The Home Warranty: Peace of Mind for New Homeowners

What’s the warranty? Ask this question to a salesperson at your local electronics or appliance store, and instantly you’re presented with right-off-the-top-of-the-head answers like “ninety days,” or “one year parts and labor,” which might put your mind at ease when you make a major purchase. Even automobile manufactures aggressively tout their respective warranties to assure you of their product’s soundness and reliability in relation to what you’re paying.

Most of these purchases pale in comparison to the price of a home, yet rarely are any warranties offered or even asked for that protect you, the buyer, in the event an unforeseen repair rears its ugly head.

Why is this? Maybe we’re just excited to get our first home, and we’ve decided on a payment that is comfortable for us, so we forget to consider the hundreds of thousands of dollars the home cost to purchase. Hundreds of thousands of dollars–that’s a lot of money to someone just starting out. If your budget is tight, you may want to leave surprises like a water heater replacement, or an oven that decides not to work anymore, to chance. A good real estate agent may be able to sniff out potential problems by pointing out items that you may have overlooked; that’s part of their job. As we run around our potential home happily deciding where the flat screen will fit into the current décor, our agent must also be able to ground us by offing suggestions on how to handle potential problems that may arise from the home systems and appliances that you’ll be taking over once you buy. One tool that your real estate agent can suggest is a home warranty.

A home warranty is a guarantee given to the purchaser stating that the home, as well as key items in the home, is free from known defects and that the purchaser will receive repair or replacement of defective parts or items within a given time limit (usually one year).

*For a small fee, generally around $400, the warranty pays for repair or replacement of any covered home system or appliances. Typically you would be covered for the heating, electrical, plumbing, and the air conditioning. You will also be covered on major appliances like ovens, cook tops, dishwashers, and refrigerators.

Sometimes the seller may purchase the warranty beforehand to use as negotiation leverage or to help the home sell faster, especially if it’s an older home. A real estate agent may offer it as a post purchase gift. Many times the warrantee is purchased by the buyers to give them peace of mind regarding the whole transaction.

*Once you are in your home, if a repair or replacement is needed, you would pay only a deductible for the service–around $60, so you still have to come up with some money if your oven bites the dust, but it’s much less than if you had to purchase another one.

*The average costs to repair or replace mechanical systems in the home are as follows:

As you can see, these costs can add up quickly. A home warranty helps control costs for new homeowners who may not be equipped to handle an additional payment load during the first year after closing.

There are a plethora of companies that offer home warranties. When you begin your search, comparison shopping should be an integral part of your decision. While all warranty companies offer essentially the same benefits, some may offer additional perks, such as extending the warranty longer than the first year, purchasing additional coverage for items not included in the original plan, and larger contractor networks, which are the local shops that would be handling your claim, should you need one.

Also, be sure to read each company’s contract completely before you sign anything. These contracts vary greatly, and while most cover some wear and tear items like switches and knobs. It’s rare to find any warranties that cover accidental damage, which could create an uphill battle for people who are unaware of the insurer’s policies.

Some new homeowners may opt to forgo the warranty offer in lieu of creating an emergency fund, a savings plan separate from their primary saving that would be used if an unfortunate situation were to occur with items in the home. A fund such as that one is a great idea and is recommended whether you have a home warranty or not. While costs for repairs may be lower with a warranty, it always feels better not to have an unexpected expense interfere with your day-to-day budget.

In addition to setting aside funds for emergencies, always be sure to confirm all potential contractor’s licenses and current insurance before they perform any service on your home. Most states hold the homeowner responsible for unfinished work left by contractors that do not have the proper credentials, so do some investigating, or you may get stuck with costly reworking of the original repairs.

Regardless of which route you take–home warranty or an emergency fund–having a plan to help control costs during the honeymoon phase of your new home does wonders for easing your mind, not to mention your pocketbook A home warranty, whether you, the seller, or the real estate agent purchases it, might be the tool you need for ease of mind.

Source: Based on a nationwide survey of the independent network of service professionals who estimate the range of retail costs for the repairs and replacements (courtesy: HMS National).