Should You Buy & Use a Home Warranty?

Home warranty services can be a good investment for new homeowners, especially if the sellers pay for the first year of coverage. Adding one is a common seller’s incentive in some markets. It offers buyers protection and peace of mind that appliances and home systems will perform as expected during the first 12 months of ownership. That’s a big deal after you’ve placed down thousands to buy and move into the home.

However, it’s crucial to approach the purchase of a home warranty with caution. These services don’t offer uniform coverage across policies, so it’s essential to carefully read the fine print to avoid any surprises. Home warranty companies don’t sell actual warranties; they offer subscribers discounted repair and replacement services on common home repairs for a monthly or annual fee. This means that finding the most comprehensive coverage may require some extra time and effort. Still, it’s worth it to ensure you’re getting the protection from breakdowns you need.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Are Home Warranties Worth It?

Let’s face it, all homes come with some preexisting conditions. The older they are, the more they’ve been loved. But here’s the thing some first-time home buyers might not realize: homeowners insurance policies don’t cover everything about the home. A broken HVAC system? That’s on the property owner. Faulty electrical wiring? Again, on the owner.

A home warranty provider provides some peace of mind that if these major systems fail, their repair or replacement will be covered to some degree. There’s no guarantee prior owners performed regular maintenance on the home essentials.Normal use leads to wear and tear, which causes the need for replacements over time.

The homeowner may pay a deductible or service call fee like a standard insurance policy. However, most of the replacement costs are covered for these major repairs. The monthly premium can be a small price to cover future repairs. The policy isn’t intended to cover minor home repairs, like painting walls or replacing worn-out carpets.

An older home carries a higher risk of big-ticket repairs. As you tour the home, you may notice the air conditioning unit making an unusual noise. Or perhaps the water heater is reaching the end of its usable life. Those could be reasons to consider buying warranty coverage rather than maintaining a repair fund.

Buying a home warranty, in the end, is a personal decision as it is extra coverage for the home and its running systems. 

What Do Home Warranties Cover?

The types of repairs the home warranty will address are spelled out in the specific policy. Some items may be add-on coverage. Coverage exclusions could exist, such as if the home has been impacted by a natural disaster. In that case, repair or replacement may fall under the homeowner insurance policy.

Generally speaking, the covered repairs or replacement under a home warranty are:

• Water heater
• Interior plumbing
• Electrical
• Air conditioning
• Garage door openers
• Garbage disposal
• Pool equipment
• Oven, range, or cooktop

Items like multiple refrigerators or freezers, sump pumps, and septic tanks typically require additional coverage. All these have in common are expensive repair bills should their components malfunction or cease working.

How do Home Warranties Work?

These policies are not for pre-existing conditions. So you can’t have your air conditioning fail, buy a home warranty, and immediately submit a claim. 

Home warranties also come with different coverage levels. Basic plans allow for a specific number of claims each year and cover essential home systems. Comprehensive plans have more coverage for items not typical in an area home. 

Let’s say your furnace is no longer pumping out adequate heat, and you want someone to take a look at it. Usually, a furnace is a covered home system. You’ll start by contacting your home warranty provider to submit a claim.

Home warranty providers have vetted nearby repair companies, including those that work on heating and cooling systems. They will coordinate the time for a repair professional to visit your home. It will be of a repair company of their choosing. However, they rely on consumer reviews to vet these companies’ quality of work and repair costs. They also ensure the repair technicians they work with are licensed and insured.

The repair person will inspect the furnace to determine what’s wrong. If it’s something they can fix, they will repair the part. The home warranty covers part of the repair service fees as specified in the warranty policy details. If it must be replaced, the policy covers the claim limits. The replacement usually is from a brand and function similar to the malfunctioning unit. 

Buying a Home Warranty

Determine the Services You Need

Most home warranty companies sell alternative plans or can customize coverage services to meet a particular need. For the most complete coverage, look for a plan that specifies the response for the different home systems, including plumbing, electrical services, doorbells, ceiling fans, and smoke detectors.

