Are home warranties worth it? Maybe, if you choose carefully
You’re buying a home. And you know money’s going to be tight for a while.
Will buying a home warranty keep you afloat if things go wrong? Or will it be a waste of money?
That depends on the specific contract you sign.
If you don’t research home warranties carefully, you could end up with a contract that costs a lot and offers very little protection.
But with some work on your end, you can find a home warranty that comes from a reputable company and truly has your back.
Here’s how to figure out if a home warranty is worth it for you.Request today's mortgage rates from top lenders (Dec 2nd, 2020)
In this article (Skip to…)
- What is a home warranty?
- Are home warranties worth it?
- Do you really need a home warranty?
- How to choose a home warranty
- Common home warranty contract issues
- How to research home warranty companies
- Seller-paid home warranties
What is a home warranty?
“A home warranty covers a specified package of home systems and appliances from defects in materials and workmanship; usually HVAC, pool equipment, washer, dryer, kitchen appliances and exposed plumbing such as garbage disposals, exposed electrical such as ceiling fans, etc.,” explains Timothy J. Meenan, Executive Director of the Service Contract Industry Council.
Home warranties shouldn’t be confused with homeowner’s insurance. “Homeowners insurance covers the homeowner against sudden and accidental damage from perils such as fire, wind, flood, etc.,” says Meenan.
Also, homeowners insurance is usually required by your mortgage company. But home warranties are totally optional.
Are home warranties worth it?
A home warranty might be worth it if it covers large, expensive issues, like:
- A leak in your roof or windows
- Problems with your pool
- A faulty HVAC or electrical system
- Plumbing issues, wells and septic tanks
- Appliances, such as washers, dryers, dishwashers and ovens
But, of course, the things actually covered by a home warranty vary by company. And there are always going to be exceptions in the fine print.
So you want to make sure you understand the contract and what’s included in your coverage before signing on.
Do you really need a home warranty?
Homeowners buy home warranties because they think they’re purchasing peace of mind. And with a solid contract from a reputable company, that can be true. But before you start researching, you should decide: Do you really need a home warranty?
You can figure that out by asking yourself a few questions.
- Did my home inspection report give me grounds to be worried?
- Are the risks I’m protecting myself already covered by builders’ or manufacturers’ warranties?
- Are appliances already covered by the extended warranties some credit card companies automatically provide?
You might find that you already have plenty of protection against the types of defects a home warranty covers.
Many appliances come with warranties for one to three years. Credit card companies might offer protection, too. So a home warranty might just duplicate a policy you already have.
If you’re not protected elsewhere, it may be worth looking into a home warranty a little further.
Here are some tips on how to read your contract and avoid common home warranty issues.
How to choose a home warranty
The only way to know what a home warranty includes — and more importantly, excludes — is to read it before you buy it.
If you’re thinking that doesn’t sound like much fun, you’re probably right.
Many home warranty contracts use language that’s tough to understand, and plenty of fine print that can hide major exclusions. Here’s what to look out for.
Common home warranty contract issues
The Office of the Attorney General of Washington DC lists some of the most common complaints homeowners have about their home warranty companies. These are things you’ll want to look out for when deciding whether a home warranty is “worth it” or not.
- Claim caps — For example, you need to replace an AC unit and furnace. The cost is $9,000 but the company caps its liability for any one claim at $2,000
- Deductibles — You have to pay the first $y of every claim
- Service fees — A fixed charge just for coming to your home, regardless of the cost of sorting out your issue
- Exclusions — We listed above some of the things a great warranty might cover. But some specifically exclude the more expensive of those
- Wider exclusions — You may find your claim rejected outright if you can’t show a broken item has been maintained in accordance with the manufacturer’s guidelines. Or if the problem has arisen through wear and tear or a natural disaster
- Repair only — Some won’t replace broken items, only fix them — where possible
- Not like-for-like — Some companies that do replace broken items supply only a specific brand of its choice. And it’s probably not one you would pick
- Poor service — It takes so long for the company to sort out your problem, you end up paying for urgent work and parts yourself
- Poor work — The company appoints your contractor, often based on price. And you have to live with any shoddy workmanship
- Arbitration — Your contract may bar you from taking the company to court. Instead disputes are resolved by arbitration tribunals, not all of which have reputations for fairness
If the contract you’re reading is riddled with fine print and exclusions like the ones above, it’s probably time to move on
How to research home warranty companies
You might save yourself some time (and a migraine) by spending a few minutes online, researching the company that’s offering the warranty you’re considering.
If it has a terrible reputation, you can recycle the warranty unread. Check the Better Business Bureau’s website. And type “[company name] complaints” into a search engine.
Every company that has loads of customers inevitably upsets a few. So don’t rule one out on the back of a small number of complaints. But take note if the general tone is unrelentingly bad.
Oh, and ask around your friends, neighbors, colleagues and family. If someone’s had good experiences with a home warranty provider, that’s a very positive sign.
Is a home warranty worth it if the seller is paying?
Sometimes, homeowners offer their properties for sale with warranties. While you don’t want to look a gift horse in the mouth, as a buyer you should be aware of the limitations some warranties have. So don’t rely on the one your seller provides without reading through it first.
And remember, the homeowner has zero incentive to buy a great warranty and every reason to get the cheapest. So be especially skeptical.
What about a seller that provides the warranty themself?
In lawyer-speak, a seller makes a warranty if she personally promises to pay to fix any issues you have with the home in the first x months after you buy it. Such promises may or may not be honored and you’re likely to struggle to enforce them in court.
So if you really need a home warranty, we’d recommend looking for one of those reputable providers rather than relying on a seller’s promise.
Home warranty FAQ
A standard home warranty policy lasts for one year.
It’s easy to confuse home warranties with home insurance, but the two are very different. Home warranties are offered by companies as service contracts. They can cover defects in the home, its systems, and appliances. They don’t cover damage caused by natural or man-made disasters, like an insurance policy does.
A home warranty typically lasts one year. As a buyer, you might want a two-year option, but be sure to ask about pricing. Better — negotiate with the home seller for 24 months of coverage if you can.
Home warranties cover different things, depending on the company and contract. Common things covered by home warranties include home systems like electrical, HVAC, and plumbing; and defects in large appliances, like washers, dryers, and refrigerators. Make sure you read all the fine print on a home warranty before buying to understand what’s covered and what exclusions apply.
You’re free to recommend a repair company to your home warranty provider. But ultimately it’s up to the provider to decide who makes the repairs.
Whether you call it a deductible or co-payment, there is usually some charge per service call. The purpose of the deductible is to shield the warranty company from little tiny ticky-tacky repair requests. That’s understandable, however, the deductible applies not to the overall policy but to each claim.
This is a mixed bag. If you have five claims there might be $500 in deductibles. On the other hand, if you have five claims $500 may be a bargain.
Also watch out too for caps on each claim. They may not be high enough to cover major repairs or replacements.
Are you buying a home?
If you’re buying a home today, current mortgage rates are still very attractive. You can find the best deals by comparing several quotes — whether you’re shopping for mortgages or home warranties.Verify your new rate (Dec 2nd, 2020)