Home Warranties

Home Warranties have become increasingly popular in real estate transactions. This is for several reasons. First, it gives home buyers some assurance that during the first year of ownership, after they have already financially spent so much money buying the house, they are not going to be caught by surprise with unexpected repair expenses. Second, for sellers it gives them some assurance that their buyer will be happy in the first year of ownership. Statistically homes sold with warranties have a much lower rate of post-sale litigation. And, third, Realtors like warranties pretty much for the same reason that sellers do. Happy buyers are the goal and home warranties help that to happen.

The Basics
The way a warranty works is that it is purchased at closing for between $250 and $400, depending on the plan. It can be paid for by any party to the transaction: buyer of seller. Once the warranty is in place it will be in effect for a full year. During that year if any mechanics in the house break down, the new owner calls an 800 number to order repair service. The warranty company contracts locally with approved workers who then come to the house and perform the needed repair. The buyer then pays the service charge (typically about $50-$80) for the visit and all other costs are covered by the warranty. It really is a great program. On average these policies are used at least twice in the year that they are in place.

Please notice that I am describing the policy as covering the mechanics in the house: the furnace, water heater, dishwasher, garbage disposal, electricals, etc. It does not cover the structure itself: the roof, walls, foundation, etc. Most basic policies do not cover refrigerators, washers and dryers, or air conditioning, but these can be added to the policy for additional costs. Be sure to read your policy. Some also have limitations. For instance, it may cover up to $1500 for a furnace, but not cover costs over that amount. So know the limitations and compare policies before you buy one.

There are quite a few companies that offer these policies. American Home Shield is probably the most widely known. There is also the First American Home Buyers Protection Plan, Choice Home Warranty, and Fidelity National Home Warranty. I’m sure there are others as well.

My Word of Advice
I do think a home warranty is money well spent. However, I also caution that these policies put a lot of emphasis on repair, and, in my opinion, are not quick to replace truly warn out items. Here is what happened to me:

When I bought my current home I opted for a home warranty because the dishwasher was obviously in really bad shape. The seals around the door were shot and the machine leaked when it was used. The technician who serviced it estimated that it could be repaired for $300. Why would I want to put $300 into a dishwasher that would then still be old? They offered me a credit in the same amount to apply to a new dishwasher, which I took advantage of and was happy to receive. Then I had trouble with my furnace that winter. Again, I called the warranty company and my furnace was repaired. The furnace went out a second time, again it was repaired under the benefits of my warranty. A year went by and my policy expired. The following winter, again my furnace went out. This time, with no warranty to use, I called a company of my choice. This time the technician said my furnace was so bad it was unsafe to use and he red tagged it. I then replaced my furnace. In hindsight I wish that when my furnace had gone out the second time, while it was under warranty, that I would have gotten another opinion. I think the warranty company did full fill the obligation of the policy because they were able to get the furnace to work, but I also think that I could have had the policy assist with the furnace replacement if I had taken the time to do my own inquiry.

I do think that if you are a buyer or a seller you should consider a home warranty when you are involved in your next real estate transaction. At least ask the question as to whether it would benefit you or not. And, as always, listen to the advice of your Realtor.