Is a Home Warranty Worth It?

Is a home warranty worth it?  A home warranty is a service contract provided by an independent company that can be purchased for a home in case appliances or mechanical systems in the home break. If there is a problem, the owner then calls the warranty company and they are referred to particular warranty approved contractors. Home warranties range in price from $425-$750 depending on size of the home and coverage. Home warranties are often included in home sale negotiations when purchasing a home, but can also be purchased by an owner at any time.  Recently, home warranty options have been added to our State Purchase Agreement, so every realtor is having a conversation with their clients about home warranties and agents have mixed reviews.

The Benefits:

If a person is new to town and doesn’t know contractors to call, a home warranty takes care of this headache. Most companies have specific contractors you must use anyway. In the event of a problem, the home owner calls the home warranty company and they direct you to the right person for the job.

If something expensive breaks, such as a furnace, stove, or pool pump, that can’t be repaired, the home warranty should cover some or all of the replacement cost. You can avoid going into debt because of home repairs.

The 1% rule. A popular belief is that homeowners will spend, on average, 1% of the home’s value on maintenance annually. If a house is $200,000, then a home warranty is less than 1% ($2,000).

It can be paid for by the seller, making home warranties a great incentive for the buyer.  Sometimes sellers offer home warranties as a testament of good faith, other times a buyer asks for it.  Either way, not having to pay too much out of pocket during the first year of home ownership is a nice idea.

The Negatives:

If a homeowner is handy or a DIY-er, then the home warranty may not be used.

There is typically a service call fee for a contractor to take a look at the problem. The pre-determined fee ranges from $50-$100, depending on the policy.  Even if the problem is small and inexpensive, the fee is always the same.

If the buyer is renovating the house and plans to replace appliances and systems anyway, then a home warranty may not be the best use of money. A buyer can typically negotiate a slightly lower purchase price if a buyer doesn’t ask for a home warranty.

Another potential negative is that the home owner must use the home warranty approved contractors. If you already have a little black book full of reasonably priced, reliable contractors, and you only trust them, then a home warranty may not be for you.

Overall, home warranties can be a great benefit for someone new to town, especially during the first year of home ownership.  I would never discourage a person from asking for one or getting one, but be sure to do your homework so that you buy from a reputable home warranty company. 

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Lauren Alexander

Greater Lafayette area realtor, ready to help you with all your relocation needs!

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