The first time I went house hunting, in a few of the properties the realtor mentioned a home warranty. Being a newbie at buying a home I had no idea what a home warranty was, and if it should make a difference. If you find yourself in the same position, or if you “sort of” know about home warranties but would like some more detail then this is the perfect read for you.
What is a home warranty? A home warranty is a service contract that covers the costs of repairs or replacements for household appliances and systems that fail due to age or normal wear and tear.
You can think of it as an insurance policy for things breaking down. You pay an annual fee to the warranty company and if, for example, your heating breaks down, they will send out a qualified, local repair person to fix it. If it turns out that the repair will cost too much, the home warranty company may decide to replace the broken item instead.
Also in the same way as insurance policies, exactly what is covered varies from policy to policy so there is a lot to know about choosing a home warranty. Let’s save you some time, money, and stress and go over what to look for.
Home Warranties 101
The owner of a property can buy a home warranty at any time. You do not haveto buy one when you first purchase your home, and you don’t haveto get a home warranty when you are selling your home. You can buy a home warranty to cover a house you have been living in for 20 years if you want to.
There are a number of pros and cons to buying a home warranty at any stage of your home ownership journey. So, let’s take a look at the detail and make sure you do what’s best for you, and your home, right now.
Which Systems And Appliances Are Covered?
Just like your home or life insurance, the coverage you get varies depending on which home warranty company you sign-up with. I’ll go through the most common elements for the average contract but be sure to check the details of your specific warranty before signing on the dotted line. This will make sure you are fully aware of exactly what is and what is not covered under your policy.
In general, you would expect to see:
- Basic coverage and then a menu of add-ons or upgrades from which you can choose.
- On a basic policy, it will usually cover the systems in the house such as the plumbing and the electrical as well as “regular’ appliances such as the oven.
- Home warranties only cover failure from old age or normal wear and tear, not for the kind of thing that your home insurance covers such as damage by a household fire or in a flood.
- Breakdowns are not covered if :
- You use an appliance in your home for commercial use or
- If the systems or appliances have not been maintained correctly.
- The systems or appliances have been repaired previously by an unqualified person.
- The item was installed incorrectly.
- There is damage to the appliance or system caused by misuse.
So what does that mean for you and me in the real world? This is what I discovered when I took a look at a number of home warranty companies across the States.
Most home warranty companies offer policies in one of two ways:
- A basic policy which is their least expensive option and will cover a limited number of appliances and systems. Then there will be a comprehensive option that covers a wider range of appliances and systems.
- One policy that only covers appliances, another policy which only covers household systems or a third kind of policy that covers both systems and appliances.
On top of the policy you choose some home warranty companies also offer “add-on” items that allow you to cover the things that are not found in every home, such as swimming pools.
When you are looking at a home warranty the majority will say that the “basic systems” are covered. This includes:
So items such as your HVAC unit, the ductwork, circuit boxes, pipes, water tank etc. will be covered.
Appliance coverage will usually include those items that are built into the home, for example:
- Built-in microwave
- Range or cooktop
- Kitchen exhaust fan
- Garbage disposal
For these items, your warranty would pay out, for example, if the microwave stopped working or your garage door failed to open.
Premium / Add-On Coverage
Depending on your provider there are a wide variety of options for additional coverage. For example:
- Washer and dryer
- Water softener
- A leaking roof
- Septic tanks
The exact coverage for specific appliances, systems, and premium items varies not only according to which provider you choose but also according to where in the country your house is.
I discovered this when moving from New York to California. The home warranty company I was using at the time, and was very happy with, didn’t provide the same levels of coverage on the West coast so I was forced to find a new provider.
Issues Covered By A Home Warranty
Home warranty providers are very clear that their policies do not cover the kind of problems addressed through house insurance.So if your dishwasher breaks down through normal wear and tear it is covered but if it is ruined in a house fire, it is not.
Likewise, the home warranty you choose might cover your plumbing systems but not the septic tank, even though that might be an item that youwould assume was included in the plumbing.
That is why it is so important to research your home warranty options carefully. Read the details of the policy and don’t assume that just because you would class something like a septic tank as part of the plumbing system that the home warranty company feel the same way.
A General Overview Of Coverage
It’s a fact of life that, over time, no matter how well you maintain your home, an appliance is going to get old and break down, a pipe will spring a leak, or some other kind of mishap will occur.
For the structure of our homes and most of the items inside we have home insurance. This protects us from unexpected events like fires, floods, and other natural disasters as well as some man made ones such as a car driving off of the road and crashing into your house.
A home warranty policy, on the other hand, is designed to protect you from the major, ongoing repair costs that can crop up when you own your own home.
As every company has different contracts, options and coverages it is impossible to give a straight forward rundown of exactly what you get under a home warranty . So, here is a rundown of what you might find and which details to check when you are shopping for a policy.
Just like any other kind of insurance product, there are times your home warranty will not cover the breakdown of a system or an appliance.
