What is a Home Warranty and Do You Need It?
When buying or selling a house, you might hear an unfamiliar term called a home warranty.
If selling a home, a real estate agent may encourage you to add a home warranty to the package as it helps entice buyers.
Buyers may be more interested in purchasing a house with a home warranty as opposed to without one, because it offers coverage and protection and may end up saving hundreds or even thousands of dollars in the long term.
Why Do You Need a Home Warranty?
- A home warranty is a warranty that covers repairs or replaces a range of home appliances and systems in your house such as the electrical, plumbing, and HVAC systems, due to natural wear and tear or damage.
- Oftentimes, home warranties require deductibles, and some times there are additional costs.
- A home warranty covers items for reasons that are not normally covered by homeowners insurance which usually insures the homeowner for damage or injury due to theft, flooding, etc.
- A manufacturers's warranty comes with a brand new appliance but is specific to each appliance and usually expires after one year.
- Purchasing a home warranty can make your home more attractive to buyers.
What is a Home Warranty?
A home warranty is basically a contract that covers the repair and in some cases, the replacement, of certain home appliances, (such as a dishwasher or refrigerator), to main components of a home, such as a water heater, or even a roof.
The home warranty was put in place to protect items that were originally in working order at the time the house was purchased.
If the covered item fails suddenly due to wear and tear, it will be replaced or repaired for a discounted cost or in some cases, no cost at all.
Since coverage varies differently depending on the home warranty company, it is important to read the warranty contract very closely to ensure that you understand what is being covered, what your limits are, and if anything is not included in the warranty.
What Does a Home Warranty Cover?
Which appliances and systems a home warranty covers depends on each company, but below is a list of most common items covered:
- Washer & dryer
- Electronic garage door
- Water heater
- Cooling & Heating
How Much Does a Home Warranty Cost?
In New York, the average cost for a home warranty plan is roughly $320 and the average deductible is about $40.50.
Most providers bill on a monthly basis, so you can expect to pay about $25-$30 a month.
Additionally, you will be charged a service call fee of $50-$100 for each time a maintenance person is sent to your home.
These service call fees are paid directly to the technician performing the service.
It depends on your home warranty plan on whether or not you will be charged a service call if multiple trips are needed to fix the issue.
Do Home Warranties Have Deductibles?
Yes, home warranties do have deductibles.
You can use this option to take out a higher deductible on your home warranty contract so that you end up paying a lower yearly rate.
Some policies may require you to pay for repairs once your policy’s maximum coverage limit has been met.
You may also find yourself paying out of pocket if the repair is for an item that is not covered under your contract.
If you do need to repair an appliance and it is not covered under the contract, the provider will often give a cash payout.
You would be responsible for paying the remaining amount.
Is Homeowners Insurance the Same As a Home Warranty?
Not to be confused with homeowners insurance, a home warranty is completely different.
Homeowners insurance covers losses or damages due to theft, fire, floods, and more.
Basic homeowners insurance policies usually offer six types of coverage.
Covers you for about $100k-$500k if someone is injured on your property or if your property is damaged accidentally or due to neglect.
Added Living Fees
Usually, 20% of your dwelling coverage is covered when paying for temporary living expenses while your home is undergoing construction.
This type provides the amount of coverage needed to rebuild your home and/or attached structures such as a porch.
Provides 50-70% of dwelling coverage to repair or replace belongings due to theft or damage.
When to Buy a Home Warranty
Those purchasing an older home may decide to purchase a home warranty as an added layer of protection.
If your home inspection shows that more than one appliance or system is close to their expiration date.
Sellers who are looking to close a deal fast may purchase a home warranty to attract potential buyers.
When Not to Buy a Warranty
If purchasing a newly built home, you may want to think twice before purchasing a home warranty.
Usually, the builder provides some form of warranty for the home’s materials and labor which includes plumbing, heating, and cooling systems, electrical, and more.
These types of warranties may cover anywhere from 1 to 10 years.
While appliances are typically not covered by the builder, they usually come with a manufacturer’s warranty to protect you in case the appliance suddenly stops working.
For this reason, it is not worth it to purchase a home warranty if purchasing a newly constructed home as you may be duplicating coverage.
What is a Manufacturer’s Warranty?
A manufacturer warranty usually covers services, replacement parts, repairs, and labor for a year after the purchase or installation date for certain appliances or systems.
The original equipment manufacturer (OEM) usually sets a warranty expiration date for a year after the equipment was purchased or installed.
If needed, an extended warranty can be purchased at an additional cost per appliance.
Make sure to do the research on your future home as manufacturer’s warranties are pretty constricting - oftentimes, most certainly not covering used appliances.
One restriction to keep in mind is that a manufacturer’s warranty is nontransferrable and only belongs to the original buyer.
So if you buy a home with all new appliances, they will not be covered still under the manufacturer’s warranty.
How Much Does a Manufacturer’s Warranty Cost?
The cost of a manufacturer’s warranty depends on the appliance.
The lifespan of each appliance also differs based on make and model, so make sure to check with the manufacturer.
