by Stephanie Bilane, REALTOR®
Is a home warranty right for you? A home warranty can give you peace of mind. However, it is important to chose coverage that meets your specific needs.
Many of my clients ask about the efficacy of including a home warranty as part of the home purchase. While everyone has a different set of circumstances, on the whole, I see a home warranty as a net plus to handle unexpected costs that may arise after closing. The key is purchasing a warranty with the right coverage.
What is a Home Warranty?
Home warranty coverage is like insurance, offering repair or replacement of appliances or home systems. Air conditioning, furnaces, dishwashers, refrigerators, stoves, washers, dryers, and water heaters are examples of typical items covered by a home warranty.
What Should I Look for My Home Warranty to Cover?
Homeowner warranties vary in their coverage. If you are buying an older home, you may be interested in a home warranty plan that is more comprehensive. If the home you are buying has new(er) appliances, you may be able to exclude those from your home warranty coverage to secure a reduced payment.To understand what coverage you may need, start by learning the age of the appliances and home systems and if the original equipment manufacturer warranties will still be honored when you assume ownership of the home (most don’t transfer).
Knowing the remaining expected lifespan of key items and systems will help you assess how much of a home warranty is needed (or if you need one at all).The chart in this post gives you average life expectancy and costs of replacement of typical items and systems. This chart guides you on what you can anticipate paying over the next 10 years to replace items and systems, and if the premiums outweigh what repairs they may cover.
Of note, some home warranty companies require annual maintenance on appliances and home systems to keep your warranty valid. With that said, don’t expect the home warranty company to pay for the annual maintenance of your appliances or home systems! But, you need to factor yearly maintenance costs into your analysis.
What Doesn’t a Home Warranty Cover?
Read the fine print! When choosing a warranty, read the contract carefully for exclusions. Specifically, home warranty companies will not cover problems that existed before buying a policy.
Also, be aware of things that are unlikely to be covered. For instance, many home warranties don’t cover old appliances (i.e., anything older than 10 years). Expensive items such as septic tanks, wells, pools, garage doors, the foundation, windows and doors, sprinkler systems, and walls may also not be covered. Roofs leaks are often exempt, although some home warranty companies offer additional coverage for this repair. Roof replacement is not normally covered under a warranty.
A home warranty can give you peace of mind. However, it is important to chose coverage that meets your specific needs. Before signing on the dotted line, read the policy carefully so you know what will be covered (and not covered) in the event you need to make a claim.
Data source: Ric Edelman Inside Personal Finance, June 2019
