Home Warranties – Are They Worth It?
Home warranties – are they worth it? Time and again, we hear this question from clients. Buyers want to know if home warranties are worth the additional cost and what they will cover. Sellers want to know if buying and offering a home warranty makes a property more saleable. Allow us to explain what exactly a home warranty is and when they make sense.
FIRST THINGS FIRST
What exactly is a home warranty? A home warranty is an agreement (typically for one year, sometimes longer), that covers the repair or replacement of many major system components and appliances that typically break down over time due to normal use.
A home warranty is only part of re-sale property transactions, not new construction (though builders typically will offer a builders warranty on their work and will hand over any manufacturer warranties).
Typically, the home warranty will cover HVAC, plumbing, and electrical systems, kitchen and laundry appliances, and hot water heaters.
These warranties can provide new homeowners a great deal of peace of mind when moving into their new home, especially if there are older systems or appliances. Often, buyers are facing many other expenses related to moving and furnishing a new home. The last thing they want to do is pay to repair or replace a major system or appliance.
WHAT DO THEY COST AND WHO PAYS FOR IT?
In our area, home warranties typically cost about $500-$600. Coverage options can vary widely so be sure to read any policies thoroughly.
It’s important to know that home warranties have deductibles just like insurance.
You will have to pay this deductible each time you make a claim. If the cost of the repair is less than the deductible, you’d pay that amount.
Buyers or sellers can purchase the warranty. Buyers can request that sellers provide a home warranty as part of the sales contract (often part of the negotiation process). Buyers are also free to purchase one on their own, outside of the sales contract (read more on decoding the entire real estate contracts here).
DO I NEED ONE WHEN BUYING?
It depends. Generally speaking, home warranties are certainly nice to have for the peace of mind they provide. However, the warranty issue should never be a dealbreaker in contract negotiations. If your offer is very low, we don’t recommend compounding it by asking the seller to pay for your warranty.
WHEN DO WE RECOMMEND ASKING FOR A HOME WARRANTY?
When we know that some of a home’s major systems and appliances are near the end of their lifespan(s) and may not last for another year, we suggest requesting one.(as an aside, we request the ages of systems when we prepare to write an offer on a property). You can also opt to buy one for yourself.
We also often recommend home warranties for our first-time home buyers. In most cases, these buyers don’t have a lot of extra cash on hand for significant repairs or system replacements.
WHEN DO WE NOT RECOMMEND ASKING FOR A HOME WARRANTY?
If you’re in a competitive situation, we do not recommend requesting a home warranty from the seller. An offer without a home warranty request is certainly more appealing to maxed-out sellers than one that does include one. While a home warranty is not a huge expense, it may just be the term that tips the scales in your favor.
If you are buying a new construction property, many builders will cover appliances and systems for up to 12 months and structural defects for several (often 10) years. In this scenario, you don’t need the additional coverage. Same goes if the seller has just updated all of the appliances or major systems – the warranty is just an unnecessary expense.
WHAT THE BUYER SHOULD KNOW
Keep in mind that home warranty claims are not automatically processed. Often the warranty company will deny a claim for things like incorrect installation or maintenance, excessive wear and tear, and items in violation of building code.
Bear in mind that any issues identified during the home inspection are not covered.
Do not confuse home warranties with homeowners insurance, which is required by lenders.
Lastly, don’t expect the home warranty company to come in and replace a system or appliance. They will always work to repair the item, rather than replace it.
WHAT THE SELLER SHOULD KNOW
Offering a home warranty when selling your home is a nice feature. It can set your home apart from the competition. It will provide much-needed peace of mind for new homeowners.
That said, it won’t get a new buyer through the door and not offering one is certainly not going to make or break any deal.
THE BOTTOM LINE
So, home warranties – are they worth it? Home warranties are a “nice to have” feature when buying a new home. They provide excellent reassurance for nervous or first-time buyers (or those who are not very handy!) but they aren’t the answer to everything. You will need to pay the deductible for each claim and you should be prepared for the warranty company to attempt multiple repairs before replacing any big-ticket items. Remember, if the seller won’t agree to pay for the home warranty – or if your agent says it would weaken your offer – you can always try to negotiate one during the inspection period. Or just buy one for yourself!
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