When purchasing a home, many buyers will be asked if they wish to purchase a home warranty, or the seller may include one with the sale of the property. Regardless, there will come a time when a homeowner must decide if a home warranty is worth the investment. Before diving into the details, its important to note that a home warranty and homeowner’s insurance are not the same, and a mortgage company will require insurance on a home, but not a warranty.

Pros of a Home Warranty

  1. Traditionally covers plumbing, electrical, major appliances, heating and cooling elements.
  2. Home warranty companies use a list of preferred contractors for repairs, eliminating the need for the homeowner to search for a provider.
  3. The annual fee of a few hundred dollars, based upon the plan and property, and the contractor service fee, which runs approximately $75-150, can offset a costly repair. For example, if the furnace stops working and it was well maintained by the previous owner, then the home warranty could cover the cost of the repairs or a new furnace, which is definitely more expensive than a few hundred dollars.
  4. Great for families where the homeowner is not handy with tools.

Cons of a Home Warranty

  1. Review the plan thoroughly as some areas of the home may not be covered, such as a detached garage, outbuildings, plumbing for the hose or other elements.
  2. If the home warranty company determines an item has not been properly maintained, then it can choose not to cover the repairs. Using the furnace example again, if the contractor doesn’t think the furnace received regular maintenance than the home warranty is not required to cover the cost to fix it, which means the homeowner pays for the repair plus the home warranty service fee. Proper maintenance can be a major grey area for many homeowners and home warranty companies.
  3. The homeowner is generally required to use the home warranty company’s preferred contractors, which eliminates the owner’s freedom to choose whom they feel is best qualified.
  4. Unless the warranty specifies that an exact replacement be given, a homeowner could end up with a different appliance brand or model then was originally included with the home’s purchase.

A home warranty is not ideal for everyone, but for sellers, it can offer the buyer a sense of security during negotiations. Many realtors have a list of reputable home warranty companies they prefer, but its always a good idea to read the find print and clearly understand what is and is not covered.