Home Warranties: What You Need to Know

In this article, we’ll take a look how home warranties work, what you should be looking for, and key factors to consider when you’re looking for a home warranty. We’ll also get a realtor’s perspective on whether home warranties are right for you.

What is a home warranty?

A home warranty is a service contract that promises to pay for the cost of repair or replacement if covered items or components stop working. Home warranties often cover major appliances and system components, like your refrigerator, dishwasher, air conditioner, and security system.

How home warranties work

Here’s how a home warranty works in the event that an appliance breaks or needs to be replaced:

1. The homeowner calls the home warranty company, such as Choice Home Warranty.
2. The home warranty company calls a service provider to come fix the issue.
3. The service provider schedules an appointment with the homeowner.
4. During the appointment, the service provider will either repair the issue or recommend a replacement. Based on the terms of the warranty, the home warranty company will typically pay to repair or to replace and install the system.
5. The homeowner will typically pay a small service fee for the visit.

Benefits of a home warranty

Jennifer Kendziora, realtor at Jenne Homes, is a personal fan of home warranties. Kendziora speaks to a recent incident of where a home warranty helped one of her clients save money.

A client had purchased a home with an older HVAC unit. Within three months of moving in, the unit stopped working. Without a home warranty, the replacement cost would have been $6000–$7000 for a new unit, depending on which company/brand the client chose to replace it with.

The end result was $1,300 out of pocket, including the $75 call fee, which was for labor. The home warranty covered the parts, which in this case, was a new unit. The cost savings in this example alone covers eight years of the cost of having a home warranty (this is based on a new unit costing $6,000).

What to look for in a home warranty

While a home warranty can save you money on unexpected costs, make sure you’re getting the best home warranty available for you and your home.

We’ve put together a list of five important items to consider and factors most homeowners forget to ask about when looking for a home warranty.

1. Total cost

The cost of your home warranty will vary based on the state you live in, the type of plan you buy, and which provider you buy from. Before you buy, ask the warranty provider about additional expenses of a home warranty, like the co-payment for when a contractor comes in to do work, the monthly premium, and any appliance installation fees that aren’t covered.

2. What’s covered

Many homeowners don’t know exactly what is covered by their plan. Read the terms and conditions carefully before entering into a warranty contract. For example, some home warranties will cover a refrigerator, but not the ice maker that comes with it.

Additionally, a service provider will occasionally deny a claim. If this happens, contact your home warranty company and request to go through the company’s appeal process.

3. How much the plan will pay

Another reason to read all terms and conditions of the home warranty before you buy is because your plan provider will typically pay a percentage of the repair cost, instead of covering the entire repair or replacement process. In general, homeowners pay a service fee while the warranty provider covers a larger portion of the repair cost.

4. Standard turnaround on repairs and replacements

If an appliance needs to be replaced, parts will need to be ordered and delivered before any repair can be done. Homeowners should ask their provider what the standard turnaround time is for repairs and replacements to get an idea of how long the repair process will take.

5. Current condition of appliances

Pre-existing conditions of your appliances won’t generally be covered, nor will damages due to wear and tear or lack of maintenance. Other circumstances that may void coverage include code violations or improper installation of an appliance.

Important factors most homeowners overlook

According to Kendziora, the two items most homeowners don’t ask about when signing up for a home warranty are:

1. Wait time

When a repair is necessary, homeowners will get one to two quotes from service providers under the home warranty plan, which takes time.

If your AC goes out on a Monday, it’s most likely not going to be fixed by Tuesday. It takes a couple of days to get a quote and contract a service provider to make the repair or replacement. The cost savings are worth the wait, but if you need something fixed immediately, this is not your best route.

2. Additional costs

Some warranties include costs in addition to the premium and deductible, including annual service fees, service co-payments, and call fees. Sometimes these costs are 100% covered, but some warranties call for an out-of-pocket expense.

When asked if a home warranty was worth it, Kendziora ultimately said, “If you choose a reputable company, most homeowners are pleased with the cost savings.”

More on Home Warranties