Although a home warranty may sound like a no-brainer, let's explore the pros and cons for a moment, and discuss what a home warranty actually does.
What is a home warranty?
Although it sounds very similar to homeowners' insurance, a home warranty is very different. Homeowners' insurance is meant to cover losses due to acts of nature, vandalism, etc. A home warranty is a service plan that is purchased, usually in one-year coverage periods, to help with expenses of unexpected major repairs for systems and components in your home that simply fail (not caused by a fire, storm, etc.).
What are the pros of a home warranty?
If you are short on cash (like when you are completing the purchase of a home and putting most of your savings into a down payment and/or closing costs), it can be appealing to purchase a home warranty during the contract period to cover you for unexpected repairs during the first year of home-ownership. The cost of a home warranty runs anywhere from $400-1000+, depending on the components and systems they cover. When a major system breaks down, it can cost thousands of dollars to fix or replace it if you don't have warranty coverage. The peace of mind that you won't have to shell out thousands of dollars for a repair is often worth more than the cost of the warranty itself.
Another positive side of having a home warranty is the convenience - when something breaks, simply place a claim with your warranty company and they will send someone to fix it. Most warranty companies have a list of approved vendors that service your area, and many will take the time to get quotes and hire the work on your behalf, saving you the hassle of shopping around.
What are the cons of a home warranty?
One of the biggest complaints we hear about home warranties is that they don't cover what you'd expect them to cover. For example, when your heating system breaks down in the dead of winter, it isn't the best time to find out that your warranty doesn't cover the repair. Often times a warranty will not cover HVAC systems in their basic plan; instead, it is offered as an add-on product that you may not have known to purchase at the time you purchased your home warranty. Even if you did purchase the HVAC coverage, many plans have a limit on the total cost allowed for a repair/replacement during the coverage period. If your warranty plan only covers $2500 during the one-year coverage period for HVAC-related repairs, and your system needs replacing due to age or availability of components, etc., then you'll still likely be stuck with paying thousands of dollars out-of-pocket to cover the amount that exceeds the warranty's coverage. Pay CLOSE attention to the fine print before you make a final decision to purchase a warranty - check for coverage limits and excluded components before you commit.
Another con is actually tied to one of our pros above...although it may help save the hassle of having to shop around for vendors, when a warranty company requires the use of certain approved vendors, it eliminates your ability to choose the person you like most. It also frequently causes delays in having the repair completed because the vendors get bogged down with work and cannot keep up with the demand. One way to avoid this problem is to choose a warranty company that gives you the freedom to choose your own vendors.
It can often be difficult to communicate with home warranty companies. Homeowners have mentioned lengthy hold times when calling, or difficulty getting to connect with a human representative at all. Even if you are able to submit your service request through an online portal, it can sometimes be frustrating to get updates on scheduling with a vendor or the status of your request. Not all companies are lacking in customer service, but just spend a little time communicating with a representative from each company before making your final choice. Ask about their average response times, service completion times, etc. A good company should be able to give you those statistics, and they can help you make your final choice. A bad experience up-front likely means you will have a hard time getting help when a repair need arises.
Finally, the other most common complaint about warranties is that the service fees are high. You'll pay a certain flat fee each time a vendor is assigned to come and assess your repair, even if it is found that the repair isn't covered by your warranty. These fees can range anywhere between $50-150+, depending on the company. Usually, plans that cost less up front have higher service call fees to help offset the lower initial fee. Sometimes the cost of the repair is not even as much as the service fee itself, but you are still charged the total service fee.
In summary, you'll want to review the fine details of each warranty you consider VERY CAREFULLY and choose the one that best fits your actual home's coverage needs. Factors like the age of the home, age of the mechanical systems, and amount of prior preventative maintenance all affect the chances of a major system breakdown. You'll want to weigh the likelihood of a repair issue arising versus the cost of the warranty and service call fee. There is no correct decision for everyone - you just have to decide what your situation dictates.