For most of us, a home purchase is the largest single investment we’ll ever make in our lives. To that end, buyers are likely to hear or read about a number of home protection products that promise to ensure the lasting value of a new home. Some, like homeowners insurance and title insurance, are standard in virtually every home purchase, and offer undisputed and essential protection. Others, however, can be more difficult to understand. Of these products, one of the more controversial is the home warranty. Buyers are often encouraged to consider a home warranty, even on new construction homes, as protection against unexpected and expensive repair bills.
Understanding what a home warranty is — and what it isn’t — is essential for home buyers assessing the real costs of home ownership. Learn more about whether a home warranty is worth the cost.
What Is A Home Warranty?
It may be easier to describe what a home warranty is by describing what it is not: a home warranty is not insurance, nor is it akin to a traditional manufacturer’s warranty. Instead, it is a service contract between the homeowner and the home warranty provider to provide discounted maintenance and repairs to whole-home systems including the home’s HVAC, plumbing, and electrical systems, as well as appliances listed in the home warranty contract.
The coverage afforded by a home warranty depends on the terms of the warranty contract itself. Unlike insurance, home warranties do not provide for replacement cost, but rather offer a discounted rate for maintenance and repair. In practical terms, this generally means that if a home’s system fails completely, the homeowner is responsible for the total cost of replacement.
How Does A Home Warranty Differ From Homeowners Insurance?
While the terms of home warranties and homeowners insurance policies vary, in general, homeowners insurance provides for repair or replacement of a home’s systems in the event of an external event such as fire, smoke, weather, robbery or theft, or other catastrophic contingency. A homeowners insurance policy provides for either the replacement or cash value of damaged or destroyed items and structure, and offers coverage for damaged, destroyed, or stolen personal property within the home in the event of a covered loss.
Homeowners insurance differs from a home warranty in some important ways. First, homeowners insurance offers protection from unexpected events, while a home warranty is intended to provide discounted regular maintenance and repair in the event of ordinary wear-and-tear. While a homeowners insurance policy will pay a claim for lost or damaged property, a home warranty instead offers a discount on parts and labor for maintenance and repair work.
Is A Home Warranty Worth It?
As with many questions for new homeowners, the answer to the question “should I get a home warranty” is: it depends. A home warranty comes with a monthly cost, plus a service fee if a technician visits your home to perform maintenance or repairs. Typically, the annual cost of a warranty ranges from $300 to $600 per year, with service fees ranging between around $75 to $125 per service call. If a call requires more than one type of service (for example, an HVAC technician and a plumber), the homeowner will likely have to pay the service call fee for each type of technician.
Whether or not to invest in a home warranty depends on a number of factors. For a homeowner in a home with aging systems that require frequent repairs, a warranty may make financial sense. However, a homeowner who is comfortable doing some DIY maintenance, in a home with newer systems, may find that the cost of the home warranty exceeds the benefits of the service.
In many cases, particularly when homeowners are comfortable with conducting routine maintenance and making small repairs, a homeowner may be better off simply setting aside the equivalent of the home warranty’s cost to establish a fund for home repairs. For these homeowners, the cost of the warranty itself, plus the cost of service calls, is unlikely to exceed the cost of most covered repairs.
The particular terms of the warranty contract are particularly critical for homeowners trying to assess whether the home warranty is worth the cost. Does the policy cover systems that have not been properly maintained, and what criteria will the warranty provider use to determine what “properly maintained” means? Does it cover the home’s garage, or other outbuildings? Does the warranty cover large appliances such as the home’s washer and dryer? All of these questions can be critical in determining whether a homeowner is better off purchasing a home warranty or simply setting aside a “rainy day” fund for unexpected repairs.
Landtrust Title: Your Partner for Results
Buying a home involves a lot of complicated decisions. But one decision is easy — when your real estate agent works with Landtrust Title, you get a partner for results. We do things differently than other title companies — whether it’s personalized support, convenient closing times that meet your schedule, or quick and easy payment methods ensuring everyone gets paid right away, our attention to detail will help ensure a smooth transaction. We are happy to answer any and all questions you may have, and we’re obsessed with making your experience so seamless, you don’t even have to think about it. If you have questions about what to expect when your real estate deal closes, Landtrust Title Services can help. Please contact us today at [email protected] or by phone at 312.528.9210.