, you will likely receive numerous mail solicitations to purchase a home warranty once the sale closes.
Home warranty companies have agreements with approved service providers. When something that is covered by a home warranty breaks down, the homeowner calls the home warranty company, which sends one of its service providers to examine the problem. If the provider determines that the needed repair or replacement is covered by the warranty, they complete the work. The homeowner only pays a small service fee, plus the money already spent to purchase the warranty.
What Does a Home Warranty Cost?
A home warranty costs several hundred dollars a year, paid up-front (or in installments, if the warranty company offers a payment plan). The plan’s cost varies depending on the property type—single-family detached, condo, townhouse, or duplex—and whether the homeowner purchases a basic or an extended plan.
The cost usually does not vary with the property’s age, unless the home is brand new, which increases the cost of coverage. The home’s square footage also does not affect the price in most cases, unless the property is more than 5,000 square feet. Separate structures, such as guest houses, usually are not covered by the basic policy but can be covered for an additional fee. However, garages should be included as a standard feature of a warranty.
In addition to an annual premium, home warranties charge a service call fee (also called a trade call fee) of around $60 to $100 every time the warranty holder requests that a service provider come out to the house to examine a problem. If the problem requires more than one type of contractor to visit (e.g., a plumber and an electrician), the homeowner may have to pay the service fee for each.1
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. (More about this drawback below.) 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.
The Benefits of a Home Warranty
Like all warranties, a home warranty is supposed to protect against expensive, unforeseen repair bills and provide peace of mind. For a homeowner who doesn’t have an emergency fund or wants to reserve it for other things, a home warranty can act as a buffer.
Home warranties also make sense for people who aren’t handy or don’t want to worry about tracking down a contractor when they have a problem. Warranties can also make sense for people with expensive tastes in appliances.
The subject of home warranties often comes up during the sale and purchase of a home. A home warranty can provide reassurance to a home buyer who has limited information about how well the home’s components have been maintained or—in the case of new construction—how well the home has been built. A warranty can also be helpful for people who have just depleted their savings to buy a home and want to avoid any additional major expenses.
For home sellers, offering the buyer a paid-up, one-year home warranty with the purchase may provide a measure of protection against buyer complaints about any discovered problems or defects that arise after the sale closes. However, providing a home warranty does not exempt the seller from the legal requirement to disclose any known problems with the home.
What Don’t Home Warranties Cover?
Home warranties will cover the cost of repairing many appliances and household systems. The extent of the coverage depends on the warranty company and what level of coverage you purchase.
However, some common items are generally excluded:
- Structural issues in foundations, walls, paint and flooring
- Commercial-grade equipment or systems
- Pre-existing conditions
- Normal wear and tear
- Rust, corrosion and sediment problems
- Improper maintenance, installation, design, manufacturer defect or previous repairs outside of the contract
- Detection and removal of asbestos, radon gas and mold
- Building and zoning code violations
Unlike home insurance, a home warranty is not mandatory when moving into a new home. However, whether you’re purchasing a brand-new home or a previously owned one, it’s important to consider if it’ll be beneficial to get a home warranty in the long run. For instance, if your home inspection reveals several of the home’s appliances and systems are nearing their lifespan, a home warranty could help reduce any future repair or replacement charges.
For more peace of mind about your home sale, partner with an experienced, top-performing agent who can guide you on your home warranty options. Let's connect!