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Is a Home Warranty Worth It?

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Home for SaleAfter walking our dog Tobey this morning, I walked by a home for sale that advertised a free one year home warranty. It turns out that a lot of homes are offering this as a way to differentiate themselves from other homes. It’s a way for a house to stand out on the street because you get to put a placard that screams “Free One Year Home Warranty.” Back when we bought our home, throwing in a home warranty was like a cherry on top. Buyers battled for homes but sellers probably thought that throwing in a home warranty could juice up demand even more. What’s not to like about avoiding appliance headaches for one year?

The question is – are they worth it?

What is a home warranty?

When you buy a home warranty, you’re basically signing a service contract. The contract states that, for the life of the contract, the warranty company will pay for repairs or replacement on a number of appliances within your home. The contract will spell out which appliances it’ll cover, how much you pay per occurrence (similar to a deductible), and what is not covered.

It doesn’t cover structural aspects of your home. So if your roof collapses, that would be covered by homeowner’s insurance. If your water heater leaks, the water heater would be covered (if you bought that coverage) but the subsequent water damage would be a homeowner’s insurance matter.

Is it worth it?

In the six years that we’ve lived in our home, we’ve had only one incident that would’ve been covered by a home warranty. Our water heater, which is 20+ years old, started to leak and needed to be replaced. It’s a mere $400-500 job, less if you install it yourself, and I’m sure a home warranty costs more than $80 a year. Of course, depending on how old the appliances are in your home, it might be something you could consider if you can afford the warranty but probably couldn’t afford to replace your refrigerator or stove, if it stopped working.

In general, home warranties are nice to have when you buy a home, as it protects you for a year from unexpected expenses at a time when you can least afford them, it’s usually not advised unless you have extenuating circumstances.

Home warranties were a subject of a Devil’s Advocate post arguing that you should buy that home warranty. There are some compelling reasons in favor of home warranties.

That said, if you ask ten people about home warranties, you’ll likely get ten different opinions on it. Some people think as I do – put the savings away in an emergency fund to cover those potential problems. Some people think the peace of mind is worth the extra cost each year.

In the end, it comes down to doing the math after you get some quotes and finding the solution for you.

(Photo: phoneymanflickr)

{ 14 comments, please add your thoughts now! }

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14 Responses to “Is a Home Warranty Worth It?”

  1. Brendan says:

    I purchased a foreclosed condo in January, and my realtor recommended a home warranty. We were in such a whilwind with closing that we didn’t research it too much and just purchased it for $300/year (1 BR, 700 sq. ft.)

    After having some time to review what the warranty actually covers, I realized it was not a good value for my situation.

  2. T-dizzle says:

    I am thinking about getting one now because my AC/heating unit is 14 yrs old, as is my roof. I figure they may need to be replaced in the next 10 yrs. If I get a warranty $450/yr for the next 10 yrs, that would $4500 and I most likely will get a new AC unit and roof, as long as any other major repairs done. Somone please enlighten me as I know it can’t be that easy can it? I doubt it but don’t know where this would fail. Thanks.

  3. Jim says:

    Was it too expensive or did you find that it didn’t cover what you needed? It’s tough to make those “split” decisions… hopefully you bought at enough of a discount to give you some space.

  4. Emily says:

    We’re thinking of moving, and our realtor suggested offering to include a home warranty when we sell our house. Since we’re selling a townhouse and there’s a good chance it would be purchased by someone who was renting before, I figured the purpose was to give them one less thing to worry about when becoming a homeowner. Personally, I think the way you do and use an emergency fund for unexpected repairs.

  5. Steve says:

    Home warranties are, in my mind, something that sellers waste money on in hopes it tips a potential buyer off the fence. I would never buy one on my own.

  6. Can a home warranty be purchased at any time, or only when a home is bought or sold? Is there a “pre-existing condition” clause with home warranties, as there is with medical insurance?

  7. Shock says:

    I’ve used my home warranty twice in the last year or so. I bought a condo brand new 8 years ago. The AC broke last summer and the oven broke a few weeks ago. Both were covered under the home warranty. I put in a claim, paid the $50 deductible and both were fixed in a matter of days. It cost a few hundred dollars to renew the warranty each year, and the cost goes up as the house gets older. I think it’s only renewable for up to 10 years. I buy it for piece of mind. And I budget to pay for the warranty.

