Decoding Home Warranties: Are They Worth It?

February 8, 2024
8:00 am

National Home Warranty Day on February 10th is an ideal occasion to dive into the world of home warranties and explore whether they are worth the investment for both home buyers and sellers. While home warranties offer peace of mind, it’s crucial to understand their workings and weigh the pros and cons carefully.

Home Warranty Basics

Home warranties, often referred to as service contracts, involve an annual fee ranging from $300 to $600. In exchange, these contracts cover the repair of specific systems within a house. Homeowners usually pay a fee, typically around $75, for each service call. It’s important to note that the repair contractor is selected by the warranty company, not the homeowner. Additionally, home warranties come with limitations on coverage and sometimes an annual payout limit. As with any contractual agreement, it is vital for consumers to read and fully comprehend the terms before committing.

Pros and Cons

Consumer advocates often express doubts about whether home warranties deliver on their promises. Concerns include difficulties in dealing with warranty companies and frequent claim denials. Consumer satisfaction surveys tend to support these concerns, with the home warranty industry having a notable number of complaints. Some experts suggest that homeowners set aside funds each month for future repairs as an alternative approach.

Protecting Yourself and Your Clients

If you or your clients are considering a home warranty, there are two key ways to protect yourselves:

1. Research Home Warranty Companies

Thoroughly research each company under consideration. Read customer reviews and consult consumer protection organizations like the Better Business Bureau. Additionally, check if your state requires home warranty companies to be licensed and verify the licenses of the companies you’re considering. Pay close attention to any complaint records.

2. Understand the Policy

Ensure a clear understanding of what the policy covers and to what extent. Familiarize yourself with coverage limits, service call fees, and the responsibilities you’ll need to fulfill, such as system maintenance.

When Does a Home Warranty Make Sense?

1. Newly Built Homes

Newly constructed homes often come with builder warranties that cover various components in stages. In the first year, builders typically handle most repairs, excluding appliances (covered by manufacturer warranties) and heating/air systems (also under manufacturer warranty). Major structural components like the roof, frame, and foundation may be covered during the second year. After this period, a home warranty contract, purchased by the builder on behalf of the homeowner, can extend coverage for several years, often up to a decade. Importantly, these contracts are often transferable to new owners.

2. Older Homes

A home warranty contract can be purchased anytime for older homes. In real estate sales, it has become common for sellers to offer a home warranty contract to buyers to instill confidence in the purchase. This incentive can often motivate buyers. However, it’s crucial to note that home warranties do not cover repair needs identified during the home inspection process, which must be addressed before closing the deal.

National Home Warranty Day prompts us to consider the value and utility of home warranties. While they can provide peace of mind, it’s essential to approach them with a critical eye. Researching companies, understanding policies, and assessing the specific situation of the property can help both home buyers and sellers make informed decisions about whether a home warranty is worth the investment.

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