4 Tips for Buying a Home Warranty Plan

Wooden letters HOME

When you buy a house, you’ll hear a lot of people talking about home warranties. From lenders to agents to sellers to direct mail marketers, the invitation gets extended to you dozens of times.

But what exactly is a home warranty? And what should you consider when purchasing one?

How Do Home Warranties Work?

A home warranty is a year-to-year contract that’s designed to help homeowners cover the cost of inevitable repairs and breakdowns of key systems in the home – such as appliances, plumbing, and electrical.

Home warranties offer varying levels of coverage, but they generally operate in a similar fashion. The homeowner pays an annual premium and then covers a flat-fee service charge every time a contractor is dispatched to the home. The warranty company covers the rest.

“These plans are fairly inexpensive, typically ranging anywhere from $350 to $600 a year as of 2019,” real estate professional Elizabeth Weintraub writes. “But it can depend on the coverage. Home warranty companies sometimes run specials where they’ll either discount policy prices or offer additional coverage for the same price.”

A home warranty is not a replacement for home insurance and isn’t required. However, many people see it as a wise, low-cost investment – particularly during the first year of owning a new house.

4 Things to Consider

If you’re considering purchasing a home warranty plan, it’s important that you do your due diligence and gather all of the details before proceeding. Here are a few key things to consider and work through:

1.     Research the Companies

Not all home warranty companies are created equal. There are more than a dozen of them out there, but there are a select few that live up to their billing. According to ConsumerAffairs, some of the highest-rated options include names like American Home Shield, Liberty Home Guard, and Select Home Warranty.

Spend time reading reviews and testimonials of any company you’re considering. Look over both the glowing reports and the scathing ones. The truth is usually found somewhere in the middle.

2.     Run a Cost Analysis

While system breakdowns and home maintenance are highly unpredictable, it’s helpful to run some basic cost analyses on the front end to deem whether or not a home warranty even makes sense.

A calculator like this makes it easy to see the breakeven point, or feel free to run your own calculations. If it looks like the home warranty cost is far lower than the anticipated maintenance cost, then a warranty is a no brainer.

3.     Ask the Seller to Pay for Coverage

Are you buying a house? Local norms may dictate whether it’s customary for a seller to cover a warranty plan.

As Green Residential explains, “You might not have to pay for a home warranty at all if you can negotiate it into your closing deal. Many homebuyers will ask that the seller purchase at least one year of home warranty insurance so you’re covered if something breaks while you’re settling in to your new home and appliances.”

4.     Read the Fine Print

It’s crucial that you read the fine print and figure out exactly what’s included in the warranty. There’s generally a list of requirements, as well as certain types of repairs/systems that are and aren’t covered. There can also be rules related to pre-existing conditions, restrictions on choosing contractors, and other specifics. Make sure you know exactly what you’re getting into prior to signing on the dotted line. Otherwise, you could end up frustrated on the back end.

Is a Home Warranty Right for You?

Some homeowners sleep better at night knowing they have a home warranty in place, while other people aren’t keen on the idea of paying for something they might not actually need. It’s up to you to determine whether or not a home warranty is ideal for you and your house.

If you decide against purchasing a home warranty, you should at least consider putting away the equivalent cost of a warranty premium into a savings account each month. Then when you do need to pay for repairs or maintenance, you’ll at least have some cash on hand to offset the expense.

Either way, the choice is yours. Just be sure you’re making an informed decision that makes sense for your household.