Imagine that you turn on the air conditioning a week after moving into your home and it doesn’t work. Or, in the middle of winter, the dishwasher abruptly quits or the heater goes out.
Such hiccups can be frustrating, inconvenient and, above all, costly. After putting down a bundle to purchase a house, not necessarily something a prospective homeowner wants to face.
However, purchasing a home warranty will help relieve some of the financial pressure faced by new homeowners when a large appliance or home device goes out. Yeah, you can pay upfront for a warranty, but the extra cost may be worth the savings. Here’s a rundown of what a home guarantee is, how much it costs and whether it’s worth it.
What is a Guarantee for a Home?
A home warranty is not an insurance policy, but rather a service contract that accounts for the expense of fixing or replacing protected items, such as large kitchen appliances and electrical, plumbing, heating and air conditioning systems. Windows, doors or other structural elements are not protected by the warranty. Homeowner insurance separately covers damages sustained if the home and property are damaged or destroyed because of fire, burglary or other hazards.
The warranty is intended to cover goods that are in acceptable, good-working condition upon occupancy, and then fail due to normal wear and tear,” says Mike Sadler, vice president of operations at the Jackson, Michigan-based America’s Preferred Home Warranty.”
Colleen Smith, a real estate agent with Portside Real Estate Group in Falmouth, Maine, regularly recommends getting a home guarantee to home sellers at her listing appointments as a way to draw potential buyers. She recommends them to consumers as well.
It depends on what I hear my clients say,” Smith says, “what their possible pain point is. What is their worry about property, or their heartbreak? Someone might say, ‘I love this home, but it’s on a private system, like a septic tank or a well, and if it breaks, I don’t want to deal with it.’
Home Warranties are They Worth it?
The cost of a home warranty varies from $350 to $600 per year, more if you want increased coverage for items like washers and dryers, pools, and septic systems. Expect to pay a charge for service calls, in addition to the annual premium, ranging from $50 to $125, depending on the type of contract you buy.
You may spend hundreds or thousands of dollars fixing or upgrading major appliances or systems without a home warranty. A home warranty will more than pay for itself if you don’t have money set aside for these expenses.
According to HomeAdvisor, to replace certain big home systems, here are the average national expenses:
- Central air conditioner: $5.467 dollars
- Furnace: 4,286 dollars
- Water heater: $889 tank (40 to 50 gallon tank); $3,000 gallon tankless tank;
- Reparation of appliances: $170 (most homeowners spend about $104 and $237)
Who Should Purchase a Guarantee for a Home?
You may consider getting a home warranty from a reputable company if you are buying a previously owned home, particularly if your home inspection shows that some of the home’s appliances and systems are approaching their life span. Be sure that you understand the home warranty terms and conditions, how long the policy lasts and what it will and won’t cover.
To sweeten the bargain, home sellers might want to consider giving buyers a home warranty. If a large appliance stops working unexpectedly, it can be fixed or replaced at little expense, which would be appreciated by a new customer.
When Not to Need a Home Warranty
Home buyers who purchase new construction typically receive some sort of warranty from the contractor for the materials and workmanship of the home, including one, two or up to 10 years for plumbing, electrical, heating and cooling systems.
Appliances are often not covered by the builder, but they typically come with a warranty from the manufacturer. In other words, since you would end up with redundant coverage, it is not worth buying a home warranty on a newly constructed home.
Many credit cards also offer extended warranties for new appliance purchases on top of the manufacturer’s warranty, so it does not make sense to buy a home warranty for certain appliances if you remodel your kitchen and pay for new appliances with a credit card.
The Pros of Home Warranties
For those buying a home with used appliances and older systems, a warranty may offer peace of mind. Plus, if you’re new to an area, it’s unlikely that you would have existing connections to help with appliance repairs with local contractors or mechanics. Generally, the home warranty firm takes care of locating and training a trusted technician.
Not all homeowners have the DIY expertise to tackle repairs on their own, so getting a home guarantee to fall back on relieves the concern. And if anything breaks or falls into disrepair, older homeowners might appreciate the ease of making a single phone call.
Home Warranty Cons
Knowing what’s hidden and what’s not is imperative. To see the list of exclusions and to decide whether you would like to upgrade your contract, review the insurance plan.
Some prospective disadvantages:
- Per repair or per year, home warranty firms impose dollar caps. This may vary greatly, and the sky is not the limit, usually.
- If an item has not been properly maintained, claims can be rejected by the home warranty provider, and this can be a sore point as a record of proper maintenance can be difficult to provide, especially for homeowners who have only assumed occupancy of a home. Be forewarned that “improper maintenance” is used by some home warranty providers as an excuse to deny justifiable claims.
- Home warranty firms decide whether a system is to be patched or replaced, and you may or may not agree with the decision.
- In some situations, if an appliance has to be replaced, the homeowner does not have a say about the make or model of the replacement.
- An device would certainly not be compensated in such conditions, such as a power surge.
Beware of reviews for home warranty
For home warranty feedback, be careful of online search results. Some seem to be sham rankings, presumably compensated for by the corporations being touted.
In a search, for example, some pages with generic domain names pop up, ostensibly listing the best home warranty firms. One business appears on one site as “best overall” and is the top-listed home warranty company with a slightly different domain name on another site. But if you look up the organization on the Better Business Bureau list, in the last three years, it has received more than 10,000 complaints, and in the last 12 months alone, more than 4,000. It gets a B grade from the BBB, in spite of these complaints.
Don’t believe the client testimonials that appear on the website of a home warranty company. For the most part, you can typically find five-star scores and rave reviews. On its website, one company gave glowing reviews, but on the BBB website, on average, the company got a one-star rating based on 593 customer reviews. It gets a B ranking from the BBB, as well.
Ratings from the BBB are focused on:
- The number of grievances.
- The size of the business.
- How well the company responded to complaints, how easily the complaints were addressed, and whether the company made an attempt to address complaints in good faith.
- A better option may be to look at and directly contact BBB’s website for companies rated A or A-plus.
Be sure to check the ranking with the Better Business Bureau if you plan to go with a home warranty, and don’t presume a B rating means “above average.”
Take the time to thoroughly study the agreement detailing standard coverage, optional coverage and updated goods. Comprehend the restrictions. Paying a higher premium for optional or upgraded coverage might not be appropriate.
Premiums, exclusions and advantage limits differ greatly, so shop around.
Consumers have the option to pay monthly premiums for peace of mind or to create an emergency fund later on for unforeseen expenses. For a home warranty plan that may or may not be required, it may be easier to rely on an emergency fund than to pay annual premiums.
This article is paraphrased. Original source: bankrate.com