Some companies sell separate policies for appliances, but most provide a quote for a combination plan that covers both.

In addition to the annual fee, get answers to some basic questions. By asking for details up front, you are less likely to be disappointed if and when you have to call for repair services. Carefully compare the answers before making a final selection. Also, learn if the home warranty company has a local representative or call center or if service calls are routed to a regional or national response center. That impacts your customer service experience and response times.

Important Home Warranty Questions to Ask

• Is there existing coverage on the home?
• What exactly is included in warranty coverage?
• Is the home warranty transferable?
• Is an annual contract required? Is there a monthly or quarterly payment plan?
• Is there a waiting period before coverage becomes effective? (Note: A 30-day waiting period is common, but some home warranty plans require waiting up to three months on a new policy before you can request repair service.)
• How long is the typical response time following a service claim?
• Does coverage include the replacement of an appliance, or is it limited to repairing parts?
• What is the service fee for each call? Is there a limit to how many calls each year?
• Is there a total dollar limit on the policy per month, year, or incident?
• Are a freestanding range, refrigerator, washer and dryer, or a window air conditioner covered? Or is the plan only for built-in appliances and HVAC systems?
• Is there coverage for personal belongings or flooring replacement in case of a plumbing leak or backup?

Customer Reviews

It’s not just coverage and price that matters. When your home systems fail, you want prompt service and the ability to make emergency repair calls. Find a company with a high level of customer service. Ask around with people you trust to see which warranty providers have a positive customer reputation. Read their customer service ratings online through trustworthy sources. 

Compare Terms and Costs

National home warranty companies add specific services in some locations to be competitive in a particular market. Refrain from relying on previous home warranty experience in another location because services and management can vary from one region to another. Always check with local representatives if possible and request an actual policy document. Read it thoroughly. 

When comparing home warranty plans, pay special attention to service limitations, such as parts replacement but not appliance replacement. Some companies will replace parts that malfunction but will not agree to replace an older appliance if parts are unavailable. Other companies place a monetary value on replacement parts; the homeowner is liable if repairs exceed the limit.

Still, other home warranty providers have clauses that limit personal options when choosing replacement appliances. Remember that the more you know before you sign up for a home warranty plan, the better you will be protected when the need for service arises.

Do I Need a Home Warranty?

Distinguish what the home warranty covers from a homeowner’s insurance plan. Both have benefits, such as reducing the cost of owning a home. Neither is intended to be used for repairing cosmetic damage. The home warranty provides financial protection for your emergency fund to ease how much you spend on repairs. Sometimes, the annual premium cost outweighs the potential costs of paying for these expensive systems yourself.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

FAQs

What is the average cost of a home warranty?

The annual home warranty cost averaged $423 to $892 in 2024 for a standard one-year policy. Annual costs change every year. If you choose to pay in installments, the average monthly cost is around $50. Additionally, the average service call fee ranged from $65 to $150.

How do manufacturer warranties play a role?

If a major home system is still under manufacturer warranty, that typically pays for the replacement parts or unit up to one year after its purchase. After that, it is on the homeowner to make all future repairs. Under a home warranty, it doesn’t matter the age of your appliances. 

What are the disadvantages of a home warranty?

Home warranties cover repairing or replacing your systems and appliances due to normal wear and tear. However, they do not cover damages resulting from fires, natural disasters, or structural issues in your home—these are typically covered by homeowners insurance.

What are the coverage limits on the major systems?

These greatly depend on the warranty contract. That’s why you should read the details about coverage limitations. Some companies may have annual coverage maximums, while others specify a maximum they will pay to repair or replace a major home system. Some of the details of coverage limits to look for are extra refrigerators, freezers, stoves, pools and spas, guesthouses, accessory dwelling units, lawn sprinklers, tankless water heaters, water softeners, and septic systems.

Does a home warranty cover code violations?

The contract terms typically exclude any repairs to correct building and code violations.

Updated July 2024