Buying a warranty for expensive or big-ticket items is usually designed to give you peace of mind if something gets lost or stolen or if repairs are needed sometime in the future.
But what about a warranty on your home? After all, from refrigerators to HVAC units, there’s plenty that can go awry in the life of a modern home.
But is a home warranty really a good idea? Or would you be better off without one? Good questions.
From cost to coverage to fine print, we’ll show you how a home warranty doesn’t quite deliver the peace of mind it promises.
Let’s get right to it!
What Is a Home Warranty?
A home warranty is an annual service contract between a homeowner and a home warranty company that covers the costs of repairs or replacements to major components in the home. That’s the nuts and bolts of it, according to the purpose of the warranty.
However, a home warranty is not homeowner’s insurance, which is very different! Home insurance basically covers the big stuff like the risk of damage to the actual structure of your home because of fire or flood, and it’s mandatory with most mortgages.
What Is Included in a Home Warranty?
It’s important to note that home warranty plans vary in their coverage, depending on the company you’re using and the level of coverage you want. As a general rule of thumb, a warranty includes repairs to working parts of your home like:
- Electrical systems
- Major appliances (e.g. washer/dryer, refrigerator)
- Heating and cooling system
- Hot water heater
The more you want to get covered (like a swimming pool pump or a garage door opening system), the more you’ll pay in your monthly or annual bill with the warranty company.
How Does a Home Warranty Work?
Okay, let’s say your washing machine stops working, and you’re not sure what the problem is. If you have a home warranty, this is what usually happens:
You call the warranty company to report the problem.
The warranty company sends a contractor to your home to take a look.
The contractor tells the warranty company what the problem is.
If it’s a repair your warranty covers, the company pays the cost to fix it.
If the issue is not covered by your warranty, you have to get someone to fix it.
For every call out, you’re charged a nonrefundable service fee that you have to pay, even if the warranty company can’t (or won’t) cover the repair and its cost.
So, despite having a warranty on the washer and other appliances, having a home warranty doesn’t mean saying goodbye to repair bills for good!
How Much Does a Home Warranty Cost?
Let’s talk money! Buying a warranty means paying a monthly or annual premium—much like an insurance premium.
The cost of a home warranty can range from around $200 up to $1,500 annually and averages about $800 nationwide.(1)
The price varies depending on the type of property you live in and the level of coverage you’re looking for.
If you’re buying a newly built home directly from a developer, you’ll often get a year’s warranty included in the sale price. This will cover things like the in-built appliances, HVAC unit, water heater and other parts of the new build.
Watch Out for Those Extra Warranty Fees!
Okay, so the washing machine needs to be repaired, and you’re able to use your home warranty. The thing is that you still have to pay a “service fee” for the contractor’s visit. These fees typically range between $60 and $125!(2) Nearly all home warranty companies charge you a service fee for the call to the repairman.
You’ll also wind up paying the difference between the maximum amount the company says it’ll cover for a repair or replacement and how much the entire job ends up costing, if greater.
For example, let’s say the washing machine can’t be repaired and needs to be replaced. The warranty might allocate a maximum of $500 to replace it, but you paid $1,000 for it a few years ago! It’s not really the “full replacement” coverage you were thinking of, and you might have to shell out hundreds of dollars to find a replacement you’re satisfied with.
What Are the Disadvantages of a Home Warranty?
In short, the disadvantages are in the fine print. With home warranties, the devil is in the detail. And warranty agreements are full of ways for the company to make money by selling you short when it comes to the service you’re getting. Here are just a few:
The warranty company could refuse to pay out because the appliance has an old part (that you didn’t know about) inside the appliance and you should’ve replaced it ages ago. So, because you didn’t properly “maintain” the appliance, they deny your repair claim.
Repair Instead of Replace
The company may insist on repairing an appliance even though you’d rather replace it because it’s already broken down so many times. But they could refuse to replace it because it can technically still be fixed—even if it’s on its last legs.
Level of Coverage
You might find that the warranty company completely refuses to cover some big-ticket items (like a very old HVAC unit) or won’t cover a repair because it isn’t covered by the type of warranty plan you have.
With home warranties, the devil is in the detail. And warranty agreements are full of ways for the company to make money by selling you short when it comes to the service you’re getting.
Do I Need a Home Warranty?
That’s a big no from us! The only time we’d advise you to buy a home warranty is if you’re selling your home and need to sweeten the deal. Offering buyers a year’s worth of warranty coverage might make it more attractive if you’re in a competitive market—or if your house is on the older side.
But if you don’t fall into that category, don’t get a home warranty.
Here are a few reasons why:
Warranty companies need to make their money somehow. So guess how they do it? By charging you an annual fee that’s so high that a fraction of it is actually spent on repairs in your home.
You get what you pay for.
If you’re paying a few hundred dollars for a warranty, you’ll probably find you’re not getting much for it when it comes to actually making a claim.
You have to pay service fees.
Even if the warranty company denies your claim, you have to pay these fees.
There’s a lot of fine print.
The agreement between you and the warranty company may include a host of reasons why they won’t cover a repair or replacement.
You have a lack of choice.
What if the company does agree to replace an item? You won’t get much of a say in the brand and model of the replacement! Again, this is the fine print stuff.
You don’t choose contractors.
You have little say in the types of contractors called to your home for repairs. If they’re unprofessional, you can’t do anything about it. There’s also a three-way conversation between you, the contractor and the company—and that’s a recipe for confusion!
You may not even use it.
What about those years when everything’s hunky-dory and you don’t make a claim? Or maybe you find a way to fix a problem without using the warranty? You’re still paying that premium every year for a something you don’t use.
The only time we’d advise you to buy a home warranty is if you’re selling your home and need to sweeten the deal.
The truth is that if a warranty company pays out more in repairs than they make in premiums, guess what? They’ll go out of business! This is why we say: Don’t give them your business.
Be Your Own Home Warranty Provider
Don’t worry! Not having a home warranty isn’t the end of the world. You can handle things on your own and save money by not paying for a warranty by following these steps:
1. Build an emergency fund.
You should already have a general emergency fund. But if you’re still nervous about home repairs, set aside some extra money in the emergency fund to cover them.
2. Check for warranties on new appliances.
If you have appliances on the newer side, there’s less need for a warranty because they may come as standard. Double-check your paperwork.
3. Get major items serviced regularly.
Guard against anything major going wrong with your HVAC or water heater by having an expert regularly service them. Tune-ups will protect big-ticket appliances in your home until it’s time to replace them altogether.
4. Check the lifespan of your appliances.
Use an online guide to see where your appliances are in their stage of life. Budget and save for things you know you might need to replace in the next few years.