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Home Warranties, Are They Worth It?

What is a home warranty, and how do they work?

Although warranties are commonplace for many major purchases, you may not be aware that they’re also available to home buyers.

What is a home warranty? First and foremost, it’s important to distinguish that a home warranty is not the same as home insurance. Home warranties usually work on the micro scale, and are centered around fixing smaller issues inside the home. Whereas home insurance policies generally cover major damage, such as a natural disaster. Home warranties are useful when it comes to issues like an appliance breakdown. Granted, home warranty policies will vary depending on the company providing them. Premiums will vary, but typically home warranty policies will be tightly focused on fixing appliances and major home systems.

What specifically will my home warranty cover? As previously mentioned, certain policies will cover different issues. Typically, most packages will cover the basics and then some, however you will generally be covered for:

  • Plumbing and electrical systems
  • Air Conditioning, Heating and duct work
  • Water Heater
  • Refrigerator
  • Dishwasher
  • Oven
  • Built in Microwaves
  • Trash Compactor/Garbage Disposal.

The aforementioned are usually covered in just about any standard package. However, if your budget allows, certain packages allow for more comprehensive coverage. You may be eligible for coverage on everything from your doorbell to your ceiling fan. Typically, homebuyers won’t pay any mind to these smaller systems until they start to fail.

While home warranties sound practical on paper, are they necessary? The answer to this question is entirely subjective, and will depend on a few factors including the size and age of the home you purchase. Basically, it’s up to your discretion as the buyer to determine if a home warranty is worth it or not.

You should be aware of potential drawbacks, before making a decision. While home warranties can offer certain buyer’s piece of mind, they’re not always lucrative depending on your specific circumstances. Policy pricing will vary, but certain warranties can be rather expensive. Premium pricing can range anywhere from $350 to $500. With potential for hundreds of dollars more, depending on how comprehensive you wish for your coverage to be. A major drawback of home warranties? They may not fully cover damage you attain to your appliances.

Assess your appliances before deciding on a package. Do you have an outdoor pool that you want to cover? Or perhaps you have a second refrigerator in the basement? This is where you’ll want to ensure you’ve done proper research on available packages. If you do choose to go the route of purchasing a home warranty, keep in mind that warranties will vary depending on what you wish to cover. Typically, the more elaborate and/or unique the appliance, the more likely you’ll need to upgrade to a premium package for said appliance to be covered.

Still on the fence? Here’s when you may want to bypass a warranty: If you’re buying a newly constructed home, or building your own from the ground up, your appliances will be brand new. New appliances often already come with their own warranties for up to 1 year. If the systems in your home have been well maintained and kept up to date, you may be sinking your money into a home warranty while your appliances remain largely functional. Assess your appliances upon move in to decipher if they need simple upgrades and repairs or large overhauls. Many policy holders are often disappointed and caught off guard, when they realize their policy won’t completely cover a brand-new appliance. In that circumstance, not only will you end up paying for a home warranty package, but you will also still be on the hook for a considerable chunk of change on new appliance purchases.

If you’ve decided to look further into home warranties, the next step is to find a reputable company to issue you one. When it comes to purchasing a home, having a good team behind you will make a significant difference. Doing the proper research into companies that offer warranties is your best course of action. Even in our digital age, word of mouth recommendations can hold a lot of weight. Ask your family and friends for recommendations. They may also be able to tell you about their experiences with home warranties, and if they feel a home warranty is worth it. When it comes to home warranty companies, be cautious. Before you sign anything, make sure you are aware of how the company operates. Do they require pre approval for any and all purchases? Do you need to request a repair order for certain and/or all appliances? Does the company have around-the-clock service? In essence, do your research.

All that said, is a home warranty ultimately worth it? The answer is entirely contingent on your set of circumstances. If you’re concerned with the status of appliances in the home, a home warranty can help ease your mind. However, because packages don’t always cover the full purchase of an appliance, it’s up to you to decide if the home warranty makes more sense than simply paying out of pocket. Home warranties are generally not advisable for new houses, or houses that have recently had major overhauls and replacements. Weigh the options carefully, and if you need to, reach out to others on your real estate team for recommendations. Often the nuances of home warranties and your specific needs, are too complex to give a universal answer. Whatever course of action you choose to take, make sure you do the proper vetting to ensure the most lucrative deal.