Lower Cost Items And Repairs
For example, although a home warranty will cover the cost of repairs, the homeowner will be still charged a fee to cover the first visit by a contractor. This fee could be anywhere from $30 to $150 depending on the kind of contractor, the issue you are experiencing, and your policy. Call out fees should be listed clearly in your paperwork.
For an initial visit, the contractor will arrange an appointment, come to your home, and diagnose the problem. When the issue is covered by your warranty then the contractor will make arrangements to complete the repair. If it is not covered the warranty company will let you know and you will be responsible for the cost of anything further.
If the issue you are having is something simple such as the plug pop-up fixture in your sink, it might be cheaper to do it yourself than to pay the call out fee.
Another example is the baskets inside your dishwasher. These are often highlighted as an exclusion because it could be cheaper for you to just go out and buy new ones than to use your policy.
A Lack Of Maintenance
A home warranty is not just a one-way contract that obliges the warranty company to provide you with repairs. The homeowner also has responsibilities under a warranty and if they fail to meet those responsibilities then the contract can be null and void and the home warranty company does not cover your issue.
One of these responsibilities is to maintain your home’s systems and appliances, ensuring they stay in good, clean, working order because if you fail to perform basic maintenance and cleaning it can cause a system or appliance to work harder and burn out or break down more quickly than otherwise expected.
If there is a known fault in the system or appliance you are claiming for, your home warranty coverage will not pay for the repair. If you are buying a home these “known conditions” may have been highlighted in the home inspection. In this case, it is important to negotiate with the seller and try to get a price reduction to cover the cost of replacement or repair.
Some companies may put in place a random, one off item, or part of a system, that is not covered by the policy. For instance, I looked at one policy and found that it clearly states that the entire heating system is covered. Once I read the details I discovered in the fine print that it excluded concrete encased or inaccessible ductwork, gas fireplaces, their lines and components, and in floor, wall, or ceiling radiant heat systems, to name but a few items.
Having a home warranty does not provide you with a bottomless purse from which you can pay for the same items to be repaired or replaced over and over again. Companies put in place something they call a coverage cap, to protect themselves from excessive costly claims.
Coverage caps in your home warranty will be in place in a number of ways:
- A whole policy cap.This means that your warranty company will pay a maximum total amount for all systems and appliances combined after which you will no-longer be able to make a claim.
- Appliance or system caps. In this case a home warranty plan might say, for example, the company will only pay a maximum of $3,000 for plumbing or $3,000 for kitchen appliances.
- Single item caps. In this case the policy may not have a cap on a system in general but might have a cap on a particular element of repair. For instance, one policy I read had no caps on the plumbing in general but would only pay out a maximum of $1,500 for the cost of drilling into concrete to repair water pipes.
How To Choose A Home Warranty
When you are shopping for a home warranty you should begin by making a list of the systems and appliances in your home that you wish to cover. This will help you quickly rule out any company that doesn’t provide the coverage you need.
Once you have your shortlist of companies take a look at the details of their policies. In particular you should check:
- Exclusions.Check for any exclusions that might invalidate your policy. For example, you might have previously repaired an appliance yourself and this would render your warranty null and void for that item.
- Coverage caps. Lower premiums are usually offset by lower coverage caps. You will have to decide which is most important for you.
- Deductibles.Some policies will have a fixed amount you must pay towards the repair before your coverage kicks in.
- Callout charges.The cost of the callout charge or initial appointment varies greatly from company to company.
- Repair timeline.Pay careful attention to how quickly, or otherwise, your warranty company says they will respond to a callout and whether or not they will respond on weekends, on public holidays, and out of hours.
- Workmanship guarantee. Find out how long the repair is good for and what happens if the problem continues.
- Service techs.Find out how the home warranty company chooses their contractors, what qualifications they must have, how their work is monitored and what to do if you have a problem or complaint.
- Online services.It might be important to you to be able to make your premium payments and claims online. Not every company has this option.
- Perks.Some home warranty businesses have perks such as discounts with other companies, annual maintenance checks, or other similar offers.
- Customer service. When you first call a home warranty company be sure to ask plenty of questions to gauge how well the staff know their product, and how helpful they are
Finally, don’t be afraid to haggle over your quoted premiums. I know of one person who was given a quote of $570 for an annual policy. The customer told the customer service agent that he only had a budget of $450. The agent asked him to hold and when she returned to the call she had “discovered” a special offer, available that day only, that was $450 per year.
Should I Buy A Home Warranty If I Am Selling My House?
If you are in a “buyers market” where there are plenty of similar houses for sale in your local area then having a home warranty can give you a competitive advantage over other sellers. It helps to ease a buyers worries about the cost of possible repairs. This is especially true if your home or appliances are on the older side.
What Happens To My Warranty If I Move Home?
You cannot take a home warranty with you to a new house as they are property specific and not connected to the homeowner. Instead, you can transfer any remaining time left on the term to the new householder.
What If I Change My Mind?
You have 30 days from the time you sign your contract to cancel, without penalty. After this, it depends on the company. Some companies will allow you to cancel anytime if you pay a cancellation fee. Others require you to sign up for a full year and do not offer any refunds if you wish to end the contract.
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.