Real Estate Term of the Day: Home Warranty
HOME WARRANTY – offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowners’ insurance; coverage extends over a specific time period and does not cover the home’s structure (HUD Glossary)
Below is a graphic from American Home Shield (AHS) showing the average repair and replacement costs for common appliances in a home.
The Simple Dollar featured a recent article titled, Best Home Warranty Company for 2015 and listed pros and cons of home warranties:
Home warranty pros
A home warranty can be a big help if you don’t have a ton of cash left in savings — a particularly common scenario for homebuyers who just plunked down thousands for a down payment, closing costs, and other incidentals. With home warranty, one big, unforeseen problem may only cost you a small service fee to fix as opposed to shelling out hundreds. A reputable home warranty company can also eliminate the frustration you may feel as you attempt to make repairs yourself or find someone else to do them. So, if you’re the type of person who likes to make one call and leave the rest up to the experts, a home warranty can ease some stress.
Home warranty cons
The biggest con of home warranties may be the most obvious: There’s a good chance you won’t need to request any repairs from your home warranty company, which means you’re out at least a few hundred dollars. If you do need something fixed, you will still be paying a service fee or deductible on top of the initial price of your plan. You may not like the repair company your home warranty company sends to do the work, and you’ll have little control over the speed with which the repairs are done. There’s also a chance your repair won’t be covered, which is a common complaint among home-warranty customers. Of course, you can help guard against this scenario by reading your policy contract extremely carefully.
In my case, it’s unlikely I would have purchased a home warranty had our builder not included one in our home’s purchase price. Though we did end up using the warranty for a costly fix, the chance of major breakdowns is low in a newer home. And as always, you can set aside money in your emergency fund (where it will earn interest, too) to cover unanticipated fixes.