Solved! Do I Need a Home Warranty?
Home warranties may look like an extra expense that you don’t need, but both during a sale of a home and later in home ownership, these tools can protect your investment and save you money.
Q: Several of the home listings I’ve seen recently have included a home warranty, but the one I’d like to buy does not. I will have homeowners insurance—do I need a home warranty?
A: There are a number of situations in which a home warranty can be a great option. In order to decide if it’s the best option for you, you’ll need to evaluate the home itself, including its age, condition, and the condition of the systems and appliances, along with your DIY skills.
First, what is a home warranty? A home warranty is a service contract that is signed with a warranty company to cover the cost of the maintenance and repair of all the whole-house systems (such as electrical, plumbing, and HVAC) and appliances that are listed in the contract. You’ll pay an annual fee to purchase the policy, and then when a service call is necessary, you’ll pay a small service fee similar to an insurance deductible or medical copay.
The contract itself is often the key to whether or not the home warranty is worth the expense: That contract will include exactly what is covered, what is not covered, actions that will void the warranty, the cost and frequency of the service charge, and the caps or maximum payouts per event and year. This document is critical reading before you decide if that warranty will work for you.
Certainly there are homes that don’t immediately appear to need a warranty: New construction homes are often covered for a full year by the builder’s policy, and homes that have been well maintained or have newly installed systems and appliances are less likely to experience failure. But the warranty is not the same as your homeowners insurance policy, which specifically excludes damage or failure that results from regular wear and tear or age and doesn’t cover appliances at all.
The home warranty is sort of like a home appliance insurance policy that will cover the cost of repairing or replacing any appliance that is included in your policy—even if (especially if!) it stopped functioning because it was just old. Combining a homeowners insurance policy, which will cover damage resulting from weather, accidents, fire, and outside forces, with a home warranty that covers maintenance and age-related failures will provide a web of financial protection around your home.
So when do you need a home warranty? There are many situations in which a home warranty is appropriate.
A home warranty is a good idea if you don’t have the time or the skill set to fix appliances and systems in your house on your own.
Whether you’re a new home buyer or have been settled into your forever home for years, there will always be maintenance and repair projects waiting to be completed. Some homeowners have a lot of knowledge about these projects; they can rewire a new electrical outlet, replace the drain on the washing machine, or fix a leaky pipe. If you’re not handy or have never learned how to do these things—or you’re simply too busy—you’ll need to call in a professional to help. Sometimes it’s just easier and faster to pay someone with the know-how to come repair a problem.
But once you start making service calls, you’ll learn how expensive a simple fix can be, often before the repair even begins! Home service repair professionals are skilled workers, and you’re paying for their experience as soon as they walk in the door. Because of this, homeowners often put off having small maintenance issues corrected for fear that a larger, even more expensive problem might be discovered—which just gives the leak or the blockage time to get worse. If you have a home warranty, you’ll pay the predetermined service charge included in your contract, and the remainder of the repair will be paid for by your policy. The skilled repair person still gets paid their agreed-upon rate, and you’re only out of pocket for the service charge. This makes it much easier to budget for repairs and to make the call when problems are still small.
A home warranty is recommended if you’re buying a house and are on a tight budget.
Most home buyers don’t have a lot of extra cash to spare after the down payment, closing costs, taxes, and homeowners insurance payments, not to mention the expenses of furnishing and moving. A home warranty may seem like one more expense, but it may be worth it in the long run. Discovering that the boiler has failed a few weeks after you’ve moved in can be financially devastating if you don’t have a solid emergency fund put aside: The cost of the plumber’s fees to detach and remove the old boiler, the cost of the new boiler, and the plumber’s material and labor fees for installing the new one can amount to an unexpectedly large amount of money. This can result in running up credit card debt or trying to squeeze out equity you don’t have yet to get a loan.
