Is a Home Warranty Worth the Money?
In order to know whether a home warranty is worth the money, we need to have a clear picture of what it is and how it works. A home warranty is similar to a warranty you may get on a car. If your car starts making a funny noise and you take it into the shop, the warranty may cover the labor and parts but you may pay a small service fee. On the other hand, if the warranty has disclaimers that preclude that funny noise, you may be paying full price for that repair.
There are several ways to purchase or receive a home warranty.
- You can purchase one directly from a warranty company, for a home you currently own.
- You can purchase one at closing for a new property you are acquiring.
- A Seller can purchase a home warranty for you per the Purchase and Sale Agreement and it will take effect on your closing date.
- A builder can provide one for you at time of closing when you purchase a new construction home.
The cost varies, depending on square footage and what is covered and they typically come with varying service fees. I have seen them range from around $300 to over $1000. So, is it worth it? My opinion is, it is only worth it if you need to use it for a covered item. I have had clients purchase them and never use them. I have also had clients who have purchased them and received a brand new HVAC unit during the coverage period.
If you think of it like an insurance company, you may understand the logic. Many insurance companies are notorious for trying to find ways to get out of paying a claim. You paid your co-pay when you went to the doctor or you paid your deductible when the shingles were blown off your roof but the company continues to tell you, “that’s not covered.” Well, some home warranties can be similar. Some can also save you a ton of money – but, again, only if you need to use it on a covered claim.
Like most things, some people have had good experiences and some have had bad ones. Overall, I would say that they are worth it. A warranty for the typical house, under 5000 square feet, is not going to cost more than about $550. When you compare that to the cost of a new HVAC, I’d say it’s worth it.
Tips for purchasing a home warranty:
- Do your research. Research several companies and look at the reviews. Most warranties are for 12 months, but some may be transferred from the current owner and only last the remainder of the time they have at time of closing, however some last for more than 12 months.
- Check out the optional coverages. Do you have a second refrigerator or freezer? Do you have a pool or spa? There are many options that only add a few dollars to the warranty but can save you much more.
- Choose the plan that is right for you. Some companies will cover pre-existing conditions on a property if they were unknown to the Buyer but that is typically only offered in one of the plans they offer so make sure you are getting the one that fits you best.
- If you are receiving the home warranty as a part of a real estate transaction, ask if the company has a local representative you can contact if you have questions. I have had success in the past by having a relationship with the local representative of the home warranty company. They have been able to go to bat for my client on a claim that the company was trying to get out of paying.
- Be OK with “wasting money”. You may regret your decision if you purchase a home warranty and never have to use it. I liken it to a cancer insurance policy. I hope and pray I “waste” my money and never have to use it, but if I do need it, I will be thankful I prepared for the “what-if”.
Images courtesy of vectorolie and Stuart Miles via freedigitalphotos.net
Michelle Froedge is a residential Realtor and Principal Broker in the Greater Nashville and Williamson County areas of Tennessee. Wife to Robert, “Mom” to Tyler and Livvie, Auntie to Zelamie, she is a vegetarian and sings in her spare time. Michelle has lived in Nashville and Franklin since 1997 and has been selling homes since 2004.