If you look at real estate listings, it’s pretty common to see homes being sold with a home warranty. But what is a home warranty? Should you get one on your home? And is it worth it? What are the pros and cons of a home warranty?
What is a Home Warranty?
A home warranty is a service contract that covers the repair or replacement of certain appliances in your home. It covers issues not covered by your homeowners insurance. The coverage includes normal wear and tear, not just a surprise breakdown. Sounds great, right? Well, maybe not.
Pros of a Home Warranty
Easier Budgeting – Typically, with a home warranty, you have a flat rate for visits from a service provider, and those visits are discounted from the full price, and the work is either covered or heavily discounted. Home ownership is expensive, and it’s frustrating when things break down.
One Call – When something breaks down in your home, you can just call the home warranty company and they will find someone to come out for the repairs. You don’t have to spend time figuring out who to call. In a way, it’s similar to renting, where you call your landlord who takes care of the problems for you.
Cons of a Home Warranty
No Choice of Provider – For me, this is the big one. You can’t pick who shows up to do your repairs. You can’t go out and use the most reputable company or even the one who can come the next day. You are stuck with whoever they send. Sure, the provider sent might be great, but they might not. And frequently, you’re still paying the cost of the service call. If the provider they send can’t fix it, or they need to send out different technicians, you might be paying for each of them.
No Choice of Repair or Replace – Appliances sometime reach the end of their lives. It happens. You may be able to keep them running with some quick fixes, but they’re just going to keep breaking until you buy new. If you have the ability (and the desire) to repair the appliance on your own, then choosing to get it repaired rather than replace is great. But if you’re constantly dealing with something breaking down, having to call for repairs, having to pay (even at a discount) for repairs, it’s going to get old fast. And you will likely end up giving in and buying a new appliance.
And that’s likely what these companies rely on. After all, warranty companies make money by taking in more than they spend.
Fine Print – The fine print is always where they get you. Frequently, home warranty companies have a clause in their fine print that they don’t have to cover an appliance that wasn’t properly maintained. They might require you to produce proof of maintenance. If you just bought your home, you have no idea what the previous owners did and you certainly don’t have the proof of maintenance.
New Home Owners
If you are buying a house and the seller is offering a home warranty, take it. You don’t know how the home has been taken care of prior to your purchase, and if someone else is paying for it, go for it. Your mileage may vary as to the service, but if something breaks down in the first months of owning your home, you might be glad you have it. If the service is covered, you might as well start with those providers and see what your warranty covers. That said, I recommend not renewing and instead putting that money into a home repair fund.
In Conclusion – Don’t Bother
My home came with a home warranty and I needed to use it pretty early on after buying my house. Unfortunately, the service provider they sent was unable to fix the problem and I had to call a different company to come out. That other provider was pretty surprised that the first provider couldn’t take care of it. So I certainly didn’t even consider renewing when it expired a year later.
If you do a quick web search, you will see plenty of people sharing stories where home warranties weren’t worth the expense. They appear to provide you with peace of mind, but you will be better off taking the cost of the home warranty and putting it into a savings account. The average cost of a home warranty is $550. If I had started putting $550 into a savings account when I bought my home, even with the other minor repairs I’ve had to do, I would have had almost enough to pay for the air conditioner replacement I purchased a few years ago.
Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.