Will a Home Warranty Save Me Money?

Guest post from Credit.com

Every day, millions of Americans are talking with banks, advisors, and finance industry leaders to see if buying home warranties is worth the effort.

Many people hold a simplified view of warranties in general. The line of thinking is that if an item breaks, malfunctions, or needs basic work, a home warranty goes into effect to replace or fix the issue at hand.

Generally, this is true. For example, according to bankrate.com, “When your 20-year-old refrigerator springs a leak, what do you do? Your first instinct may be to decide between a costly repair and an even costlier replacement.” With a home warranty, the refrigerator repair could potentially be free.

Home warranties defined

Many contemporary home purchases come with home warranty policies considered by buyers to be a significant perk built into the purchase. The warranty goes to work for the homebuyer when significant repairs on certain appliances, plumbing, heating, and cooling equipment are required.

Thus, homebuyers have a boosted sense of confidence when making their home purchases, with the knowledge that even if costly repairs might eventually be required, they will be covered by the warranty.

Issues associated with home warranties

According to Tri-Region CEO Carl Knighten, “A home warranty contract promises to keep working items working for a certain time period, usually one year.” In today’s day and age, a year is nothing, especially when it comes to a long-term investment such as a home. One trend for homebuyers is to seek out a home they fall in love with and want to spend the rest of their lives in. Long gone are the days when the majority of the populace moved around from area to another.

More people today are staying put, investing in their homes through remodeling and renovation and personalizing them to their heart’s content. For the person or family who loves their home and has no intention of moving soon, a one-year warranty is practically a joke.

Major equipment will rarely fail, break, or need replacement within a year's time. It is only after many years of inclement weather, rust, corrosion, and other conditions such as age that homes often need significant repairs.

Two types of home warranties

Homebuilder warranties: Attached to newly built homes, these warranties are priced into the selling price of the home. A Home Builder warranty usually has coverage lasting six months for appliances and spans ten years for structural damage defects, a single year of coverage for paint, drywall, and stucco, and two years covering HVAC and electrical and plumbing defects.

Home warranties via company policy: Home warranties are company policies put in place for the buyers of pre-existing homes. Typically, real estate agents or the seller of the home pay for the home warranty policy and build it into the price of the home. Costing around $200 to $300, home warranty policies will cover specific appliances, in addition to the furnace, plumbing, and air conditioning systems for a year. There is almost always a deductible involved of around $100 per repair that applies to each repair service rendered.

Additional facts about home warranty policies

• Available to homeowners and homebuyers, particularly after the purchase of a foreclosed property
  
  
• Banks will not pay for home warranties on homes that are sold via short sale or foreclosure, so the cost of the warranty is the burden of the buyer
  
  
• Home warranty policies are thought to give homeowners and homebuyers peace of mind in potentially problematic situations, but many people who buy these warranties are unclear on what coverage entails
  
  
• Warranties exist to ensure important components in the home function properly and do not provide homeowners with new equipment or any kind of replacement

What often happens is that the consumers get angry and confused, as inevitably the decision to purchase new equipment or pay the deductible for repair services becomes an issue. They also dislike the overall lack of control they have in any type of repair process, including the specific subcontractor sent to perform the work.

People want home warranty policies to be clearer, but that also means that consumers need to realign their expectations for repairs and replacements and realize they are ultimately getting the services they are paying for. If you have a cheaper home warranty policy, you are likely going to have to pay a higher deductible, and you aren’t going to get as much coverage as you would for a more expensive plan.

Consumer complaints typically arise because customers don't understand the terms of their home warranty contract and what's covered in their policy. Anyone interested in a home warranty should read through the fine print to ensure the policy is clear before signing a contract.

Thankfully, home warranties have a variety of plan options for consumers so they can personalize their contract to best fit their needs. Home warranties can be beneficial if you make yourself familiar with the policy beforehand.

Benefits of home warranties

Undeniably, home warranty policies can provide a bevy of tangible benefits for some homeowners. Particularly with recent purchases of older homes, home warranties can save owners a significant amount of money, depending on the extent of repairs needed.

However, this will not apply to every homeowner. Some homeowners will rarely, if ever, have to contact their home warranty company for a repair, thus having spent the money on an unneeded policy.

However, homeowners can not always accurately predict if they will need a home warranty or the potential extent of repairs their property will need over time. As a result, homeowners need to set realistic expectations to make the policy worthwhile.

Making your home warranty policy optimal for your situation largely depends on the property you bought. After doing a self-inspection, hire a professional to do a comprehensive inspection of the home. Factoring in the age of the home and the overall condition, you can then research to compare the coverage levels available and their associated deductibles to decide what is right for your particular situation.

Plenty of homeowners will insist on buying a home warranty for the peace of mind it affords, despite the condition and age of the home. Purchasing a home warranty is not so much a guessing game as it is a compilation of information and your set of expectations attached to the home warranty. An older house with a few obvious issues is a great candidate for a home warranty, while a house built two years ago that exhibits no issues through professional inspection might not benefit from a warranty.

Taking care of your property is an important factor that comes into play as well. Keep up with regular maintenance, servicing, and cleaning of important equipment and systems. Doing so may save you from ever having to get in contact with your home warranty company. Even so, the company will come fix your equipment that has failed from normal wear and tear, but you will pay a deductible.

Home warranties are vital resources for countless homeowners and can save them money. For many other homeowners, a home warranty is essentially a waste of money for a resource that never ends up getting utilized.

To decide whether a home warranty is a good decision for you, take stock of the age, condition, and usage of appliances in the home. Read reviews of top-rated home warranty companies, such as Landmark Home Warranty (rated #1 on Best Company) and determine what home warranty company is right for you.