Picture this: You moved into your new home a week ago. It’s a chill Illinois autumn evening.. You turn on the heat…..and it doesn’t work. Chilly, drafty and not the cozy new home experience memories are made of…
Things like this can be stressful, inconvenient, and, mainly, expensive. This is definitely not something a homeowner wants to deal with after putting down a hefty payment on a brand-new house.
As a broker, one of the vital elements in the home-buying process is getting a home warranty. Purchasing a home warranty can help with some of the financial burdens that come with these hiccups. Yes, you’ll pay for a warranty upfront but the savings can often be worth the added expense. Here’s some insider information on a home warranty:
What is a home warranty?
Don’t think of a home warranty as an insurance policy, but rather a service contract that pays the cost of repair or replacement of covered items. These items can include major kitchen appliances, electrical, plumbing, heating, and air conditioning systems.
Keep in mind that a warranty doesn’t cover windows, doors, or other structural features. Separately, homeowners insurance covers losses incurred if your home and belongings are damaged or lost due to fire, theft, or other perils. These warranties typically cover items that are in good-working condition upon occupation.
Are home warranties worth it?
The cost of a home warranty varies from $350 to $600 a year – the latter if you want more coverage for things such as washers and dryers, pools and septic systems. Aside from the annual premium, anticipate paying a fee for service calls – anywhere from $50 to $125, depending on the type of contract you want to purchase.
So what happens if you don’t get a home warranty? Potentially, you could spend hundreds or thousands of dollars repairing or replacing major appliances or systems. A home warranty can more than pay for itself if you don’t have money for these expenses.
HomeAdvisor suggests these average national costs to replace some major home systems:
Central air conditioner: $5,467
Water heater: Tank – $889 (40 to 50-gallon tank); Tankless – $3,000
Appliance repair: $170 (most homeowners spend between $104 and $237)
Who should buy a home warranty?
If you’re buying a previously owned home, you should consider getting a home warranty from a reputable company. Historic Decatur homes are all the rage right now and rightfully so! A home warranty should be on your radar if that’s the case. In general, this should definitely be considered if your home inspection shows that several of the home’s appliances and systems are nearing the end of the road. Ensure that you understand the terms and conditions of the home warranty, how long the coverage lasts, and what it will and will not cover.
Not a home buyer? Sellers should consider offering a home warranty to buyers to make the deal appeal even more to buyers. A new buyer will appreciate the convenience of having items in the home repaired or replaced at little cost in the event that something stops working.
When to skip a home warranty
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.
Though appliances are typically not covered by the builder, they generally come with a manufacturer’s warranty. In other words, you shouldn’t purchase a home warranty for a newly built home because you’ll wind up with duplicate coverage.
Keep in mind that some credit cards offer extended warranties on top of the manufacturer’s warranty with new appliance purchases. For example, if you remodel your kitchen and pay for new appliances with a credit card, it probably wouldn’t make sense to buy a home warranty for those appliances
Pros of home warranties
Peace of mind is the first pro of a home warranty. Additionally, if you’re new to an area, you most likely won’t have established relationships with local contractors or mechanics to help with repairs. Your home warranty company usually will help you find and hire a trusted technician.
Not a DIYer? Home warranties are perfect for you! Home warranties are especially great for older homeowners because all they have to do is pick up the phone when something breaks or falls into disrepair.
Cons of home warranties
It’s crucial to know what’s covered and what’s not covered in your home warranty. Double-check the protection plan to see the list of exclusions and to determine if you want to upgrade your contract.
Some potential drawbacks:
- Home warranty companies have dollar limits per repair or per year. This can vary.
- Claims can be denied by the home warranty company if an item has not been properly maintained. This can be a con for homeowners who just moved into their home.
- Unfortunately, you don’t get to choose whether something is repaired or replaced. Home warranty companies determine this.
- In some instances, the homeowner may not get to make the decision on what make or model a replacement is.
- Under certain circumstances, such as a power surge, an appliance likely will not be covered.
Beware of home warranty reviews
Rivalry is no exception in the home warranty industry. Some rankings can be false, likely paid for by other companies. Be sure to do a thorough search on all of the companies you’re considering, regardless of the reviews. Talk to your friends who are homeowners about who they went with and their experience with that company.
If you choose to get a home warranty, be sure to research its rating with the Better Business Bureau and don’t assume a B rating means “above average.” Architectural Digest has a great list of rated home warranty companies here.
In addition, take your time closely reviewing the contract describing standard coverage, optional coverage, and upgraded items. Understand the limitations. In some cases, it’s unnecessary to pay a higher premium for optional or upgraded coverage.
Premiums, exclusions, and caps on benefits are all different, so consider multiple businesses before making a final decision.
Homeowners have a choice of paying annual premiums for peace of mind or building an emergency fund for unexpected expenses later on. It may be better to rely on an emergency fund than to pay annual premiums for a home warranty contract that may or may not be needed so consider this, as well.
We know that often this decision can be overwhelming for home buyers to add on another fee or for sellers to “give” another incentive to buy their home. But, we will go through the details based on the home you have fallen in love with so that we can help guide the decision during the home buying or selling process.