One of the biggest fears of most homebuyers is that there is something wrong with the home and it’s waiting for after the move-in to rear its ugly head. It is this fear that brought about the birth of the home inspection industry in the early 1970s. Today’s professional home inspector performs a thorough investigation of a home’s components and systems that are visible to the naked eye. Even the best inspector, however, may miss something, which is why there is so much interested in home warranties.
The idea behind a home warranty is to provide financial protection for homeowners faced with the failure of major mechanical systems, such as the home’s heating and air conditioning. Home warranties provide, most of all, peace of mind.
1. Home warranties aren’t insurance
One would think that with all the hoopla surrounding health insurance, the average American would be well-versed on the subject. Insurance, however, be it health or homeowner’s, is a complicated subject and therefore confusing to many. In a nutshell, your homeowner’s insurance policy covers the home’s structure and certain personal belongings from financial loss due to theft, fire and other calamities. If your water heater is stolen, your homeowner’s policy should cover it. If it breaks down, that’s on you.
Home warranties, by the way, aren’t actually warranties either – at least according to the federal government’s definition: A warranty comes with the purchase of a product and the cost is included in the purchase price.
Since the home warranty is purchased separately from the home and it costs an additional fee, it is best described as a service contract.
2. Typical coverage
Home warranty companies offer a variety of plans and typically the more you pay, the more your plan will cover. Most of the basic warranties – known as “first tier” and “second tier” plans – cover the homes major systems, such as HVAC (heating, ventilation and air conditioning), plumbing (some plans cover outdoor plumbing, such as a sprinkler system) and electrical (typically covered in tier one and tier two plans). Major appliances, including the refrigerator, garbage disposer, range, water heater and washer and dryer are also covered.
3. What’s not covered under a home warranty
Anything that isn’t covered under the home warranty is known as an “exclusion,” and you’ll find these vary between companies.
Most home warranty contracts won’t cover breakdowns due to normal wear and tear. They also exclude anything damaged due to deferred maintenance, insect or vermin damage and acts of God. Structural problems, such as a leaky roof and cracks in the wall are typically not covered, although you may find a company willing to cover these for an additional cost.
4. You can buy optional coverage
Speaking of additional cost, home warranty companies offer optional coverage at additional cost. This includes coverage for a septic system, well, pool, spa and central vacuum system.
5. Are home warranties worth the cost?
The average cost of a home warranty, nationwide, is $969, although most Americans spend as little as $243 and as much as $1,702, according to HomeAdvisor.com. In the event a covered component fails, the warranty provider will send a technician to your home to investigate the problem. You will be required to pay a $55 service fee each time a technician visits your home.
Whether or not home warranties are worth the cost depends on whom you ask. Many real estate professionals feel that purchasing one during the first year of homeownership, when folks are strapped for cash, is a wise move. Some consumer organizations, however, feel otherwise.
In fact, Consumer Reports cautions that “We recommend avoiding service contracts . . . far too often, warranty claims are denied because the company says the problem was pre-existing. Or, the claim is denied because the consumer can’t prove that a broken item was properly maintained.”
If you decide to purchase a home warranty, check the company’s record with the Better Business Bureau. Then, keep impeccable home maintenance records. The home warranty company may demand to view your records if you try to enforce a claim.