If you do have a comfortably sized emergency expense fund, then you may not need a home warranty—but you may still want one if your home is older or you’re anticipating the need for repairs and replacement. If you don’t have a stash of emergency cash available, however, a home warranty is a great safeguard, especially in that first year or two of homeownership before you really get to know exactly how well the systems have been maintained over time and how often they need repairs.
If your home was built more than 10 years ago, a home warranty can help cover the cost of repairing any appliances and major home systems.
Both new and established homeowners of older homes can benefit significantly from a home warranty. Heating and air conditioning systems lose efficiency over time and eventually stop working, as does older wiring and plumbing. The repairs for these systems can easily outstrip the cost of a warranty, and if a system requires replacement, the warranty will save you a significant amount of money. If your kitchen and laundry appliances are approaching the end of their lifespans, it may be just the right time to buy a warranty. Repairs on older machines often cost more than replacing them, and the warranty company will decide whether it’s worth repairing the old ones or simply replacing them. Either way, your cost will be limited to the service fee (and any cost above the contracted maximum, should you wish to upgrade your appliances or system beyond your coverage).
Newer homes usually have appliances that are still within their normal lifespan, but be aware that the builder’s warranty on brand-new homes is quite limited, both in time and breadth. Such coverage usually extends to manufacturers’ defects, not wear and tear.
You may want protection if a home inspection revealed that your home’s appliances and systems are nearing the end of their lifespans.
Perhaps you’re looking at a home that’s a few years old—not new, but not older, either. The home inspector you hire to assess the property before you agree to buy the house will evaluate the major home systems and appliances to make sure they’re in good working order. Sometimes the home inspector will find identifiable problems, such as slow drains, poor water pressure, electrical sockets that are partially shorted out, or stove burners that don’t work. Those defects become part of your negotiating process so that the seller will have them corrected prior to sale or give you a discount so you can have them repaired yourself.
The difficulty is that no home inspector can check every inch of wire or piping and that it’s hard to tell if a home’s heating system heats evenly if you’re buying in the summer. So part of the inspector’s assessment will include the approximate age and condition of the home’s systems and appliances. Inspectors see a lot of houses in varying conditions, so if yours tells you that the heating system is operating well but is close to the end of its expected lifespan (or past it)—or that it’s a miracle that the water heater is still working—a home warranty is probably your best option, whether you negotiate with the seller to purchase one or do it yourself.
A home warranty can help entice buyers when you’re selling your home.
The real estate market is a careful dance between buyers and sellers. The sellers want to sell for the highest possible price, especially if they’re already committed to buying another house and their new mortgage payments are budgeted based on a certain sale price. Buyers want to spend as little as possible, as they’re usually chaining themselves to 15 or 30 years of mortgage payments.
Older appliances or home systems, however well maintained, can make buyers skittish about the purchase as they anticipate large expenses popping up unexpectedly. Similarly, sellers won’t want to go to the expense of replacing appliances and systems just before they sell. Purchasing a year of coverage from one of the best home warranty companies will cost far less than replacing appliances and offers the buyers some peace of mind, knowing that they’re covered should something require expensive service before they can set up their household budget. A home warranty could even be the reason a buyer chooses one home over a similar one, so it can be a powerful selling tool.
In addition, the time between placing a house on the market and closing a sale is a dicey one for sellers. They’ve probably freshened up the house for sale and made it as attractive to buyers as possible, they’ve set a price, and maybe even put a down payment on another home. If a pipe bursts in the basement after the house is listed, the seller has no choice but to pay to repair the pipe. Homeowners insurance will likely cover the damage, but the cost of the plumber, materials, and disposal fees will be up to the homeowner. A home warranty protects the seller from this kind of unplanned expense; they’ll pay the service charge and the rest will be taken care of by the warranty. Is a home warranty insurance? No, but a warranty purchased at the time a home is listed for sale can ensure that both a buyer and seller, or even an existing homeowner, are financially protected against what can be the colossal expense of appliance and system repairs and replacement.