What is a Home Warranty?
A home warranty is an insurance policy against costly home repairs and damage through normal wear and tear. It’s not the same as a home insurance policy that covers the structure of your home and the contents against damage due to a catastrophic event. This is a separate contract that will arrange for a reputable technician to fix appliances or perform other covered repairs in a home, usually for a period of one year.
The coverage of a home warranty can vary, depending on geographical area, the company, and the contract. It usually covers most of the home appliances and systems, including plumbing, electrical, HVAC, microwave ovens, and washing machines. Each contract is different and as with any purchase, read the fine print.
How do Home Warranties Work?
Home warranties can be purchased for all types of homes, not just new ones. Not all of the items in the home have to be new to be covered, but they all must be in working order at the start of the warranty. When a covered item breaks due to normal wear and tear, the home warranty company will send a technician to assess the problem and perform the repair. If repair isn’t possible, most items will be replaced. Certain problems are not covered, like improper installation, improper maintenance and code violations.
The price can vary, depending on the amount of coverage. They range from $250-$500 for the year for basic coverage and can cost much more for comprehensive coverage. Some companies will ask for payments monthly and others will need to be prepaid for an entire year.
Most home warranty companies have a claim service available 24/7. Many have a small fee to have the technician visit their home, which should be clearly outlined in the contract. Some guarantee a turnaround time for certain repairs. Every company is different, so be sure to read the fine print and do the appropriate research when choosing a company.
Why Home Warranties are Good for Sellers
Sellers often purchase home warranties for themselves and as incentives for buyers on resale homes. The seller is protected from costly repair expenses during the listing period, closing and sale of their home. It’s also an integral part of any home marketing plan. It will provide motivation to a buyer, knowing that many of the major repairs in their home will be covered for the first year.
A home warranty can also protect the seller after closing. If an appliance or major system breaks shortly after closing, the buyer will contact the home warranty company and not the seller to fix the problem.
Why Home Warranties are Good for Buyers
Buyers, especially first time buyers, consider a home warranty to be an asset. Many like knowing that they will not have to worry about expensive repairs during their first year of home ownership.
In certain states, like New Jersey, home builders are required to give a home warranty with all new home sales. Appliances, fixtures and equipment are covered for one year. Electrical, plumbing, and HVAC systems are covered for two years. Major structural defects are covered for 10 years.
A home warranty also gives the convenience of a single phone call to the same place for all covered repairs. It saves the time of having to search for a reputable service provider, especially in a new area. The home warranty company will send a technician from a pre-approved vendor and assume responsibility for making sure that the problem is fixed.
Home Warranty Drawbacks
Much like any warranty, purchasing one is a gamble. It is not possible to foresee if it will be needed or not. It is also possible that a claim may be denied. A home warranty does not cover an item that has not been properly maintained or has preexisting damage. It may not be possible to know this until a repair is needed. Some warranties limit the dollar amount of repairs over the course of the year and others limit the number of repairs. While these companies eliminate the need to find a repairman, they also limit which companies can be used.