A home warranty is a contract for residential services. It provides coverage of the cost of maintenance of household appliances or systems for a limited period. It is essentially a contract between a warranty company and a homeowner, which assures the provision of replacement services or discounted repairs on almost all of the primary components of your home. The home buyer should most certainly opt for a home warranty when they purchase a used or a second-hand home towards which no apparent information is available concerning the items covered.

How does a home warranty work

When you buy a home, you should be aware of how well the previous owners managed or maintained the different components and appliances. In most cases, this information about the age of the different household components, as well as their shelf life, might not be known to you. Moreover, searching for an adept service contractor or a handyman could be a taxing affair for you as a homeowner. Hence, it is the high cost associated with the home component replacement or repair in addition to the lack of time that pushes the homeowner to seek a home warranty.

Even though there are some similarities between home warranty and home insurance policy, particularly in terms of liabilities, claims, deductible, and premiums, they do cater to different services. In home warranties, the focus is on household systems that can either wear out or break. On the other hand, home insurance covers loss or damage directly related to the home, which might either be because of a natural disaster or as a result of a fire.   

In most cases, your home warranty would offer you adequate coverage for major home components or appliances, such as refrigerators, stoves, or water heaters. At times, it would also include electrical, HVAC, and plumbing systems. Hence, it is important to read through the warranty contract document to understand all exclusions and coverages. Though some warranties include something like the door openers of garages in their basic plan, others might need additional plans for the same. You can certainly avail of additional home coverage for a feature or component that’s not included in your basic coverage. At times, you’ll also encounter companies that do not provide coverage for specific home components. For instance, there will be a few companies that cover spas and outdoor pools at an additional cost, while other companies might not have them even in their auxiliary offerings.

Whenever a component or an appliance covered under the policy is damaged or it needs replacement or repair, you, as a homeowner, have to contact your home warranty company. Usually, a warranty provider works in liaison with home service contractors or handymen, such as electrical or plumbing contractors. As soon as the company receives a call from you, they’ll communicate with these service providers. Then, the service provider will perform a site visit, or based on the verbal communication, assess the damage. Then, based on this assessment, he’ll offer the company a report. This assessment report has details that include the potential reasons for damage to a particular home component. Following this, the company will check the contract and see if this system or appliance is covered in your policy. Once approved, the company will send the handyman to replace or repair the system, as required.

Opting for a home warranty
Your home warranty provider will, at times, deny the claim. This could be because of several different reasons. It would primarily be when you apply for a claim for known damage, which existed before you started your home warranty coverage. Hence, you should always get an inspection done before buying a house. This will help you find out about any existing damage to the components, appliances, or the systems in the home. When these damages are known, the buyer should immediately ask the seller to either replace or repair these damages before signing the deal. Moreover, home warranties will not provide you coverage for improperly installed, poorly maintained, or misused components of the house.

Sellers, buyers, or builders can opt for a home warranty. Certain builders lay out policies that provide the structure with coverage of a decade for all structural defects. This would include sheetrock, flooring, roofs, walls, framing, as well as other auxiliary items. At times, the home builder warranty will also provide a coverage of 6 months for the household appliances installed, and two years for plumbing and electrical systems. In most cases, the cost of this home builder warranty is included in the purchase price of the home.

If you are buying an older house, the agent or the seller will usually pay you for the home warranty. This is their way to incentivize the buyer into making the purchase. Usually, the warranty that you get for second-hand homes are applicable for a year. After that, the homeowner may or may not renew this warranty.

Cost of a home warranty

On average, the cost of a basic coverage home warranty could be anywhere around $350 to $600. However, if you want extended coverage, it could mean an additional cost of $100 to $500, depending on the kind of products you wish to add to the coverage. The cost of the coverage depends on the type of product for which a warranty is needed and the location of the house of the homeowner.

In addition to this premium amount, there’s another fee that the homeowner has to usually bear. It is the trade call or the service call fee, which is paid when the contractor visits the site to perform the repair or replacement work. Hence, in short, this service fee is synonymous to the deductible of the insurance. Usually, the fees range between $50 to $100.

