Should I get a home warranty?

A home warranty can help alleviate some of the financial burden new homeowners face when a major appliance or home system fails. You’ll pay for the warranty upfront, but the savings could be worth the added expense. Here’s an overview of what a home warranty is, how much it costs and whether it’s worth it.

What is a home warranty?

A home warranty is a service contract that pays the cost of repair or replacement of covered items, such as major kitchen appliances, as well as electrical, plumbing, heating and air conditioning systems. A warranty doesn’t cover windows, doors, floors or other structural features. Nor does it cover smaller or freestanding appliances, like countertop ovens or trash compactors.

“The warranty is designed to cover items that are in satisfactory, good working condition upon occupancy, and then fail due to normal wear and tear,” says Mike Sadler, vice president of operations at America’s Preferred Home Warranty, based in Jackson, Michigan.

At her listing appointments, Coleen Smith, a real estate agent with Portside Real Estate Group in Falmouth, Maine, routinely suggests to home sellers that they purchase a home warranty as a way to attract prospective buyers. She also recommends them to buyers, whether the seller offers one as a part of the sale or not.

“It depends on what I hear my clients saying their potential pain point is,” says Smith. “What is their concern or heartache about a property? Someone might say, ‘I love this house except it’s on private systems, like a septic tank or a well, and I don’t want to deal with it if it breaks.’”

Keep in mind that agents sometimes recommend home warranties simply because they or their realty firm is partnered with the company — you’re under no obligation to buy one.

Is a home warranty different from homeowners insurance?

Although they both offer homeowners financial protection, home warranties and homeowners insurance policies are not the same thing. Unlike a home warranty, homeowners insurance doesn’t cover breakdowns due to normal wear and tear, but rather damage due to a covered event such as fire or theft. Homeowners insurance coverage extends to the structure of the home, as well, and if you’re getting a mortgage, your lender will require you to have a policy. You’re never required to purchase a home warranty.

Are home warranties worth it?

The cost of a home warranty ranges from about $220 to $1,880 per year, according to HomeAdvisor. The plan can cost more if you want add-on coverage for areas like a guest house or swimming pool. Along with the plan cost, you’ll pay another fee for service calls, ranging from $75 to $125.

Compare these costs to the cost of repairing a major system, such as central air, which can run up to $500 to repair or $7,900 to replace, according to HomeAdvisor. If you don’t have money set aside for these expenses, a home warranty might more than pay for itself.

One caveat, however: If the home is older and its systems are outdated, it might not be possible to repair something that breaks, since the parts might not be available. In this case, a home warranty likely won’t give you the protection you’re looking for. Ask the provider what your payment obligation would be if something can’t be fixed.

Of course, if you never have a problem, then you’d have shelled out money unnecessarily. Ultimately, you have to decide if the peace of mind matters more than the expense.

Should I get a home warranty?

If you’re buying a previously owned home, you might want to consider one, especially if your home inspection reveals that several of the home’s appliances and systems are nearing their lifespan. Make sure you understand the terms and conditions of the home warranty, how long the coverage lasts and what it will and will not cover.

As the buyer, always ask the seller what appliances or systems are currently under warranty, either through manufacturers’ warranties or a home warranty plan. If the seller has a home warranty, get the details about the policy so you’ll know when the coverage ends. It’s also smart to ask for a maintenance history of the major components of the home.

When to skip a home warranty

Generally, it’s not worth purchasing a home warranty for a newly built home because you’ll wind up with duplicate coverage. Homebuyers who purchase new construction usually get some type of warranty from the builder for the home’s materials and workmanship — including plumbing, electrical, heating and cooling systems — for one, two or up to 10 years. The builder warranty typically don’t cover appliances, but those often come with a manufacturer’s warranty.

In addition, some credit cards offer extended warranties on top of the manufacturer’s warranty with new purchases, so if you remodel your kitchen and pay for the new fridge or stove with plastic, it might not make sense to buy a home warranty for those appliances.

In addition, if you’re diligent with a maintenance schedule and have your home’s systems annually serviced, that could help you avoid the problems a warranty might address.

Pros and cons of home warranties

While home warranties can be beneficial, they also have limitations and do not cover everything. Here are some of the benefits and drawbacks to keep in mind.

Pros

• A home warranty can provide peace of mind if you’re purchasing a home with used appliances and older systems that are long out of or missing warranties.
• If you’re new to an area, you might not have established relationships with local contractors to help with repairs. The home warranty company takes care of finding and hiring a trusted professional. (Be sure to check on this, though — some companies have you hire a local pro, then either reimburse you or pay that contractor directly. If it’s reimbursement, ask how the funds will be disbursed.)
• Not all homeowners have the DIY skills to handle repairs on their own, so having a home warranty to fall back on alleviates that worry.
• Home warranties tend to offer broader coverage than a manufacturer’s warranty, and often are good for a longer period of time. They can also be renewed.

Cons

• Home warranty companies impose dollar limits per repair, per item or per year. These restrictions can vary greatly by provider.
• You’ll have to pay a service call fee each time you have an issue.
• The home warranty company can deny claims if an item has not been properly maintained. This can be difficult to disprove if you don’t have a record of prior maintenance.
• Home warranty companies determine whether to fix or replace a system or an item. If replacing an item, they might go with the cheapest model or one otherwise not to your liking.

Bottom line

You don’t need to purchase a home warranty, but it could prove worthwhile on an existing home with some outdated systems or appliances. It’s probably not worth getting if you’re buying a new-construction home, as the builder issues its own warranty, and it might not be worth it if the home is very old, as certain replacement parts might not be available today. If you decide to buy a home warranty, take the time to closely review the contract details on standard and optional coverage, as well as the limitations.