Home Warranties

For many new owners, this is a great way to gain peace of mind about problems that they used to call the landlord to fix: ones that often aren’t covered under their homeowner’s insurance. 

But you need to read your contract carefully to see what is covered, and make sure the company offering the warranty is one you can trust to make sure your water heater gets fixed when it breaks at 11pm on a Friday night.

  • How It Works:
    • You purchase or receive a home warranty policy upon the purchase of your home.
    • An appliance or system of your home that is covered under the warranty breaks.
    • You call the company that manages the warranty.
    • They send a pre-screened serviceman (plumber, electrician, air conditioner repairman, etc.) to fix the problem or replace the appliance.
    • You are charged a standard service call fee, regardless of the cost of the repair.
    • When your original warranty expires (or one year after buying a home), you will likely receive brochures from a number of home warranty companies seeking to either extend your policy another year, or sign you up for a new one.
  • Two Types of Coverage: New Homes and Pre-Owned
    • Pre-Owned Home Warranties: cover normal wear and tear, but not major pre-existing conditions, usually offered in homes 5 years and older.
      • Cover:
        • Central Heating/Air Conditioning Systems
        • Interior Plumbing
        • Electrical Systems
        • Water Heater
        • Kitchen Appliances: dishwasher, oven, range and hood, trash compactor, garbage disposal
        • Electric Garage Door Opener.
        • Add-on Options include:
          • Clause covering pre-existing problems.
          • Pool, Spa, or Well-Pump coverage.
      • Often Don’t Cover:
      • Washers and dryers (since frequently they are not part of the sale).
      • Pre-existing conditions and rust/corrosion.
      • Radiant floor heating and other in-slab plumbing.
      • Plumbing problems between home and sewer.
      • Cost: usually between $250 and $600/year, with deductibles of $25-$100, and service fees ranging from $10-100 per call.
      • Purchased by:
        • Seller: to make the property more attractive and minimize disputes after the sale, or as part of negotiation with buyer.
        • Buyer: in case the appliances are on their last legs.
        • Real Estate Agent: a common thank you gift to the buyers celebrating a successful transaction.
        • Typically paid for at closing.
      • Renewal: Most policies are renewable at the end of the year. Most buyers keep their warranties for only the first year, although some homeowners have renewed for as long as nine years.
    • New Home Warranties: Are purchased by the developer and they can last for as long as 10 years.
      • Limited Liability: builders tend to offer these warranties as a way to limit their liability for the performance of the new home.
        • Cover the roof, structure, and foundation.
        • Add-on coverage can include construction workmanship, materials and the home's mechanical systems.
  • Usage Caps: On average, owners file two claims per year, but some warranties have limits on usage:
    • Up to 10 Service Calls per year.
    • Up to $5,000 on repairs per year.
  • New Industry: 
    • Not Insurance: Home warranty companies aren’t considered insurance companies in many states, and so they aren’t as tightly regulated. 
      • Make sure you are working with a reputable company (check the Better Business Bureau for complaints) and ask:
        • How claims are handled?
        • The company’s financial condition?
        • How long has it been in business?
    • Limited Recourse:  Many warranties include mandatory arbitration clauses, which means your options are limited if the company doesn’t perform to your expectations.
    • National Rollout: More than half of all warranties are sold in the West Coast,  but they are becoming increasingly common across the country.

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