Have you seen a for sale sign in front of a home with a sign rider hanging from it that says home warranty protection plan included? What is a home warranty, and is it valuable?
I have found some confusion about what a home warranty is and how it works.
A home warranty protection plan is a service contract, not an insurance policy.
Standard home warranties will cover all or components of a home’s major systems like electrical, plumbing, heating, and air conditioning systems. Coverage of home appliances and other components will vary depending on the company from which you purchase them.
Often you will see a seller offer a home warranty when they list their home for sale. This is because home warranties have become a popular inclusion in the sale of the house. However, if a seller does not include a home warranty with the sale of the property, a buyer can purchase a home warranty themselves.
Existing homeowners can also purchase home warranties. They are not only for newly purchased homes.
What is the difference between a home warranty protection plan and homeowner’s insurance?.
Homeowner’s insurance covers your home and personal belongings from significant dangers like fires, storms, and theft. Homeowner’s insurance also covers liability for injury of people who do not reside in your home if something occurs while on your property. In contrast, a home warranty will provide you with a reduced rate of repair expense for the covered systems and appliances defined in the policy coverage.
In this past blog post, you can learn more about homeowner’s insurance.
Although mortgage lenders require home insurance, a home warranty is an optional item. Both home insurance and a home warranty will be a safeguard if something goes wrong with your home but in different ways.
There are benefits to having a home warranty, but you need to understand how a warranty works.
Coverage varies by company. You need to thoroughly evaluate what is covered and what is not before deciding whether it is the right home warranty protection plan for you. You may want to look at several different warranty companies before deciding.
There are several reasons a seller would want to purchase one when they list their Brooklyn home for sale:
- They will receive coverage during the listing period.
- The seller is responsible for maintaining the property in its current condition until closing.
- If a covered item needs repairing before closing, its cost is limited to the service fee.
- A home warranty can be an incentive for a buyer, and they will likely ask for one in their offer.
The buyer also has several reasons they want to have a home warranty protection plan included in their home purchase:
- It provides buyers with the peace of mind that unexpected repair costs can be minimal shortly after closing a home.
- They may have to restore their savings after paying the closing costs before they can begin home repairs.
- If they are new to an area, they can access vetted service providers with one call.
- They don’t have the DIY experience to handle the repairs.
According to SoFi Learn, the average costs to repair are:
- Electrical – $141 – $419 for minor repairs, $2,000 – $6,000 for full electrical wiring.
- Roof Repair – $300 – $2,000 for partial repair.
- HVAC – up to $577 for A/C repair, $5,000 – $12,500 for replacement.
Rocket Mortgage estimates an average home warranty costs between $300 – $600. One significant repair can cover the cost of the warranty.
Newly constructed home warranties are available.
The majority of home warranty plan purchases are for existing homes. You may not need to buy a home warranty when purchasing a newly constructed home.
Many builders offer warranties on construction components. The new appliances should also have warranties provided by the manufacturer. Some private contractors may not have a warranty option; therefore, some home warranty companies offer an option for new homes. You can consider purchasing a home warranty protection plan when your builder and manufacture warranties expire.
Coverage under a home warranty will vary from company to company.
It is important to stress that not all home warranty coverage is the same, and you must read and understand the policy offered to you. In addition, if there are older systems in the home, they may not be able to be repaired due to the availability of replacement parts, making the replacement cost significantly higher.
How does a home warranty protection plan work?
Most home warranties have a required service fee. Service fees average around $100 per service call.
You will need to contact the warranty company to file a warranty claim. Many companies require that you contact them first to receive a qualifying service provider’s contact information. However, many have exceptions for emergencies. Be sure to read the fine print.
When the service provider arrives, you will need to pay the service fee. After evaluating the situation, the service provider and warranty company will determine the necessary action to remedy the issue. Exclusions under warranty can incur additional expenses for the homeowner.
The pros and cons of home warranties include:
- Peace of mind of paying for unexpected repairs.
- Cost is limited to the service fee for covered items.
- The convenience of using vetted service providers.
- Reliability on the experience and skill of service providers.
- The current warranty may be transferable if you sell your home.
- Denial of claims due to coverage.
- Contacting the home warranty company before contacting a service provider is often required.
- A maximum dollar limit per year could apply.
- The home warranty company has the authority to decide whether to repair or replace.
- Appliance coverage is usually an additional cost.
- Not all components and costs are covered.
- Terms and conditions may be confusing or vague.
- There are limitations and exceptions to a home warranty protection plan.
Do your research before selecting a home warranty plan.
Many real estate firms have recommendations based on their experience with home warranty companies. You may also want to check with friends and family to see if they have experience with any home warranty protection plans.
It is good practice to check with the Better Business Bureau rating on any company you consider using.
The BBB bases ratings on:
- The number of complaints.
- The size of the business.
- How well the company responds to complaints.
- How quickly the company resolves complaints.
- Whether the business made a good faith effort to resolve the complaint.
You can also search on the internet by merely typing the company name followed by “complaints” to find additional information.
A home warranty protection plan is often a reassurance to homeowners that they can save substantial expenses of repairs for their home. However, each individual must assess if a home warranty is right for them based on their financial situation, home condition, and knowledge of home repairs. Nevertheless, many homeowners have benefitted from having a policy.
Contact me, Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate. As a Brooklyn real estate agent with over 30 years of experience, I help buyers and sellers achieve their real estate goals. Reach me by phone at (718) 253-9500 ext. 1901 or email at [email protected]