As a renter, you could call your landlord or property manager if your air conditioning or refrigerator went on the fritz. Now that you own a home, though, you’re the one responsible for household upkeep and repair – including ailing appliances and systems.
When it comes to these major breakdowns, there’s never a good time financially. That’s why a home warranty can really be a lifesaver. “I recommend them with just about every home I sell,” says Sharilyn Weber, a realtor with Lion Real Estate in Fresno, California.
A home warranty protects appliances (like washing machines) and systems (like heating ventilation, air conditioning or an HVAC) from breakdowns caused by normal wear and tear, as long as those appliances were in working order when the warranty was issued and have been maintained regularly. This type of coverage is different than homeowners insurance, which pays for damage and loss caused by natural disasters.
Who Needs a Home Warranty?
Home warranties offer buyers peace of mind that appliance breakdowns will be covered for a specified time frame, generally a year or two. After that, the new owner can renew or cancel the warranty.
With new construction, adding such coverage may be redundant. Home builders often include warranties for their newly built homes that cover structural defects, systems and appliances for varying periods of time.
How Do They Work?
Instead of calling your local repairman if your washing machine or other covered appliance or system breaks down, you’d contact the warranty provider. The provider would then notify a third-party service provider with whom they have a business agreement about your repair. That service company would contact you directly to schedule an appointment for inspection and repair.
Types of Home Warranties
According to Consumer Reports, there are three basic kinds of home warranty plans, each escalating in cost and coverage. The first covers one particular appliance, such as a refrigerator. The second covers multiple appliances, say your refrigerator, washing machine and dishwasher. The third covers major appliances and systems, such as the HVAC and electrical.
But even the most expensive option might not cover all of your home’s systems or appliances. “They’re very specific in what they do and don’t cover,” says Weber. In fact, a second refrigerator in the garage or equipment for an outdoor pool might not be covered. If you want items outside of the original policy covered, you’ll have to negotiate with the seller or the insurance company.
Doing so could really pay off. Weber includes her pool’s cellular-powered chlorination system in her own $670 home warranty. “We’ve lived in our home six years and our cell has gone out three times – that would have cost $1,000 each time to replace. So, in our case, the warranty has more than paid for itself.”
How Much Do They Cost?
The price of home warranties depends on the coverage level you choose, but might typically cost $200 annually for major appliances and $800 for a policy covering HVAC, plumbing and electrical systems.
If you’re buying a home, the warranty premium is included as part of closing costs. Who pays the premium, though, is open to negotiation. It can be wholly the seller, or a combination of seller, buyer and realtor.
Some home warranty policies have a deductible of about $100 or the cost of the repair, whichever is less. If your warranty carries a deductible, that fee would apply to each repair.
And while you won’t be paying for the actual repair or replacement, which can save you several hundred or thousands of dollars, you may be responsible for paying a trade service fee of about $75 – $125 for each repair. This fee covers having the service provider come to your home to diagnose the problem and will be specified in your agreement.
Depending on your plan, there may be an annual limit on how much the provider will pay. For plans covering one item, the limit might be $1,000 – $2,000 annually, whereas more expensive plans will have higher limits. Be sure to read your policy carefully.
Providers can also decline to make payments under certain conditions, such as if they deem a repair too expensive. When that happens, the provider might offer to replace the item or pay the depreciated value. The provider also may deny payment if you have not performed needed maintenance, the appliance or system was not installed properly, there are code violations, there’s excessive wear and tear, or there was a pre-existing condition.
A home warranty can provide a lot of value especially if you’re buying an older home. “Things are so expensive now to get repaired – just having a repairman out costs $75. In comparison, home warranties are not that expensive,” says Weber.
But some buyers may not think they’re needed, especially if they’ve gone for years without a breakdown. “If nothing breaks during the coverage period, the customer may, in hindsight, feel the fee was a waste of money, but that’s what managing risk is all about,” says Angie Hicks of Angie’s List. “But are you financially prepared to replace major components as they are needed, or would you rather pay a set amount per year whether something breaks or not?”
The best idea, say the experts, is to get several quotes to compare price and coverage, and then decide if a home warranty, and which one, is the right fit for you.
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