Home warranties can be a lifesaver if you are a buyer who is a bit short on cash or credit options when you first start out in your new home. The prospect of a failed HVAC unit or a fridge on the fritz can be daunting when you are adjusting to making that first year of new mortgage payments, budgeting utilities, and other nickel-and-dime (they add up!) aesthetic improvements home buyers often want to make.
Home sellers will also often offer home warranties as a bonus or marketing/listing feature to their homes for sale, and the buyer reaps the benefit (though most often the choice in warranty company will be that of the seller). However, as a buyer (or even as a current owner) you always have the option to purchase a home warranty outright yourself. And this begs the question: Are home warranties worth it or are they just another money-making racket?
I took a few moments the other day to read a recent blog addressing the basic ins and outs of home warranties nationally, and thought I would give my two cents on home warranties here in Maryland. The costs among most well-known warranty programs are fairly similar in our marketplace--averaging between $450-700 for a single family home warranty that covers one year--but the way they package them can be deceiving as to what you are getting for what you are paying. Unfortunately, it is not that easy to compare apples to apples.
Most warranties in 2013 cover general failures of appliances, electric, plumbing and HVAC systems. Most will still make an attempt to fix the existing unit, so do not expect that you will be getting a shiny new replacement when something goes wrong. Typical "insurance claim" causes like acts of God, critter damage, are usually NOT covered. And if you do the damage, or do not maintain the system properly, the warranty may also not pay. There are also separate add-ons to obtain coverage for pools and spas, well and septic systems, and of course extensions of coverage options taking you past a year. Then there are the service call fees (aka deductibles) built in to most warranties that can set you back a few bucks each call made. And of course similar to insurance, the lower the repair deductible you choose, the higher the annual cost.
All that said, I have had several clients in my career swear by the home warranty they received or purchased as previously inspected because systems that passed at the time failed them during the coverage period. It is a roll of the dice. In one case this equipment failure happened just two weeks after move-in (a higher-end dishwasher valued at about $600). At the same time, I have had the same number of clients have everything go without any incident at all over year-one, and on the back-end, were feeling like the $500 they invested (or had built into their sale negotiation) was a waste of precious resources. As a professional marketer, I know the availability of a home warranty in conjunction with a home of good value has helped countless times to put a buyers mind at ease, especially with first-time buyers and homes under the $350K price point.
The bottom line? Home warranties are often worthwhile, but another "buyer beware" scenario: Between the tier systems, the true costs and all the rest, if you decide to seek a home warranty, you definitely want to take the time to read that fine print before you make your final choice--something you may not be able to so if the seller is choosing the warranty ahead of time (in which case you can always request the warranty package materials and at least read it to understand what will and will not be covered). Assess the home, review the average life expectancy and condition of your systems and appliances (often in your home inspection results), and consult with both your Realtor and your home inspector to decide to cover or not to cover.
My "end of the day" advice?
Selling a home under $350K? Offer a home warranty as part of the marketing package.
Buying a resale home, and dipping into your cash reserves/low on accessible funds? Buy a home warranty or ask for the sellers to include one (and try to choose it).
Buying a brand new home? No warranty is usually necessary as most builders already offer one. and if they don't the systems are often already covered under original manufacturer warranties.
Living in a home currently where multiple appliances and systems are starting to age AND not sure you will have the cash to fix them outright? Consider investing in an annual home warranty.