A few years ago, Jacqueline and Jonathan Sanchez’s furnace kept shutting off. So they called the company that provided their home warranty contract and an HVAC technician came out to troubleshoot.
Turns out, it was a simple fix: A dusty sensor needed cleaning.
Thanks to their home warranty, the Bellevue, Nebraska couple with two “lively ” kids, only had to pay $100 out of pocket to get their furnace running again.
“A home warranty helps protect a homeowner from major home system and appliance repair and replacement costs,” explains Tim Meenan, executive director and general counsel for the Service Contract Industry Council in Tallahassee, Florida. He says a typical warranty covers heating, air conditioning, electrical, plumbing systems, and major appliances such as washing machines, dryers, and refrigerators.
If you’re in the market to buy a home, it’s common for sellers to include a one-year home warranty to seal the deal.
An undated photo of Jacqueline and Jonathan Sanchez (Photo: Jacqueline and Jonathan Sanchez)
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“For buyers, it provides protection and peace of mind knowing your emergency fund and savings stay untapped,” says Adam Brown, vice president, Real Estate, Cinch Home Services in Boca Raton, Florida. “If something breaks down during the often hectic process of selling a home, the seller has a hassle-free way of executing a repair or replacement.”
A home warranty can average $500 to $700 annually, says Joy Zwicker, a licensed real estate agent in Southampton, Pennsylvania. “However, the more systems you add, such as pool coverage or an extra heating system, the higher the cost,” she says.
Adds Meenan: “Prices are often negotiable as well.” Aside from the annual fee, homeowners can expect to pay on average $100 to $200 per service call visit, depending on the type of contract you buy, Zwicker notes.
While the terms sound similar, a home warranty is not homeowner’s insurance.
“Homeowners insurance provides financial protection against loss due to disasters, theft, and accidents,” says Meenan. “Home warranties cover a home’s major systems and appliances that fail due to a defect in materials, workmanship, accidental damage from handling, and normal wear and tear.”
Thinking about buying a home warranty? This list of pros and cons will help you to decide if it’s the right choice.
Pros of home warranties
Peace of Mind: According to HomeAdvisor, the average national cost to replace central air conditioning is $5,750, and installing a water heater costs an average of $1,159, including the unit and labor.
“A home protection plan can be a great form of financial security against unexpected, expensive, home repairs,” says Brown. In fact, according to the Service Contract Industry Council, contract holders on average utilize their home service contracts more than two times a year.
Convenience: The Sanchez’s liked not having to hunt for a service technician or to beg family and friends for a trustworthy referral.
Brown agrees: “The home protection company can quickly and easily provide you with a licensed expert in your area hassle-free.”
Cost Savings: “It can give you peace of mind especially if a system like a hot water heater costs $250 to fix or $1,000 to replace,” says Zwicker. “With a home warranty, the cost to repair or replace is a flat fee of $100 on average.”
Transferability: “A consumer could purchase a home warranty and then transfer it to the new owner if they sell the property,” says Mennan. “Some home warranties charge a nominal transfer fee, for example, $25.” However, some home warranties are not transferable, he says, so double-check.
Cons of home warranties
Wait Times: If you need a quick fix, or have an emergency on your hands, brace yourself. “The wait times can be a little long if you use the phone for claims. But if you set up an account online, you can get your claims submitted much faster, and you can do it at your convenience,” says Denise Larson , a homeowner and Realtor in Minnesota.
Coverage. Home warranties don’t cover “items like pre-existing conditions, animal infestations, or recalled products, explains Larson. This is the time to take a close look at your coverage because “the exclusions vary from program to program,” says Mennan.
“If people don’t read or understand the coverages, they may end up believing they have coverage for something they don’t.”
Review coverages and exclusions during the “free look” period. Says Mennan: “If you are not satisfied, obtain a 100% refund.”
Price: While some items are covered under a home warranty, even commonplace fixes can set homeowners back. “We paid $500 to sign up, and then had to pay another $300 to clean the main sewer line after a shower drain backup,” says the Sanchezes.
With $800 out of pocket, they thought: “We didn’t benefit from the home warranty at all.”
Terms and Conditions: As a young couple in another home, the Sanchezes had a difficult experience with a home warranty. Before they were given coverage, the warranty company inspected all of the appliances and systems to verify they were in good working condition. When the technician wasn’t satisfied with a reading he got while testing the furnace, they say, the company would not agree to coverage unless they paid to replace a $400 part, which they did. While this was the Sanchezes experience years ago, Brown confirmed that “inspecting every major appliance before providing coverage is not an industry standard.”
Always ask your provider for clarity. Mennan says: “Some companies require a pre-inspection, and others simply don’t cover pre-existing conditions, such as items malfunctioning prior to purchase of the home warranty.”
These days, “we are not fans of home warranties,” say the Sanchezes, who also buy and hold investment properties. “We recommend homeowners save their money and put it towards an emergency fund.”
If you do choose to buy a home warranty, review the paperwork carefully.
“Select a provider with simple, easy-to-understand contracts,” advises Brown. “Regardless of whom you go with, always read the fine print to ensure you are clear on when claims can be filed and what is covered.”
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