  8. sheri says:

    My first home had a home warranty. The water heater blew within 3 months. The warranty covered it. Had a problem with the heater and it was a nightmare getting it replaced. My opinion is the warranty companies find the cheapest (not most qualified) companies to work on contract. It took eight visits by six) different companies to finally replace my faulty heater. It’s a benefit for the buyer/seller for the first year. After that, you should get to know tradesmen in your area to handle issues that come up.

  9. Shirley says:

    A friend rented a house where the landlady had a home warranty. If an appliance failed he called the company and they came out and fixed it if possible. The co-pay was $40 which was to be paid at that time and then the landlady would send him a check for $40. I don’t know how much she paid for that policy but it was probably worth it to her since she was an elderly widow and lived hundreds of miles away.

  10. RyanLoos says:

    I see a lot of people calculation the cost over time and seeing if it would be worth it. What if you self insured (saved the money in a savings account) instead of paying a company and having to do all of the paper work and dealing with an installer that you probably you would not have selected. I self insure for everything. You know that you will need a roof, have to replace an appliance, why not save up yourself instead of paying someone else to save it up for you.

  11. Jenny says:

    I would never buy a home warranty. I work for a service company (plumbing) and we have tried to work with a couple of different companies. It never worked out, and here is why.

    They authorized us to do the bare minimum only. Nevermind that your water heater is at the end of it’s lifespan. If only replacing one of the two thermostats will keep it limping along for another 3-6 months, that’s what we had to do.

    They pay very very poorly for the time our techs spent on the job. They pay roughly half of our normal rate saying we can make it up on volume…no. Often, after we did work for them, before we had gotten paid, they would announce they were changing the rate – always lower, and it was retroactive to the jobs that we had already done.

    They were horrible when it came time to be paid on our end. There were reams of paperwork on our end to fill out, authorizations to get signed, and if an i wasn’t dotted or a t crossed, they’d send it back. They delayed payment as much as they could.

    One company was operating in my state without the proper licensing and was basically run out of town.

    I’d much rather save the money myself so I have the flexibility to choose the option that’s best for me, not which option is least expensive for the home warranty company.

  12. Rob O. says:

    When we got our mortgage on our new home last year, BoA -required- that we get a home warranty for at least the first year. It was not optional. We went with Allied Home Warranty, a Texas-based company.

    We had some major plumbing and electrical issues within weeks of moving in, so the warranty easily paid for itself several times over. And I was very pleased with the quality of the work that those vendors performed. So, when it came time to renew, we did.

    But now I’m having trouble with an outdated and failing Federal breaker box on the outside of the house (literally bolted to the brick on the outside of the house) and because it is external, Allied won’t cover or even help with the $2300 repair. Not only that, I had to pay the $60 “copay” for an electrician to come out and tell me that Allied wouldn’t cover the repair – even in spite of having told him a complete rundown over the phone specifically to avoid having to pay the “copay” if it wasn’t going to be covered. Not cool.

  13. Quinton says:

    Bought a warranty for my townhome while purchasing. 1 week into living there, we noticed that there was a spot on the ceiling. upstairs bathroom had started to leak. Repair guy comes, not covered. $250 to fix. 🙁

    4 months later, the AC handler stops.. Repair fixes for the $60.

    5 months later, the 26 years old AC handler dies. Repair guy says cannot fix!! YAY!

    .. but not really.. the warranty will only pay for the cheapest of air handlers (NOTHING else)

    (even though you CANNOT install a different air handler and outside unit per code, they have to be matched)

    so, we get a $650 payout for not bothering to fix (We went with a complete unit since we could get the FED Govt tax credit)

    Just save your money… they are NOT worth it.

  14. Perrie Roberts says:

    Home warranties are strange animals. It is kind of insurance but not regulated by state insurance agencies (except a handful of states) For the same reason home warranty companies are sometimes free to act on their own. However, there are reliable companies out there. If you can find a decent company, you should purchase protection plan, provided: 1)your appliances are old or 2)you don’t have time or interest in getting the repair work done.

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