Do Home Warranties Pay Off?

Oct 06, 2023 By Susan Kelly

When you buy a home, even one that isn't brand new, there is a strong chance that you will be given a house warranty as a safety net against expensive, unforeseen repairs. Does it offer the security that homeowners aspire for, even though it could appear like an excellent way to secure their finances? Let's look at how valuable home warranties are.

Standard For Warranties

A home warranty provides reassurance to the buyer and some protection for the seller against allegations of faults discovered after the sale is finalized.

The incorrect maintenance provision typical of warranties may suggest that the new homeowner isn't completely protected if something goes wrong. It turns out that the previous owner hadn't maintained the equipment properly.

The homeowner may have little or no say in the design or manufacture of a new component, or they may not agree with the job the company-designated contractor performs.

What Is a Home Warranty?

A home warranty does not cover major risks like fires, hail, theft, vandalism, and specified types of water damage that could affect the entire structure or the homeowner's personal belongings. Homeowners insurance does.

Home warranty providers have agreements with licensed service providers. When a component of a house warranty fails, the homeowner calls the home warranty provider, which sends one of its service experts to look into the problem. If the required repair or replacement is found to be covered by the warranty, the service provider finishes the job. In addition to the warranty price, the homeowner only paid a small service fee.

How Much Does a Home Warranty Cost?

For a home warranty, an upfront charge of several hundred dollars each year is required (or in installments if the warranty company offers a payment plan). It will depend on the type of property—single-family detached, condo, townhouse, or duplex—whether a homeowner selects a basic or extended plan.

Because they have a home warranty, the homeowner won't always have to pay for repairs. The warranty does not cover some problems, either because the homeowner chose not to purchase coverage for them or because the warranty provider does not offer them. Furthermore, home warranties frequently do not cover unmaintained components. (More details on this drawback are given below.) If the warranty provider denies a claim, the homeowner will still be responsible for the service fee and repair expenses.

Home warranties have benefits.

A home warranty, like other warranties, is designed to provide security and safeguard against pricey, unforeseen repair bills. If a homeowner doesn't have an emergency fund or wants to put it aside for other things, a house warranty could act as a safety net.

Home warranties make sense for people who aren't handy or don't want to stress about locating a professional when they have a problem. Warranties may make sense for folks who enjoy expensive gadgets.

Residence Warranties: Issues with Upkeep

A home warranty that doesn't cover things that haven't been maintained is a significant disadvantage. When it comes to what constitutes proper maintenance, there can be a lot of grey areas, which causes countless conflicts between home warranty companies and warranty customers.

In the worst case, dishonest warranty companies could deny valid claims by citing the bad maintenance clause. Another scenario is that the homeowner and contractor that come to the house disagree on what constitutes excellent maintenance.

A warranty is affordable compared to the cost of repairing or replacing most of a home's vital components is one of its main selling points. However, it can be years before anything in the house depreciates or wears out.

Additional Fees

During these years, the homeowner gets nothing in exchange for her premium (other than possibly peace of mind). If that money had been put into an emergency fund, it would have at least gotten some interest. Furthermore, if a homeowner tries to use the warranty but their claim is denied, they may feel that their premium and service call expenses were a waste of money. The process could also be more challenging if a homeowner deals with a home warranty company rather than a contractor directly.

The Outcome

Homeowners must cope with risks and unanticipated costs, and a house warranty is not a perfect solution. If a seller wants to give you one, it won't hurt. However, by reading the contract's fine print, carefully assess if the house warranty is likely to pay off before you get one.

Homeowners and prospective buyers who would feel more secure with a home warranty and sellers who want to offer a warranty to a buyer should do extensive research to find a reputable home warranty provider that works with trustworthy contractors and actually pays for necessary repairs when they become necessary.

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