Some policies even have a clause that states that if the cost of replacement or repair of a component is lesser than the fee of the handyman, then the homeowner has to pay that lesser amount. One important aspect of the cost of a home warranty is that for every system or feature that has to be replaced or repaired, a new trade fee is applicable. For instance, if you call a handyman for the repair of both the refrigerator and the oven, then you’ll have to pay two different trade fees. Lastly, if the replacement or the repair cost is more than the warranty limit, the homeowner has to bear the rest.

Benefits of a home warranty

Just like all other warranties and insurances, even a home warranty is aimed at offering you adequate protection against unforeseen expensive repair or replacement costs. If a particular homeowner hasn’t maintained an emergency fund or wishes to employ their surplus into something else, having a home warranty could be extremely helpful. Home warranties are also ideal for people who do not have the time and energy to look for a contractor every time they have an urgent home repair. Warranties are also perfect for people who have extravagant tastes in home components.

Usually, people discuss home warranties during a sale or a purchase of the home. It is the most effective way to give the home buyer a requisite reassurance about whether or not his home components have been maintained adequately or not. When it comes to a new construction, a home warranty company will help you assess how well your home has been constructed. It could also be a great help for people who have exhausted all their savings into buying a house, and now do not want any major home expense.    

At times, home sellers also offer buyers a home warranty that is paid. It is usually an annual warranty that buyers can get on their purchase. Sellers do this as a means of offering buyers adequate protection against all plausible complaints that might arise once the sale has been made. But it is important to note that just by providing the buyer with a home warranty, the seller is not exempt from disclosing all the known problems about the house to the buyer.  

Limitations of a home warranty

There are a bunch of problems associated with home warranties. Firstly, the biggest problem with it is that it doesn’t cover items that are poorly maintained. Now, what falls under properly maintained is subjective, and is often a cause of disagreements between warranty holders and the companies offering warranties. The problem with this clause is that in some extreme cases, certain companies will employ an inappropriate maintenance clause. It is often their excuse to avoid certain valid claims. In other cases, the contractor and the homeowner might not agree over what all is included in proper maintenance.

This isn’t all. There are more problems associated with home warranties. Now, consider a situation wherein a buyer purchases a home that is used. What if it has a furnace that is approximately a decade old, but the previous owner did nothing to maintain it? Given this situation, irrespective of how well the current homeowner tries to maintain the furnace, the past damage cannot be undone. Furthermore, warranties come with a multitude of exclusions along with dollar limits per repair, as well as per year basis.

However, as opposed to the cost of replacement or repair of a vital component of the home, home warranties are not all that expensive. And this is why most people opt for it. But what about those years when nothing wears out or breaks down in your house? For such years, irrespective of the cost you bore for a home warranty in the form of premium, you get nothing beyond some peace of mind.

What if you put that money in, let’s say, some emergency fund? If that amount goes unused for a year, it would have certainly fetched you a decent interest. Moreover, any homeowner who tries to avail the warranty but gets his claim rejected will naturally feel like all the money that he paid towards the premium amount or the service fee that he bore towards the repair work went in vain.

Of course, with home warranties, you don’t have to look for a contractor if and when you need any repairs or replacement. But that also means that you cannot pick your contractor. You cannot deal with an independent contractor if you desire to have the home warranty pay for your replacements or repair work. So if by chance, you do not like the contractor or his work, you are still stuck with him.

As a homeowner, you have little to no say in the brand or model of the component used by the contractor. This applies even when it is quite natural to expect the company to offer you a replacement component of equivalent or similar quality. Lastly, the whole process of getting repairs gets a bit complicated when you have a third party, that is, a company offering home warranty rather than directly dealing with a contractor.

Getting a home warranty is not always the perfect solution for the hidden costs and the risks that homeowners face. If your seller wishes to give you a home warranty, that’s a great deal! However, if you decide to purchase one for yourself, it is important to carefully read through the fine print mentioned in the contract. Furthermore, you need to carefully examine whether your home warranty is suitable to pay off or not.

Buyers or homeowners who wish to feel more complacent on owning a home warranty or sellers who wish to give the buyers a certain warranty should perform thorough research to find themselves a reputed company that offers home warranties, uses only respected contractors, and will pay for your legitimate repairs, as and when needed.