Below are some of the most common appliances that are usually covered under a manufacturer’s warranty when purchased along with their average repair/replacement costs.
|Average Cost to Repair||$200-$900|
|Average Cost to Replace||$2,000-$4,000|
|Expected Lifespan||15 years for electric/10 years for gas|
|Average Cost to Repair||$200-$400|
|Average Cost to Replace||Over $1,000|
|Expected Lifespan||13 years|
|Average Cost to Repair||$150-$550|
|Average Cost to Replace||$5,000|
|Expected Lifespan||12 years|
|Average Cost to Repair||$150-$450|
|Average Cost to Replace||$3,000-$5,000|
|Expected Lifespan||15 years|
Top Home Warranty Companies
Home warranties are a lesser-known phenomenon, so many consumers may not even be aware of the many different companies that exist out there.
These are some of the most reputable companies:
- American Home Shield
- Choice Home Warranty
- American Residential Warranty
- First American Home Warranty
- Home Warranty of America
- Amazon Home Warranty
- AFC Home Club
- 2-10 Home Buyers Warranty
- Liberty Home Guard
- Fidelity Home National
- Home Warranty Vs. Manufacturer’s Warranty
Before making any decision, it is important to make sure that you understand all of the specifics.
When looking over any type of warranty, you should make sure to do your research and make a list of any questions you may have.
Some questions to ask may include:
- When does the term of service expire and what is the renewal process?
- Is there a deductible? How much?
- What repairs & services are covered? Anything that’s not?
- What’s the average time a repair call is serviced by a technician
The Pros of a Home Warranty
When it comes to pretty much anything, there are always pros and cons to each. Here is what to expect when weighing your options.
If something breaks, you no longer have to sift through companies and get quotes or wait for business hours to call in your repair.
All you have to do is call your warranty company at any time (even off-hours!) and they will usually send a repairer out promptly.
Pays for Itself in the Long Term
Expect to see big savings when it comes to regular repairs and maintenance.
While most home warranties cost anywhere from $350-$500, homeowners without a warranty can spend 1-4% on repairs each year - and end up spending more than the cost of a warranty.
Those who plan on selling their home may benefit from purchasing a home warranty, as it gives the buyer confidence that the house is up to standards and that all repairs have been completed on time.
Buying a home can be stressful enough, but it is even more stressful when your water heater breaks and you don’t know how to fix it or how much it will cost.
With a home warranty, only one phone call needs to be made and repairs are done at a fraction of the cost, which can be especially helpful in these times.
The Cons of a Home Warranty
Home Warranty Doesn't Cover Pre-Existing Conditions:
Items that were previously broken or were maintained incorrectly are not covered under warranty, which is why it is important to read all of the fine print when looking over the contract.
It May Be Unnecessary
A home warranty may not be needed if you purchased a house less than 5 years old, or if it was taken care of very well.
No Say in Choosing a Repair Company
You will not be able to pick which service company you want, as the home warranty company has its own roster of vendors that have gone through their approval process.
This means you may be stuck with a certain company, even if you don’t like their services.
Expect Repairs Over Replacement
If you are unhappy with the equipment in your house, you may be dealing with it for a while as home warranties try to repair the item first before replacement.
If looking to upgrade to a smart refrigerator or any other type of upgrade, this expense will likely not be covered under home warranty (but should be covered under a manufacturer’s warranty).
The Pros of a Manufacturer’s Warranty
As with a home warranty, a manufacturer’s warranty has both its up and downs.
Be sure to research each thoroughly to make the best choice.
The Manufacturer Believes in Their Product
By offering a warranty on their product, it is showing the buyer that the manufacturer stands behind their product.
Free or discounted maintenance for new appliances for a year, without additional or annual fees.
Gives the Buyer a Feeling of Security:
Just because an appliance is new, it doesn’t mean that it won’t break down or work perfectly. This provides a safety net for the buyer in the event they get a dud.
Increases Resale Value
certain warranties such as those on roofs and HVAC systems are worth their weight in gold when it comes to potential buyers since they are transferrable.
The Cons of a Manufacturer's Warranty
The Coverage Expires
Typically an appliance is covered for only about a year or so; in some cases maybe two.
Once the warranty expires, you are responsible for paying for all repairs and replacements.
Extensive Research is Involved
Should something break down after your warranty expires, you will need to research the best technicians and gather and compare quotes.
Appliances Will Eventually Break Down
Throughout the years, even new appliances are expected to get older and eventually break down.
If buying a few new appliances all at once, you may be seeing an increase in repair costs within 7-10 years.
Is a Home Warranty Worth It?
In order to make the best-educated decision, you need to know which appliances are covered under a manufacturer’s warranty.
To do this, make a list of all your appliances and systems.
Check to see which systems and appliances are nearing their manufacturer’s warranty expiration date, getting old in age, or expensive to repair upfront.
Make sure to list how old they are, their condition, and if they are covered under a manufacturer’s warranty or not.
If you are not sure if your appliance or system is covered, a good rule of thumb is that any item older than 2 years is generally not covered anymore.
Once you have a list made up of all of your appliances and systems, research the cost to repair or replace each one.
Make a special note of which appliances/systems will need to be repaired or replaced within the next 5 years.
Then compare that total cost with the annual fee of a home warranty plan, including the service call fee.
Finally, take the yearly cost for a home warranty contract and deduct the repair/replacement fees.
Look at the list of items you noted will need to be replaced within 5 years, and see if that total cost outweighs the cost of a home warranty.
If so, you may want to consider purchasing a home warranty to help reduce costs.