What You Need to Know About Home Warranties

We’ll tell you 3 reasons why you should get a home warranty—and 2 reasons why you shouldn’t.

Broken-down dishwashers, refrigerators and water heaters—oh my! As in, “Oh my, how these ‘little surprises’ can wipe out your checking account!”

All it takes is one unexpected breakdown to run up hundreds—or even thousands—of dollars.

And if two or more things break down at the same time? Ouch!

That’s why you should evaluate the pros and cons of a home-warranty purchase before problems arise. (If you wait until something breaks, it’s too late. More about that later...)

What does a home warranty cover?

Home warranty policies vary, but in general, most cover major appliances, as well as heating/cooling, plumbing and electrical systems. This can include ovens, refrigerators, dishwashers, garbage disposals, microwaves, washer/dryers, indoor pipes, faucets, electrical panels, wiring, furnaces, AC/heating units and ductwork. (You can read more information about what home warranties cover—and don’t cover—at Realtor.com.)

The typical price of a home warranty policy is about $250 to $500 a year, plus you’ll be required to pay a deductible fee per service incident of about $50 to $100.

Annual fees can increase to $800 to $1,200 a year if you get a “Cadillac” plan that covers a lot of specialized items such as swimming pools, hot tubs, garage door openers, ceiling fans—and even your doorbell.

You may be tempted to get a cheap, bare-bones plan, but you risk paying for it later in terms of uncovered repairs/replacements. “The extra $25 to $50 you save by going with a less expensive company can cost you several thousands of dollars,” says Daniel Montez, team leader of the Daniel Montez Real Estate Group in Gilbert, Ariz.

Knowing you’re covered by a warranty can help you when you find yourself in a sticky situation. “Imagine if you just moved in, and suddenly your air conditioning goes out on a hot summer day,” says Lisa Treu, founder of Delray Beach, Fla.-based Treu Group Real Estate. “You make one call and either they’ll fix it or replace it. This makes what could be a bad day all that much better.”

Ultimately, you’re paying for peace of mind, and kicking in some extra bucks upfront will seem like a bargain when you’re in a jam. “I’ve found it only takes one repair to cover the annual fee,” Treu says. “It provides substantial relief in case of big-ticket surprises.”

Three reasons you should you get a home warranty

To decide whether a home warranty policy is right for you, consider these essential qualifiers:

1. You’re strapped for time and cash. The perfect candidate would be an educator who’s too busy with classroom work, after-school activities and/or family responsibilities to deal with every single household item that breaks down. Saving money every pay period is enough of a challenge: You certainly can’t afford to take a financial hit when a big-ticket item—like a water heater, refrigerator or HVAC system—breaks down.

“If you have too much going on to proactively manage your home, it’s a good idea,” says home-improvement expert Tina Gleisner, who runs HomeTipsForWomen.com. “With a warranty plan, you get a single contact for repairs so you don’t have to make a lot of calls. You won’t need to spend a lot of time online researching for a good repair company, either.”

2. Your appliances and other items are old. To factor the age and projected lifetime of your household systems, conduct an inventory of all eligible items. Identify the brand, model number, estimated age and any print and/or online material you can find in order to estimate how long each is projected to last. You also may want to keep a photo of each item in its current condition.

Then, create a calendar so you can realistically predict what may break down and when—and how much you’d have to pay to replace it.

“With this information, you’ll be in better position to determine the value of a home warranty,” says John Bodrozic, co-founder of HomeZada, a website where homeowners can input this kind of data. “Even if you end up not buying a home warranty, it’s good to know about this for the purposes of homeowner’s insurance and the resale.”

3. You’re planning to sell your home. A home warranty adds value, thus increasing your ability to find a buyer. Also, you’ll get coverage for the entire time your home is listed. “Depending on how long this takes, it can amount to 18 months of coverage for 12 months’ worth of cost,” says Damian Gerard, a Realtor and team lead for St. Louis-based Gerard Realty Group. “It’s obviously a good deal, which is why we encourage sellers to purchase this.”

Two reasons you shouldn’t get a home warranty

If you can identify with at least one of these scenarios, then you probably should avoid getting a home warranty:

1. You want to use your favorite repairman. If you have a go-to handyman or repair company, you may not want to get a home warranty. The warranty company typically determines which service provider will come to your home. Local service companies contract with the warranty company, and you’ll be told which contractor will provide the repair or replacement.

2. You want to fix stuff that’s already broken. If you were hoping to cover a long list of items that have been on the fritz for a while, you’ll be disappointed. Home warranties operate like health care: “Pre-existing conditions,” as in items that are in existing disrepair, are not included.

Warranty companies typically don’t require inspections before issuing a policy. However, items and systems must be in good working order to qualify. Don’t test your luck: If a technician is called for a repair and concludes that the problem predates the coverage, then the warranty company won’t pay.

“This includes items that came up during a (pre-closing) inspection but were not addressed beforehand,” Gerard says. “Carriers will request those reports before deciding whether to make repairs. And there are some out there who will do anything possible to avoid paying claims. Overall, however, a general rule of thumb is, the older the household systems, the smarter the policy.”

If you decide to get a home warranty

Make sure you thoroughly read the terms of the agreement. Not all policies are created equal. Typically, you’re best served by one that comes with a “repair or replace” policy, meaning that if a system or appliance can’t be repaired, they automatically replace it.

You’ll want to avoid policies with an “obsolete parts” clause. “These shield them from covering a repair if the parts are hard to replace,” Montez says. “It puts the homeowner in a bad spot.”

Some companies try to impose age restrictions, he says: “They’ll say, ‘The system has surpassed the life expectancy of 10 to 15 years, and we will not be replacing it.’ This is usually addressed in a depreciation clause, so review the policy carefully for that.”