If you have never bought a home before then you probably don’t have any experience with a home warranty company. Well keep reading because today I’m going to explain the good, bad, and ugly sides of home warranties, and find out if they are really worth what you pay.
Home warranties are advertised as insurance for the appliances and systems within your home so that you don’t move into your new home and then have to immediately spend thousands on repairing basic functions if they break down. The premise of a home warranty is that you pay an upfront cost of about $400-$700 and that gets you 1 years’ worth of protection with the option of renewing when that year is up. Then if you have something break down in your house, you pay a service fee of around $75-$100 and they send a technician out to your home to repair or even replace the broken system. So if you’ve been living in your home for 6 months and your water heater breaks down and dies, for a $100 you would get a brand new water heater installed. The service fee was designed so that people don’t call the home warranty company to come out and replace light bulbs that have burned out and you only call them for serious issues. Depending on how much you spend up-front on the warranty, depends on what they will cover. If you spend $400 you may only get the appliances, limited HVAC issues, and limited plumbing services in the home covered. If you spend $700, you may get the roof, enhanced HVAC coverage, and enhanced plumbing services covered.
In many cases, the home warranty works exactly as it’s supposed to. Personally I have witnessed customers have entire HVAC systems (including thermostats) completely replaced for a $75 service fee. However if we look at the reality of a larger sample size, it’s not all it’s cracked up to be. The ugly side of home warranties is based in two fundamental challenges. First, it is basically a cheap insurance policy, and as many cheap insurance policies in life go, getting them to pay out on a claim can be a bit of a hassle. Even when paying the extra amount up-front to have more things covered, a lot of warranty companies tend to have quite a few loopholes in their contracts that allow them to not pay out on a claim. Another wrinkle to this is that if you have a major issue like your HVAC system dying in the middle of a Georgia July, it may take them a week or so to even figure out if they will pay a claim before they send someone out to address the issue. Meanwhile you’re losing 25 pounds in a week just by sweating because it’s 85 degrees in your home. The worst part is after a delay in sending a technician to your home; they may choose to deny the claim after the technician performs his diagnostic. They may claim that what is wrong with the system or appliance is not covered under the warranty. The second fundamental challenge is the technicians they chose to use. In many cases, struggling contractors who don’t have enough business on their own, will sign up with home warranty companies to do their work for a discount just to make sure they actually have business. That means that when you do get someone to come out, you’re likely not getting the best contractors in the industry. They will be licensed and insured, but definitely not the cream of the crop. This can cause you to be working with contractors who communicate poorly, have no sense of urgency, and/or just do sub-par work.
Understand that in many real estate contract negotiations, the buyer asks the seller to provide them with a 1-year home warranty to be effective as of the closing date. If this is the case it’s hard to make an argument against the home warranty because the seller is paying for it and although there is a lot of bad with the process, it’s not like every opportunity to use the warranty is a sour one. As I stated before, I’ve witnessed a company do $4,000 worth of work for the $700 up-front (that the seller paid for the buyer) and a $75 service fee. They also tend to be much more effective when it comes to your kitchen appliances like stoves, dishwashers, and refrigerators. On the other hand I’ve also witnessed a company take a week to get a technician out for a time-sensitive problem, only to deny the claim once the technician finally arrived. If you are in the process of buying a house, just speak with your agent about which warranty company they recommend and then do a little bit more research on the subject before going under contract. Maybe you want to ask the seller to buy you the warranty and maybe you would prefer negotiating that extra money towards seller-paid closing costs or offering a little lower of a price.
Hopefully you learned something today and you’ll be that much more educated heading into your home purchase. As always we are here to answer any specific questions or to give honest real estate advice. Just share your name and email with us on the right side of this page and all our knowledge is at your disposal.