Why You Shouldn’t Buy a Home Warranty
A home warranty is purchased on the basis of covering the costs of major replacements or repairs in your home, but is the peace of mind only an illusion? If you’re unfamiliar with home warranties and perhaps considering purchasing one (or you recently have one), here’s what you need to know.
What is a Home Warranty?
Home warranty contracts can sound very appealing to a homebuyer. Any homeowner knows that owning a home comes with a lot of responsibility and expenses. From the moment you purchase a home, there are the expenses of moving, home inspection, realtor fees, and down payment. Then comes the monthly mortgage and insurance payments along with routine maintenance and upkeep. It’s no wonder homeowners purchase warranties with good intentions.
Home warranties are marketed as a means of financial protection for things like plumbing, electrical, heating and cooling systems, major appliances, and your hot water tank. Most home warranties or home inspection warranties are based on an annual service contract. This means you will pay a yearly fee for having the warranty, but that’s not the only cost.
Without a doubt, the problems most salesmen will talk to you about while trying to sell you a home warranty are costly. But, remember that if it sounds too good to be true, it probably is! Home warranties are profitable because the things that are actually covered are unlikely to break before your warranty is up and, if they do, you’ll still have to fork out additional cash to fix it.
Most often, the detailed fine print of the contract has many exclusions, leaving homeowners distraught and paying those repair costs out of pocket even after putting down all that money for a warranty that they thought had them covered.
How Much Does a Home Warranty Cost?
Just like insurance, there are various plans available when purchasing a home warranty. Depending on how much coverage you buy, the cost can range from $200 all the way up to $1,700 annually. But, that’s not even 100% of the cost.
In addition to the annual fee, you’ll also pay repair service fees of at least $125 any time you intend to utilize your warranty. Plus, should you need a repair or replacement, you’ll also be responsible for paying anything over the maximum warranty coverage—and the maximum coverage is generally on the very low end of any potential replacement part or appliance.
How Does a Home Warranty Work?
At first glance, a home warranty sounds very appealing, presenting itself as protection for unexpected expenses, like the AC breaking in the heat of summer. The home warranty also eliminates the hassle of a homeowner needing to find a contractor to take care of the replacement or repair because most contracts do the legwork for you once a claim is submitted. However, this represents just one of many downsides.
While the entire pitch of a home warranty may sound very appealing at first thought, the reality is rarely in a homeowner’s favor. Say that a warranty company promises to find a repairman for you when something goes wrong. Consider this: because the warranty company has full control, they may choose the cheapest contractor in the area or fail to consider a repairman’s reputation. After all, it’s not their house—they just want to collect the fees.
With this in mind, if you’re in a hurry for a repair or replacement, you have to remember that you’re at the mercy of the warranty company. Do you really want to pass that control on to a third party?
Moreover, there are several loopholes these warranty companies use to avoid covering expenses or doing a subpar repair. For example, they may deem an appliance or system isn’t included in the coverage, or they can choose to deny coverage stating that a system or appliance failed due to improper maintenance or the appliance is too old to qualify for coverage.
Further, while a claim may not be denied, the company may decide to repair a unit, regardless of its age or condition, and you have no choice but to accept the contractor that does the work—and pay the price.
What Experts Say About Home Warranties
Ultimately, the decision to purchase a home warranty is completely up to you, but before you do, make sure you know what you’re getting into. Reading and understanding the fine print is crucial. Beyond that, you should also consider the opinions of industry experts who have gone down this road before.
Consumer Reports money editor Tobie Stanger says “you are better off having money set aside,” when she’s been asked about home warranties. Meanwhile, Clark Howard, money expert, and radio and podcast anchor for more than 25 years, has heard countless complaints from disgruntled home warranty consumers. He exclaims: “Home warranties aren’t worth the paper they’re written on.”
So, if a home warranty isn’t worth it, how do you protect yourself financially if things go wrong? Without a doubt, unexpected repairs and expenses always come up when you own your own home. But, instead of putting your faith in a third-party warranty, choose to think about these proven alternatives first.
Home Warranty Alternatives
Get peace of mind, retain control, and protect your finances with these proven alternatives to a home warranty scare tactic.
#1 Set up an emergency fund.
As stated earlier, it is worth opting to build an emergency fund specifically for home repairs. Rather than paying a monthly fee towards a home warranty, put those funds towards your emergency fund. This gives you complete control over choosing a contractor as well as deciding whether to replace or repair an appliance.
Consider this example: A home warranty plan costs $50 per month and under that coverage, a service fee might cost $150. Six months after you purchase your home, your dishwasher stops working. In lieu of paying $300 for warranty coverage plus $150 for a contractor (reputable or not), you have $450 in your emergency fund to purchase a new dishwasher or pay for the repair to be done by a contractor that you choose. Likewise, in the event your appliances are nearing the end of their lifespan, set aside funds and a goal for replacing these items within that designated timeframe.
#2 Have major systems and appliances serviced regularly.
By being proactive and having a professional regularly service major appliances as well as plumbing and HVAC systems, you’ll prolong the life of these items. Routine assessments will also make you aware of potential or minor issues before they turn into costly repairs or replacements.
#3 Find out about manufacturer warranties.
Most appliances and HVAC systems come with limited warranties. If you purchase a home with these items already in place, but don’t have access to the paperwork, find the serial numbers and either look online or call the manufacturer to determine if warranties are active.
#4 Confirm the coverages of your homeowner’s insurance.
Home warranties and homeowner’s insurance policies are often confused. Another alternative to wasting your money on a home warranty is to verify coverage details of your home insurance policy. There is usually an option to add endorsements to the policy that cover major appliances, plumbing, and heating system damage outside of usual wear and tear.
#5 Schedule annual home inspections.
As a homeowner, it’s a good idea to schedule annual home inspections. That’s right: Aside from the all-important inspection before you buy your home, you should continue to put the same care into it from year-to-year thereafter.
A home inspector is trained to identify problems in every aspect of your home, ranging from the roof, siding, and foundation to the interior walls, major systems, and appliances.View the cost of a home inspection as a safety net and an investment towards your peace of mind—and something that’s far less expensive than any home warranty a salesman could try to push your way.
Interested in scheduling a home inspection for your current residence or for a property you’re interested in purchasing? Get in touch with us today and get the peace of mind you’ve been searching for.
Adam C Clark
Owner & Operator,
Shield Guard Home Inspections LLC
45 Parkwood St Albany NY, 12208
NYS LICENSE #16000091657
NYS MOLD # 0321