Ask homebuyers what their biggest fears are, and this one will make the list: That there is something wrong with the home that won’t rear its ugly head until after they move in. This fear brought about the birth of the home inspection industry in the early 1970s. Professional home inspectors perform a thorough investigation of a home’s visible components and systems. But even the best home inspection may miss something, which is why there is so much interest in home warranties.
A home warranty provides financial protection for homeowners who are faced with the failure of a major mechanical system, like heating and air conditioning. A home warranty can provide a home buyer with peace of mind. Here are five things you should know about home warranties.
- Home warranties aren’t insurance
Insurance is a complicated subject, whether you’re talking health or homeowner’s, and many people find it confusing. In a nutshell, your homeowner’s insurance policy covers your home’s structure and certain personal belongings from financial loss due to theft, fire, or other calamities. If your water heater is stolen, your homeowner’s insurance policy should cover it. If the water heater breaks down, repairing it is up to you.
A home warranty isn’t like a traditional warranty, 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. A home warranty is purchased separately from the home and costs an additional fee. It’s better described as a service contract.
- Typical coverage
You’ll find that home warranty companies offer a variety of plans, and as a general rule, the more you pay, the more your plan will cover. Basic warranties – known as “first tier” and “second tier” plans – cover major systems such as HVAC (heating, ventilation, and air conditioning), plumbing (some even cover outdoor plumbing like sprinkler systems), and electrical. Major appliances like the refrigerator, garbage disposal, stove, water heaters, washer, and dryer are also typically covered.
- What’s not covered under a home warranty
Anything not covered under your home warranty is known as an “exclusion,” and these will vary between companies.
Most home warranty contracts won’t cover breakdowns due to normal wear and tear. These plans also exclude anything damaged because of deferred maintenance, insect or pest damage, or acts of God. Structural problems, like a leaky roof or cracks in the wall, are also typically not covered, but you may find a company willing to cover these for an additional cost.
- You can buy optional coverage
Home warranty companies offer optional coverage at an additional cost. This can include coverage for a septic system, well, pool, spa, or central vacuum system.
- Are home warranties worth the cost?
Nationwide, the average cost of a home warranty is $969, though most Americans can spend as little as $243 or as much as $1,702, according to HomeAdvisor.com. If a covered component fails, the warranty provider sends a technician to your home to investigate the problem. You’ll be required to pay a service fee each time a technician visits your home.
Is it worth the cost? That depends on who you ask. Many real estate agents will tell you that purchasing one during the first year of homeownership is wise because that is when you will be most trapped for cash. Some consumer organizations, however, believe otherwise.
Consumer Reports, for example, 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. Keep impeccable home maintenance records because the home warranty company may ask to see your records if you try to enforce a claim.
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