Do You Need a Home Warranty?

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Real Estate

Are you hitting the market for a home? There’s a huge chance that you’ll be offered a home warranty, irrespective of whether it’s a new home or not. They’ll often tell you that the warranty is a safety net against expenses that may arise from future repairs. 

On hearing this, it may sound impressive to the ear, but most times, when we settle down to think, we ask ourselves if it is genuinely worth it? Let’s dive a little more into what a home warranty is and the benefits of the policy.

What is a Home Warranty?

Although often confused to mean the same thing, a home warranty is different from a homeowner’s insurance. 

Home insurance covers major perils like hail, fire, property theft, and some types of water damage. A home warranty, on the other hand, is a contract that exists between a home warranty company and a homeowner. This contract provides cover for discounted repair and replacement service (where necessary) on the significant components of the home, including plumbing, furnace, HVAC, and electrical systems. Depending on the terms of the contract, a home warranty may also cover dryers, washers, refrigerators, and other major appliances. Typically, when a service call is made on a home warranty policy, a small service fee will be paid.

Most home warranty companies have contracts with expert service providers. Therefore, when you notify the home warranty company of a breakdown of any of the components covered by your home warranty, an affiliated service provider will come and examine the problem. If the home warranty covers the issue, they will continue with the work; however, if the policy does not fully cover the item, you will be given a quote to cover the repair work.


The Benefits of a Home Warranty

Like most warranties, a home warranty protects homeowners against unforeseen repairs and offers peace of mind. Home warranties are perfect for those who aren’t handy and can act as a buffer when there isn’t enough in the savings account to cover the repair bill.

It’s not uncommon for a seller to include a one-year home warranty when they sell their home. This can provide some reassurance to the buyer and lets them know that while the seller did provide a disclosure, this is their way of adding a layer of security against buyer complaints should a problem arise after closing on the house.

For buyers who are purchasing a new construction home, a home warranty helps to provide a level of comfort based on how well the house was built. The last thing anyone would want to have happen is to move into a brand-new home and have to put out money on major repairs a few months later. A warranty allows you to hold the builder accountable for any oversights that may have happened.

The Downside to Home Warranties

A significant drawback to home warranties is if an appliance or particular item such as a furnace has not been properly maintained, the warranty company may not cover the repair. Because there can be some “grey area” on what’s considered proper maintenance, you may find yourself fighting with the home warranty company over something you believe should be covered and the company is denying.

A major selling point for home warranty companies is that the cost of the warranty is less than what you would pay out of pocket to replace an item in the home, however, similar to home insurance, if you don’t use the home warranty you’re still out the money. Different from home insurance, though, a home warranty isn’t a necessity, and you could always take that $500+ per year premium and put it into a savings account and save to cover the cost of the unexpected yourself.

Bottom Line

A home warranty isn’t necessarily the perfect solution to cover all unexpected expenses, but it can help to offset some emergencies. Before paying for your next home warranty policy, weigh your options to ensure what you genuinely need covered will be covered or if it would be better to save the money and pay for those expenses yourself.