Is a Home Warranty Worth it?
Home warranties are portrayed in advertisements as your ultimate protection in the event that anything goes wrong with the main home systems and appliances. From repairing your water heater as soon as possible to paying for your pool maintenance, if ads are to be believed, you will never again have to pay for your home maintenance and repair. At the least, these costs will be significantly reduced. However, is a home warranty worth it?
You cannot always believe all of the advertisements about home warranties. In fact, some home warranty ads tend to be more misleading than most. Recently, one of the more popular providers in the industry had to pay a $780,000 settlement for misleading advertisements about their home warranties.
Before you purchase a property with a home warranty, you need to understand what it is and when it can be useful. Add this info to the list of essential first-time home buyer tips that you should study to make sure this deal goes smoothly for you.
When Does a Home Warranty Plan Make Sense?
It is important to understand that while home warranty ads often sound too good to be true, the service itself can sometimes be helpful. It won’t cover all your appliance repair and replacement expenses, but it can take care of some of them, and so cutting your costs by a large amount.
A home warranty will make most sense in the following cases:
- You recently installed new home appliances and systems, which can be covered by this plan.
- You move into an older building where the risk of breakdown is high.
- You don’t want to deal with contractors yourself and get a home warranty for the sake of convenience. If required the supplier will find and send repairmen for every item covered, saving them the time and trouble of looking for them. This is a good option for landlords.
Bear in mind though that there is a “but” for each of these points. First of all, a home warranty plan can be superfluous for new appliances and systems if they come with a contractor’s or manufacturer’s warranty.
For older items, the warranty provider might refuse to pay, claiming that the problem was caused by a pre-existing condition. As for the contractors who perform work for home warranty companies, they may not be the best or the cheapest.
All this considered, the most important thing you need to do in order to decide whether a home warranty plan is worthwhile is understanding your coverage. You need to do the research if you are planning to buy a home with this kind of protection so that you know exactly what you are getting.
How Much do Home Warranties Cost?
The average home warranty will likely cost about $500. However, that is just a national average and the rate will depend upon the type of coverage that you have.
It is worth noting that properties with home warranties sell for $2,300 more on average, yet the cost of this plan is only about $500. Therefore, it might make sense to buy a property without one and obtain this coverage afterwards if the situation warrants it.
This will be the case if the appliances and systems in your home are reasonably new and expensive to fix. Also, new homeowners can benefit if they only recently moved into an area as the warranty provider acts as a single point-of-contact between them and all contractors.
Why Home Warranties Are Often Useless
Unfortunately, despite the benefits that a home warranty plan can offer, it will in many instances fail the homeowner. The most common reasons for this are:
- The warranty provider doesn’t honor its promises.
Like insurance companies, home warranty providers will use each and every opportunity to avoid paying out. Quite often they will exploit legal loopholes in the contract to side-step this obligation. You need therefore to be sure that the contract is ironclad. If necessary, consult a legal expert before signing. This way you will have some chance of understanding the “legalese” that the contracts are written in.
- The coverage is lacking.
Many people believe that their home warranty covers all appliances in their dwelling, without actually checking the policy’s terms. Don’t make this mistake, but instead make sure that the plan you are offered with the house has real value. Also, bear in mind that home warranties are limited in their coverage. For example, if you buy a house with electric heat, the chances of finding a plan that will cover the most expensive parts of the equipment will be very slim. So this coverage will offer very little value in such a situation.
- The contract has very unfriendly conditions.
Even if the contract with a home warranty company doesn’t have any major loopholes, it might have terms that make claiming your payments difficult. For example, many companies will require you to file a claim within 24 hours, which might not be possible. Be sure to study every clause in the Terms and Conditions section and think about how it will be applied in real life. Will you be able to benefit from this specific contract?
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In Conclusion: Do You Need That Home Warranty?
Home warranty plans can offer useful protection, but they have many inherent weaknesses. The good news is that there are companies that are reliable and honest. However, you will need to research the market thoroughly and study both professional and user reviews of different providers to find them.
Due to their popularity in this specific market, many home warranty companies offer plans specifically for sellers. They are designed to look impressive, but their actual value for new homeowners is debatable. So when choosing between two similar properties where one has this coverage and one doesn’t, you should not allow this to become a factor in your decision.
The cost of a plan is $500-600 a year, on average. This isn’t the kind of money that matters much in real estate deals. Plus you can always find a better plan for yourself after you have settled into your new home. In fact, you might even use the fact that your new home warranty plan is truly good if you choose to resell the property yourself.
However don’t hinge your bets on it, because your future buyers might know all the above information just as well as you do.