Do you have a home warranty? In the world of homeownership, some people want to have peace of mind regarding things like home repairs.
Real estate investors can choose whether to carry a home warranty versus something like homeowner’s insurance, which is required.
Whether you’re a new real estate investor or a seasoned one, understanding the ins and outs of home warranties can make all the difference in preserving your home’s value and minimizing unexpected expenses.
In this article, we’ll take a look at what exactly a home warranty is, the benefits, and more.
What Is a Home Warranty?
A home warranty covers repairing and replacing certain appliances and home systems. Coverage differs depending on the issuer, but often, appliances, heating, and AC systems are included.
Differences Between Home Warranty and Home Insurance
Let’s talk about the difference between a home warranty and home insurance.
Home insurance
Home insurance is designed for unexpected events, like theft, hail damage, and fire. Home insurance doesn’t cover the expected, meaning if your hot water tank or HVAC system breaks down, that’s more in the realm of a home warranty instance.
Home warranty
A home warranty is different from a homeowners’ insurance policy. Home warranties are not a form of insurance. They are service contracts between a home warranty company and a homeowner for providing repair or replacement services, covering only the failure of housing systems and appliances. If your washing machine breaks, your home insurance will be useless.
How Does a Home Warranty Work?
With a home warranty, you’ll often call the home warranty company if something is awry, and they will hire a contractor to come out and fix the issue. Often, they’ll charge a service fee, which the homeowner is typically responsible for.
After the contractor assesses the situation, they’ll determine whether a repair or replacement is needed and contact the home warranty company. If covered, the home warranty company pays the contractor for the repair cost and any replacement costs.
Let’s say you purchased a washer two years ago. The manufacturer’s warranty has expired, but you have a home warranty. Assuming your washer is a covered appliance, it will be replaced free of charge.
However, it’s not always that easy. Pay attention to any stipulations and exclusions, which might exclude some repairs or replacements.
How Much Does a Home Warranty Cost?
A home warranty typically costs between $300 and $600 for a one-year contract term, with an average of $400 for basic coverage. Additional coverage, like for a pool or guest house, might cost more. When choosing a company, compare service charge fees, too.
Most home warranty plans are paid for upfront, although some companies offer installment plans. A home’s age generally does not play a part in pricing, unless it’s new construction, which tends to increase the cost.
For older properties you intend to rent out, they might merit more consideration: Home warranties are an easy, hands-off landlord strategy.
Even with a home warranty, however, the homeowner may have to pay for repairs out of pocket. Companies can deny repairs or replacements for various reasons, such as the lack of proper maintenance—so don’t skip replacing air filters or de-linting your dryer just because you have a warranty.
Service fees range from $50 to $100. If more than one service provider comes out—for instance, a broken dishwasher requires an electrician and a plumber—you might pay multiple service call 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
In most cases, the items not covered as part of the basic coverage can be added for an additional fee. Check your home warranty contract to know exactly what’s included.
How to Choose the Right Home Warranty
Of course, you want to know how to go about choosing the proper home warranty. Here are a few steps you can take to figure out what home warranty is the best.
Choose a plan
Sometimes providers organize plans by looking at the number of items covered, coverage of the type of item, and items in the home. Take note of the items in your home and weigh your coverage options before buying a plan.
Sample contracts
Home warranties might be like reading the dictionary (unless you’re into that). There’s a ton of fine print in a home warranty. You can read sample contracts to see covered limitations, etc.
Pricing
Many companies let you pay monthly to make plans slightly more affordable if you cannot pay a hefty upfront fee. Again, it depends on the appliances and systems in the home.
Customer service
As with anything nowadays, customer service is crucial. If something breaks down, you’ll want an immediate response to get things rocking and rolling again.
Gather quotes
Get at least three quotes from home warranty providers near you. You’ll be able to see the pricing variations between different companies.
Home Warranty FAQs
What is the purpose of a home warranty?
It’s all about protection of appliances and systems within the home. It’s like a service contract that covers general wear and tear.
What are the benefits of having a home warranty?
It’s peace of mind. Sure, it won’t cover everything, but it will cover major repairs that could cost you a ton of cash out of pocket.
What is a home warranty final notice?
These are usually scams that tell you that you need to take action to renew your home warranty. A lot of the time, it will contain verbiage that says “final notice.”
What is a home warranty letter?
These types of letters are mailed out to new homeowners to alert them that their homes may not be covered by a warranty. They are typically mailed out based on information available within public databases.
What is a dollar limit on a home warranty?
Home warranty coverage limits refer to the cap on the dollar amount each plan will pay for covered repairs or replacements per contract term. It depends on your specific plan. With appliances, coverage limits vary.
Will You Get a Home Warranty?
A home warranty might not make sense for some, but it is a must for other homeowners. When a homeowner invests in a home warranty, they don’t think of it as breaking the bank, and a lot of the time, it can be very affordable, depending on the number of appliances and systems.
So will you get a home warranty? Why or why not? Comment below.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
