Home Warranties: What a Little Extra Protection Can Do For You

Moving into a new home is an exciting time for homebuyers. But what happens when all the furniture is moved in, the pictures are hung just right on the wall, and suddenly, the A/C stops working? Or worse, the hot water heater has gone out? Luckily, the burden of calling a service provider (and keeping your fingers crossed it’s nothing major) is a thing of the past. Now, many homeowners have the choice to obtain a home warranty product. So, what is a home warranty and why might you need it? We’ll walk you through the ins and outs of home warranties.

What is a home warranty?
Whether you are a first-time homebuyer or are selling one home and moving into another, a home warranty could be an important defense mechanism for your finances and your peace of mind.  Think of it this way: a home warranty provides covers the major systems and appliances of your home. There are many home warranty companies with different plans and coverages, depending on the homeowner’s needs.

To be more specific, home warranties generally work like this:
A home system or appliance breaks or stops working. The homeowner calls the home warranty company, who then calls a service technician with whom they have a business arrangement. The service technician calls the homeowner to make an appointment, repairs the problem, and collects a small, fixed trade call fee from the homeowner. If an appliance has failed and cannot be repaired, depending on contract coverage, the home warranty company will pay to replace and install the appliance or system with like features.

How is a home warranty different than home insurance?
Homeowners’ insurance covers the house itself, as well as your personal possessions in case of a fire, theft or damage from another cause. It is mandatory by law, but, unfortunately, you won’t be able to make a claim if your washer and dryer break down or your electrical system fails. A home warranty is an option for homeowners to cover major system failures that are not covered by homeowners insurance. This option helps homeowners have peace of mind in managing their unexpected repair and replacement costs. Another way home warranties offer peace of mind? You don’t have to worry about finding a contractor. Often times homeowners wonder ‘Who’s a good plumber? Who’s a good electrician?’ A warranty company has a list of reputable vendors who are contacted on behalf of the homeowner when a claim is made. These vendors are contracted with the warranty company and are licensed and bonded.

What does a home warranty cover?
All plans differ, so it’s important you ask your home warranty company specifically what is covered. As an overview, here are some of the items that are likely to be covered:

-Heating and Air Conditioning Systems

-Electrical Systems, Smoke Detectors, and Doorbells

-Exhaust Fans and Ceiling Fans

-Garage Door Openers

-Plumbing Systems (including stoppages)

-Toilets, Whirlpool Bathtub Motor/ Pump

-Hot Water Heaters

-Dishwasher, Garbage Disposal, Trash Compactor

-Range, Oven, Cook Top, Built-In Microwave

-Central Vacuum systems

As previously mentioned, there are preferred plans and optional add-ons offered by most home warranty companies. These plans and additions cover items such as pools/spas, septic tanks, and refrigerators. While a base plan is an excellent choice, an upgraded plan is a wider safety net for homeowners because it provides a lot of extra benefits, such as repairing or replacing a system or appliance that has failed due to improper installation, repair, or modification.  Although the premium is higher, the homeowner may incur less out of pocket costs, which may result in a little less money paid in the long term.

Who pays for the home warranty?
Aside from the trade call fee, there is an up-front cost to home warranties. Now, whether the seller pays for it or the buyer pays for it is negotiable. In many places, it’s normal for a seller to pay for the coverage because it’s a seller benefit. Not only does it reassure the buyer that there will be a fix for what might go wrong, but it acts as an incentive as well.

A home warranty will sometimes be purchased by a REALTOR® as a closing gift to their buyers. Other times, home owners and buyers who have just learned about the benefits of a home warranty will decide to purchase one, and in that case, they obviously will pay for it. Typically ranging from $250 to $500, the price of the warranty will depend on coverage. These policies are prepaid for a year in advance and can be renewed at the end of that year. As for the trade call fee, $65 is a standard fee in the industry.

The last thing a homebuyer wants to worry about after closing is what could possibly break or malfunction in her new home. Since that can cover a multitude of items and systems, for peace of mind, it’s a good idea to get a home protection plan- and it’s an especially a good idea to obtain a home warranty if you’re a first-time homebuyer with no experience maintaining a home.