A home warranty service contract is designed to help homeowners manage the cost of unexpected home repairs. Home warranties are designed to go beyond the scope of what your homeowner’s insurance covers. It helps take care and properly maintain appliances and systems that fail due to malfunctioning or normal wear and tear.
How Home Warranties Work
Most home warranties cost between: $350 to $500 per year and require an affordable flat service call fee for each repair (usually 50.00). While without a home warranty contract repairs may costs hundreds or even thousands per repair needed. If a covered appliance or system breaks down, you’ll simply need to call or email your warranty company for a claim and they send out a service technician to repair or replace your equipment.
Home warranties are popular, especially with new homeowners and motivated sellers will often times include a 1 year service contract as an incentive. New homeowners want peace of mind that important repairs will be covered in their new investment, and sellers want to assure potential buyers that their home will be taken care of.
If you’re considering a home warranty service contract, you may not be sure if it’s right for you. Consider these pros and cons of buying a home warranty to decide if a service contract is a good idea for your home.
The Pros of Buying a Home Warranty
There are many benefits with a home warranty service contract. Feeling at ease and having that extra protection for your home goes a long way to ease the stress of homeownership.
- Peace of mind - The single biggest benefit that a home warranty offers is the ability to relax and avoid worrying about repairs in your home. Leaky toilets or a broken air conditioner are not a crisis with home warranty because a fix is just a phone call away.
- It’s an easy fix - With a home warranty, you only need to remember one number, or even simply send an email for repair. You don’t have to spend time searching for and researching reputable repair companies. Your home warranty provider has already chosen the best companies to take care of the job. You also don’t have to wait until business hours to start your repair, claims can be submitted online or over the phone 24/7 and 365 days a year.
- Inexpensive and can pay for itself - With a home warranty, you’re likely to see big savings on the most common repairs. Most home warranties cost between: $350 to $500 annually. Experts estimate that homeowners will likely spend between 1% to 4% of the home’s value on maintenance and repairs. For a $200,000 home that’s a minimum of $2,000 annually, and far more than the cost of a home warranty.
- Avoid going into debt - Serious issues like plumbing system breakdowns or broken air conditioners can cost thousands of dollars to repair or replace. For homeowners without an emergency savings account (or an inadequate savings budget), the cost of repair or replacement can be devastating. This establishes or adds to consumer debt that can put a drain on your monthly budget and strain your credit rating. With a home warranty, you don’t have to worry about going into debt if you encounter a major problem
- Your warranty may be free - If you’re buying a home, your warranty may be free for the first year. It has become increasingly common for sellers to include a home warranty in home sales to encourage confidence and attract buyers.
- Service call flat rate - Some repair companies can charge up to $150 or more just for a service call. A typical home warranty will have a fixed service call fee. This is an affordable rate for most homeowners and is always the same no matter which company performs the repair. It also doesn’t matter the cost of the repair or replacement of your covered item, the fee is the same flat rate.
- Pick your plan – A basic plan usually covers major systems including heating, electrical, and plumbing, as well as appliances. With an upgraded plan, you’re able to add more advanced service repairs that will vary by company. There is also optional coverage for items including the septic system, pool, and limited roof leaks. Customizing your coverage allows you to save on items in your home that you’re not worried about, or increase your coverage so that you’re completely covered for home repairs.
- Incentive for buyers - If you’re planning to sell your home, a home warranty can instill confidence in buyers. You can highlight that your home has carried a home warranty and repairs have been completed in a satisfactory manner. This shows a responsible maintenance and upkeep history on the home. It will likely give new homeowners peace of mind that they’re buying a home that was well cared for.
The Cons of Buying a Home Warranty
While there are many benefits of purchasing a home warranty policy, you still have a responsibility to care for your home correctly. There are some downsides to a home warranty and frankly with certain homes you may not need a warranty right away.
- You may not need it - If your home is still relatively new (less than 5 years old) and very well cared for, you may find that you have no major repairs to submit. New homes are less likely to have major repairs, especially since there is usually a manufactures warranty in place on new home items.
- Doesn’t cover all repairs - Pre-existing conditions like: poorly maintained systems, neglected items or broken fixtures are not covered under your home warranty. So if you were hoping to get all of your home’s problems fixed by your home warranty company, think again. You’ll likely be required to share your home inspection to show that items were in good working order when you purchased the home warranty.
- You can’t choose your service provider - Repair contractors are chosen by the home warranty company and you do not have the option to pick and choose among different providers. You will be assigned a company or contractor that the service provider trusts to do the job. That means your favorite repairman may be out, but on the plus side, you’ll be sent contractors who have been carefully reviewed and vetted by the home warranty company.
- Important systems may cost extra - Your air conditioning, refrigerator, or septic system represent a significant repair expense if anything goes wrong but they may not be included in basic home warranty policies. You’ll have to pay extra if you want these important items covered.
- Repairs are more likely than replacement - Your home warranty will always try to repair before replacing a unit or system. For homeowners who are otherwise happy with the equipment in their home, this is not a problem. However, if you’d like to invest in smart upgrades, a home warranty may not help. Upgrading to a new and more efficient refrigerator or air conditioning system is likely to be an expense your home warranty will not cover.
- You’re required to carefully maintain all systems and appliances - Repairs are covered by your home warranty but you’re on your own with maintenance. If you don’t keep up with proper maintenance, your claims may be denied. The warranty company will not be liable for equipment that is neglected or damaged. That means you’ll need to schedule regular service for all systems and appliances, and keep careful documentation of when and how they were serviced. As a bonus some warranty companies help with regular maintenance services for a fee.
- Your warranty may be more expensive than DIY fixes - If you’re a handyman (or handywoman) who enjoys taking on DIY projects and fixes at home, then you already know how much you can save on labor by doing it yourself. Not every repair will be covered by your home warranty and if you have the skill level to fix it, you may come out cheaper.
There are pros and cons when purchasing anything for a home and a home warranty policy is not different. The biggest challenge is figuring out if the annual expense is worth peace of mind and less hassles down the road. On the other hand, if you don’t really need it, you may find it a big waste of money.