Are Home Warranties Worth It?

Last updated Aug. 17, 2024 by Charles Zemub

Are Home Warranties Worth It?

When you purchase a home, whether it’s new or pre-owned, you want to protect your investment and make sure any issues that arise can be managed cost-effectively. One option to consider is a home warranty, but many homeowners are left asking the question, "Are home warranties worth it?”

What is a Home Warranty?

A home warranty is a service agreement that covers the repair or replacement of many of the most frequently occurring breakdowns of home systems and appliances. While the specifics can vary significantly between plans and providers, typical coverage includes items like HVAC systems, plumbing, electrical systems, kitchen appliances, and even larger home systems such as water heaters and sometimes even roofs.

What Does a Home Warranty Cover?

Before diving into whether a home warranty is worth it, it’s crucial to understand what these warranties generally cover. Coverage varies, but here are some commonly covered items:

• HVAC Systems: Air conditioning and heating units.
• Plumbing: Main line stoppages, pipe leaks, and toilets.
• Electrical Systems: Wiring, fuse boxes, and circuit breakers.
• Kitchen Appliances: Refrigerators, ovens, dishwashers, and microwaves.
• Laundry Appliances: Washers and dryers.
• Water Heaters: Both traditional and tankless.
• Roof Leaks: Some plans cover minor leaks.

Home warranties do not cover common home maintenance tasks or cosmetic issues.

The Pros of a Home Warranty

Financial Predictability

Homeownership can sometimes feel like managing a series of never-ending expenses, and the cost of repairing or replacing a major system can be quite high. A home warranty can give homeowners more predictable household expenses by covering many of these costs.

Peace of Mind

Just as insulated wire prevents electrical short circuits, a home warranty adds a layer of peace. Knowing that you have a plan in place for unexpected home system failures can be very reassuring. This is especially beneficial for first-time homebuyers who might not be entirely familiar with the complexities of maintaining a home.

Increased Home Value

A home that comes with a warranty can be more attractive to potential buyers because it lowers their future financial risk. This can make your home stand out in the real estate market.

The Cons of a Home Warranty

Limited Coverage

One of the most significant downsides of a home warranty is that it may not cover everything you think it should. Each home warranty contract has limitations and exclusions. For instance, the warranty might not cover pre-existing conditions or might only cover appliances or systems that have been properly maintained.

Service Fees

Most home warranties charge a service fee every time you make a claim. This fee can vary but usually ranges from $50 to $100. Over time, these fees can add up.

Not Immediate

If you have an emergency situation, you might find the response times for home warranty service calls slower than you’d like. Contractors work within certain hours, and you may have to wait a day or two for non-urgent repairs.

Quality of Service

Home warranty companies have a network of service providers. This can be a mixed bag; the availability and quality of contractors can vary widely. While some users have great experiences, others may find the service subpar.

Cost of a Home Warranty

The cost of a home warranty varies based on the level of coverage and the provider. On average, homeowners can expect to pay between $300 and $600 per year for a warranty. More comprehensive plans can go upwards of $1,000 annually. It’s essential to weigh this cost against potential repairs. If your five-year-old HVAC needs replacement, costing $7,000, having a warranty for an annual fee of $600 seems like a worthwhile investment.

Tips for Choosing a Home Warranty

Before you commit to a home warranty, consider these tips:

1. Do Your Research: Review multiple home warranty companies and read customer reviews. Websites like the Better Business Bureau provide insights into how companies handle customer complaints.
2. Read the Fine Print: Carefully read the terms and conditions, including exclusions and limitations.
3. Compare Plans: Don’t settle for the first plan you see. Compare the coverage and prices from multiple providers.
4. Check for Additional Fees: Be mindful of service fees, cancellation fees, and any other additional costs.
5. Ask for Recommendations: Talk to friends, family, or your real estate agent about their experiences with home warranties.
6. Assess Your Home’s Needs: Consider the age and condition of your home and its systems. Newer homes might not need a home warranty as urgently as older homes.

Is a Home Warranty Right for You?

Deciding whether a home warranty is worth it largely depends on your unique situation:

• Age of Home: Older homes with aging appliances and systems may benefit more from a warranty than newer homes.
• DIY Skills: If you’re handy around the house, you might find it easier (and cheaper) to handle some repairs yourself.
• Financial Situation: If you have ample savings and can handle unexpected expenses, you might not see the value in a home warranty.
• Home Sale Future Plans: If you’re planning to sell your home, having a warranty can make your property more attractive to potential buyers.

✔ Short Answer

Home warranties offer financial predictability and peace of mind by covering repairs and replacements of major home systems and appliances. However, they come with limited coverage and service fees, so it’s important to weigh the pros and cons based on your home’s age, your DIY skills, and your financial situation.