You’re a new home buyer, or you bought a home years ago and might no be familiar with the term. What is a home warranty?
Home warranties are frequently part of the negotiations between buyer and seller. Most often, the seller offers to provide to the buyer, or the buyer demands the seller cover this cost. There’s no rule that says the buyer can’t pay for their own warranty if they really want it, but usually the seller is asked to pay.
And the term warranty is a bit of a misnomer. What the dozens of companies that offer these products are really providing is a bit more like insurance. Typically home warranties cover just the mechanical items in your home. Structural components, like roof, walls, etc. are generally not covered under a warranty (though plans do vary, especially in cost and coverage). Even plumbing and electrical systems may not be covered. Covered mechanicals are generally items like furnace, garage door opener, water heater, bath fan, etc. Some warranties even cover pool and hot tub components.
There are many companies, and they might all be a little different , but it works something like this: Say your garbage disposal brakes. You have one year of warranty coverage so you make a call right to the warranty company. You must call them first, don’t try to get it fixed on your own and then expect the company to simply reimburse you. Once you’ve reported the issue, you may be able to call any service provider you choose. Or the company may have a list of approved service techs, or they may even make the selection entirely. You pay a $50-100 fee for each event, and the warranty company theoretically pays the rest.
The sales pitch for these home warranty products, and the justification for the $400-800 cost is peace of mind. You can feel great knowing that your furnace, water heater, dishwasher, and air conditioner could all explode in the 12 months and you would only be stuck with paying $50 for each incident.
Over the ten years or so that I’ve been in real estate, I’ve seen both happy and sad home warranty claims. (Claims sure sounds like insurance, doesn’t it?) One thing you can be pretty sure of is that if the warranty company can weasel out paying a claim, much like insurance companies, they probably will. Bottom line: if you feel better by having warranty coverage from one of the big names in the industry, it really might be worthwhile. Just be sure to know what is covered and what is not. And do not expect miracles or heroics.