Should You Buy A Home Warranty? Consider These Pros, Cons, and Costs—And A Few Companies To Look Into
Should You Buy A Home Warranty? Consider These Pros, Cons, and Costs—And A Few Companies To Look Into
We’ve been working as Realtors in Central Park for a long time, and even though the homes here are fairly new, a common question we get when helping clients buy homes is, Should we get a home warranty? (Well, that, or, What the heck is a home warranty?)
In this blog post, we’ll talk about pros, cons, costs and a few companies that provide home warranties in the area that are worth considering.
What’s the difference between homeowners insurance and a home warranty?
It can be confusing because there are some similarities to homeowners insurance, but the two are actually quite different.
To oversimplify a bit, homeowners insurance is for bigger, sudden repairs and replacements, while a home warranty is for smaller issues that happen over time. Homeowners insurance covers costs for big repairs or replacements after major systems break down or external events like floods, hail damage or theft. Home warranties, on the other hand, allow you to repair or replace things like your HVAC system or dishwasher at a lower cost when they break. The warranty company also usually finds a contractor, schedules the repair, and handles payment arrangements.
For both, you pay a smaller premium upfront that reduces the more significant costs on the back end when something goes wrong. You’re trading a little money now for peace of mind that can help you later.
If you’re buying a house with a mortgage, your bank or lender will require homeowners insurance. But lenders don’t get involved in whether you choose a home warranty policy, that one’s totally up to you.
What are different types of home warranties?
You can usually pick a plan that covers home systems like HVAC, electrical, and plumbing; appliances like dishwashers, laundry, and ovens; or a combination of the two, with optional add-ons for elements specific to your house.
So are home warranties worth it or not?
It depends! Some questions that can help you figure it out:
Are you buying an older home or one with older appliances or systems that might need to be replaced soon? (Your home inspector can point this out, if you’re not sure.)- Are you a first-time home buyer nervous about what ongoing maintenance will cost?
- Do you not have a big cash reserve in case you need to replace a costly system?
- Are you not comfortable doing repairs yourself?
If any or all of the above are true, a home warranty might make financial (and psychological!) sense.
What are some of the potential downsides of home warranties?
Some people feel that warranties aren’t worth it to them because of possible drawbacks.
For instance, some warranty companies use whatever contractors are in their network, so your results may vary. You may also feel the warranty company is choosing the cheapest repair rather than the best one, or they may only offer to cover a refurbished part or appliance instead of a brand-new one. In short, with home warranties, you lose control over which contractors will be used to make the repairs.
Another potential drawback is that some people feel that the home warranty contracts have a lot of legal “fine print,” allowing the warranty companies to get out of having to pay for repairs when they’re needed.
We think both of these concerns can be legitimate, which is why we suggest you only work with the most reputable home warranty companies if you choose to buy one.
Ok, I’m interested. What should I look for in different plans?
It’s wise to talk to a few companies and compare policies and prices before you jump in. Read the fine print about what’s covered, checking what it says about how pre-existing conditions, lack of maintenance, code violations, and other factors can affect your service. Also check to see the cap on payouts, whether it’s by year or per appliance or system.
Once you talk to a few companies, compare the following things: HVAC coverage limits, whether you can choose your contractor, waiting periods before coverage begins, and whether they have exclusions for older furnaces, boilers, and air conditioners.
Who are some of the companies I could consider using, and how much do they cost?
Prices may vary a bit by house and level of coverage; you usually can also tweak the amount you’d pay per service visit to raise or lower your monthly premium—the more you’d pay per visit, the lower the monthly premium. But here are some numbers to give you a general idea. (We punched in the address for a Central Park home to get these numbers.)
American Home Shield
They’re one of the
oldest and largest home warranty companies. Colorado's climate can be hard on furnaces, AC systems, and water heaters. American Home Shield covers some pre-existing conditions and offers strong HVAC protection. Costs run around $29.99 a month for a plan that mainly covers HVAC, electrical, and plumbing systems, to $79.99 a month for a plan that covers those plus roof leaks, laundry, and kitchen appliances and more, with a price of $100 or $125 per service call.
2-10 Home Buyers Warranty
A sister company of American Home Shield, 2-10 is familiar to many Colorado builders and real estate folks because of its builder warranty products and flexible homeowner plans. Their plans start at $29.99 (for HVAC, electrical, and plumbing coverage) or $59.99 a month (for those systems plus laundry and kitchen) or pay for the whole year upfront, with a range of add-ons available for additional cost. Service visit prices range from $75 to $125.
First American Home Warranty
Their website requires sharing your home address before you can get specific costs. But they do share that their plan prices start at $35 a month and they offer three levels of coverage, depending on what you want included in your policy.
Blue Ribbon works exclusively in Colorado, making them experts on the area. They also offer 14 months of coverage in their plans (at around $419 to $879 for a single family home, depending on level of coverage).Their most affordable plan covers things including heating, plumbing, electrical, water heaters, wired doorbells, sump pumps, gas fireplaces, and more; medium and higher-end plans include laundry, central AC, and whole house fans.
Do buyers always purchase home warranties, or can sellers purchase them too?
In our experience, it can make sense for either buyers and sellers to purchase home warranties. Buyers purchase them to protect themselves from future potential issues. Sellers can also purchase them for buyers to alleviate concerns about potential issues. For example, let’s say a buyer does a home inspection on a home and finds that quite a few of the appliances are of the age where they could start to fail. Instead of a seller replacing appliances that are still working fine, the seller could offer to purchase the buyer a home warranty. This could be a nice compromise, keeping the seller from having to replace things that are working, while also alleviating the buyer’s concerns.
Hopefully this overview on home warranties helps you understand them at a high level so you can make the right choice for your personal circumstances.
