Do you have a home warranty? For homeowners, peace of mind often comes from knowing they’re covered when it comes to unexpected repairs.
Unlike homeowner’s insurance, which is mandatory, real estate investors have the option to choose a home warranty.
Whether you’re just starting out in real estate or you’re a seasoned investor, understanding the details of home warranties can be key to maintaining your property’s value and avoiding unforeseen costs.
In this article, we’ll explore what a home warranty is, its benefits, and much more.
Understanding Home Warranties
A home warranty provides coverage for the repair and replacement of specific appliances and home systems. While the exact coverage varies by provider, it typically includes appliances, heating, and air conditioning systems.
Home Warranty vs. Home Insurance: Key Differences
Let’s explore the differences between a home warranty and home insurance.
Home Insurance
Home insurance is designed to protect against unexpected events like theft, hail, or fire. It doesn’t cover routine issues; for example, if your hot water tank or HVAC system fails, that falls under the scope of a home warranty.
Home Warranty
A home warranty is not the same as homeowners’ insurance. Instead, it’s a service contract between a homeowner and a home warranty company. This contract covers the repair or replacement of home systems and appliances that break down due to normal wear and tear. If your washing machine fails, your home insurance won’t help—but a home warranty might.
How Does a Home Warranty Work?
When something goes wrong, you typically contact your home warranty company, which will arrange for a contractor to assess and fix the issue. A service fee is usually charged, which the homeowner is responsible for paying.
After evaluating the problem, the contractor will determine if a repair or replacement is needed and will coordinate with the home warranty company. If the issue is covered, the home warranty company pays the contractor for the repair or replacement costs.
For example, if you purchased a washer two years ago and the manufacturer’s warranty has expired, but you have a home warranty, your washer could be replaced at no additional cost—assuming it’s a covered appliance.
However, it’s important to be aware of stipulations and exclusions in your home warranty, as some repairs or replacements may not be covered.
What Does a Home Warranty Cost?
A home warranty usually costs between $300 and $600 for a one-year contract, with basic coverage averaging around $400. Additional coverage, such as for a pool or guest house, may increase the price. When selecting a company, it’s important to compare service fees as well.
Most home warranty plans require upfront payment, though some companies offer installment options. The age of a home generally doesn’t affect pricing, except in the case of new construction, which can lead to higher costs.
For older properties that you plan to rent out, a home warranty could be a worthwhile, low-maintenance strategy for landlords.
Even with a home warranty, homeowners might need to pay for repairs out of pocket. Companies may deny coverage for various reasons, such as improper maintenance—so it’s essential to stay on top of tasks like replacing air filters or maintaining your dryer.
Service fees typically range from $50 to $100. If multiple service providers are needed—like an electrician and a plumber for a broken dishwasher—you could be charged multiple service fees.
What Does a Home Warranty Plan Cover?
Although coverage varies based on the company, the typical home warranty coverage will include major systems like:
- Air conditioners
- Plumbing system
- Furnace and heating system
- Electrical systems
- Major appliances, such as oven and dishwasher
- Doorbells
- Water heater
- Garbage disposals
- Some indoor plumbing issues
- Ceiling fans
What Does a Home Warranty Plan Not Cover?
Most home warranties will exclude coverage of certain things, such as:
- Most faucet repairs
- Anything outdoor
- Pools and spas
- Separate structures, such as guest houses
- Items that are broken before closing on a property
How to Select the Right Home Warranty
Choosing the right home warranty can seem daunting, but following these steps will help you find the best fit.
Select a Plan
Providers often offer plans based on the number and type of items covered in your home. Start by taking inventory of your appliances and systems, and compare coverage options before deciding on a plan.
Review Sample Contracts
Home warranties can involve a lot of fine print, much like reading a dictionary. To avoid surprises, read sample contracts to understand coverage limitations and exclusions.
Consider Pricing
If paying a large upfront fee isn’t feasible, many companies offer monthly payment options to make plans more affordable. Pricing will vary depending on the systems and appliances you want to cover.
Evaluate Customer Service
Customer service is key. When something breaks, you’ll want prompt assistance to get it fixed as quickly as possible.
Compare Quotes
Obtain at least three quotes from home warranty providers in your area to compare pricing and coverage options across different companies.
Home Warranty FAQs
What is the purpose of a home warranty?
A home warranty is designed to protect your home’s appliances and systems by covering general wear and tear. It functions like a service contract for your home.
What are the benefits of having a home warranty?
A home warranty offers peace of mind. While it doesn’t cover everything, it can significantly reduce out-of-pocket costs for major repairs.
What is a home warranty final notice?
“Final notice” home warranty letters are often scams, urging you to renew your warranty. These notices typically include language indicating it’s your last chance to act.
What is a home warranty letter?
These letters are typically sent to new homeowners, alerting them that their homes may not be covered by a warranty. They are usually generated from information found in public records.
What is a dollar limit on a home warranty?
A dollar limit refers to the maximum amount a home warranty plan will pay for covered repairs or replacements during the contract term. The limits vary depending on your specific plan, especially when it comes to appliances.
Is a Home Warranty Right for You?
For some homeowners, a home warranty may not be necessary, while for others, it’s essential. Many homeowners find that investing in a home warranty is cost-effective and affordable, depending on the coverage and number of appliances and systems included.
