Here’s Why You Need a Home Warranty

Oct 9, 2019

what is a home warranty



Your Realtor® probably offered you a home warranty when you were buying or selling a house. It can be overwhelming and confusing at first, but we’re going to share with you what it is, what you should know before you get one, & how they can help you sell your property.

What you need to know about Home Warranties

According to the American Home Shield, a home warranty is “an annual service contract that covers the repair or replacement of important appliances and systems components that break down over time.“ Basically, it’s like health insurance for your property. You pay a monthly fee (or can be paid annually) in case something goes wrong. And if something does go wrong, then you pay a “copay” to cover the unexpected expense. It is provided to an owner of a house by any of a number of different types of entities such as home builders, risk management groups, or others (such as home sellers to new buyers).

Not a home insurance policy

One may confuse home warranties with home insurance. Home insurance will fix the damage caused by a flood or fire. A home warranty is a contract between a homeowner and a home warranty company that provides for discounted repair and replacement service on a home’s major components, such as the furnace, air conditioning, plumbing, and electrical systems. A home warranty may also cover major appliances, such as washers and dryers, refrigerators, and swimming pools. Home warranties will fix the item that is broken, but they do not repair or replace collateral damage items. For example, if your hot water heater leaks, your home warranty will cover replacing or repairing it, but it won’t cover replacing the wood floors that were damaged from the leak.

Not a warranty

This may sound rather ridiculous but a home warranty is not a warranty at all. It is actually a home service contract that covers the repair and/or replacement costs of home appliances, major systems such as heating and cooling, and possibly other components of a home, structural or otherwise. The home service contract generally covers home systems such as the home’s plumbing or electrical, and appliances like when a stove dies, pipes burst, a toilet malfunctions, a sink gets clogged, a thermostat quits, refrigerator leaks, and a faucet malfunctions. Home warranty contracts do not cover all home repairs. Each company offers tiered plans with varying coverage for one’s needs and budget.

Why to get a home warranty

The purpose of a home warranty is to protect you against expensive, unforeseen malfunctions and provide you peace of mind. For a homeowner who doesn’t have an emergency fund, a home warranty can act as a buffer. Home warranties also make sense for those who aren’t handy or don’t want to worry about tracking down a contractor when problems arise. Home warranties are also good for people with expensive taste in appliances.

How much does it cost?

Just like a health insurance, companies and plans vary. A home warranty typically costs around $500-$800 a year. If any service requests are filed, then the $100 or less “copay” is all that you pay out of pocket. The plan’s cost varies depending on the property type and whether the homeowner purchases a basic or an extended plan.

How a home warranty can it help you sell your home

For home sellers with things like older pipes, or an aging hot water tank, it is recommended that they provide a home warranty. Buyers are rightfully concerned with seeing older items, and they fear the expense of those items not working not long after purchasing. Home warranties are good for one year, so buyers typically would have one year’s coverage paid by the seller, but they can renew at their own expense. Offering a home warranty is a good way to market an older property as well.

A home warranty is not a perfect solution to unexpected damage on one’s property. But it surely provides protection against sudden, unexpected home repairs and buyer complaints. Before getting one, read the fine print in the home warranty contract and carefully consider whether it fits your needs and budget.