What Is a Home Warranty?

By: Kealia Reynolds

A home warranty can be your best defense against one of the dreaded realities of home ownership—the sudden, unexpected failure of an expensive appliance or system. With a warranty plan in place, you get peace of mind because you know that the cost of repairs will be limited. Most often, all you’ll face is a relatively small service fee. Below we’ll take a look at what a home warranty is and is not, why you might benefit from one, and what to keep in mind when shopping for one.

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How a home warranty works

A home warranty is an optional home protection plan that at least partially covers the cost to repair or replace a covered item. We’ll use an example to illustrate how the claim process works. Imagine that you wake up one morning to find the water heater isn’t churning out hot water. What do you do?

Step 1—Submit a claim

First, you’ll call the warranty company or submit a claim online. Keep in mind, these contracts only cover normal wear and tear to home systems and appliances that are explicitly written into the contract. Note: the warranty company can deny a claim for issues such as improper installation or because the appliance wasn’t maintained correctly. Routine maintenance of a water heater includes regularly flushing the tank to reduce and remove sediment buildup.

If the claim is approved, the provider will send out a service technician from its network of approved professionals. This process usually takes 12 to 48 hours, but can take longer on weekends and holidays.

Step 2—Repair vs. replacement

On their first visit, the technician will evaluate the problem with the water heater and fix it if possible. The average repair cost of a water heater is $546. If the contractor can’t repair the water heater on the first appointment, they’ll submit a recommendation to the warranty company.

You’ll have to pay a service fee—usually $75–$125—for that first visit and may or may not be charged for a second visit. Read your contract to find out.

The contractor will then schedule a time to return and fix the problem. As with any repair, you may have to wait for parts to be ordered and delivered.

If the technician determines the covered appliance can’t be repaired, your provider might offer you a replacement depending on the terms of your home protection plan. The average replacement cost of a water heater is $1,065—including materials and professional installation.

Refer to your contract to find out whether the home warranty company covers full replacement costs or if it only partially covers the broken item. The average payout on a water heater repair or replacement is $1,037, which would cover all but $28 of the average cost of a replacement.

Step 3—Understanding your coverage

There will be limits on how much the home warranty company will pay for a replacement, especially on expensive appliances and systems, like a water heater. Additionally, the contract only covers replacement items of the same standard. The provider is not liable for matching the brand, model, or color of the water heater—or any other broken item you file a claim for—and you won’t be able to upgrade to a higher quality unit. Read your contract closely, as it should list all of these limits and exclusion in detail.

What does a home warranty cover?

The contract will spell out exactly which appliances and systems are covered by the warranty. Usually, it covers items such as:

  • Heating and cooling system—including your furnace, air conditioner, and the ductwork throughout the house.
  • Electrical system—including the circuit breakers, plugs, switches, and fans.
  • Major appliances—such as your stove, refrigerator, dishwasher, clothes washer, and dryer.
  • Plumbing system—including toilets, faucets, and a sewer line.
  • Optional coverage includes doorbells, garage door openers, smoke detectors, and more.

Options vary. You’ll find that most home warranty companies offer two to four home warranty plans starting with a basic systems plan and an appliances plan, then moving up to a combination plan, and sometimes even build-your-own custom coverage, which means you can decide exactly what extra items you want to have covered. So, if you have a pool or sump pump you want to cover, you can add it to the policy for an additional fee.

Frequently asked questions about home warranty coverage

Should I get a home warranty plan?

Yes, you should get a home warranty plan if you want to avoid paying full price for expensive home repair and replacement costs. House Method suggests home warranties to all homeowners including home buyers—especially first-time home buyers—and sellers, realtors, and rental property owners. A home warranty may not be necessary if you have a brand new house that’s still protected under a builder’s warranty or if your home is larger than 5,000 square foot.

Do home warranties cover old HVAC?

Yes, most home warranties cover heating and cooling systems regardless of age. However, coverage is limited to items that fail or malfunction due to normal wear and tear. Your provider might require receipts to prove your HVAC system was serviced with routine maintenance.

The average cost to repair a broken HVAC system is $284–$347 and the average cost to replace a furnace or air conditioner is $4,249–$5,413. The average coverage limit home warranty companies will pay is $1,500 for each.

Do home warranties cover pre-existing conditions?

No, home warranties will not cover known pre-existing conditions. Although a home inspection is rarely—if ever—required to get home warranty coverage, it can be used to prove to the provider that a pre-existing condition was unknown to the homeowner.

Do home warranties cover roof replacement?

Roof leaks are sometimes covered by home warranties as optional coverage that you can add to your home protection plan for an additional fee. You’ll have to refer to your contract to find out whether roof replacements or repairs are covered. Note: in the event of a natural disaster, your homeowners insurance policy should cover roof damage.

The average cost to replace a roof is $7,518 and the average cost to repair a roof is $791 Most home warranty companies who offer optional roof protection will cap their coverage at $600.

Does a home warranty cover foundation repair?

No, a home warranty will not cover foundation repairs. You’ll have to refer to your builder’s warranty to find out which structural items are covered and for how long. Most builder’s warranties last one to two years, but major structural items could be covered for up to 10 years.

Does a home warranty cover mold?

No, a home warranty will not cover mold. Mold is often a result of a maintenance issue, which most home warranty contracts will state the homeowner is responsible for.

What does a home warranty cost?

The price of the warranty can vary, but the average cost is $300–$800. Factors that can affect your cost include the level of coverage you select, where your home is located, and which company you buy from. The cost will also depend on whether you’re covering a condo, a townhouse, or a single-family home.

The size of your home shouldn’t affect the cost of coverage unless you own a very large house. Anything bigger than 5,000 square feet will likely result in a higher cost, and you might also have to pay extra for other structures outside your house, like a shed or a separate guest house.

The age of your property shouldn’t affect the cost of coverage either unless you own a brand new house. A new build might increase home warranty costs, but it could be covered by a builder’s warranty for the first two years.

How much should I pay for a home warranty?

Despite the average cost of a home warranty ($300–$800), our research shows that customers should narrow their search to home protection plans with premiums that cost $600 or less per year—or $50 per month. Unless you need extra coverage on bigger ticket items, like a pool, a $600 plan should suffice for the two to three repairs you’ll need each year. Remember, pricing for these home warranty plans is apt to increase year after year. Only those who opt into three- or five-year coverage will lock in a price for the lifetime of their warranty.

How long do home warranties last?

Typically, home warranty companies sell policies that last for one year, and they usually expect you to pay for the year upfront before coverage begins. However, some companies allow you to pay in monthly installments, which often come with an automatic renewal unless you notify the company you want to cancel the policy.

Is there a waiting period for a home warranty?

There’s usually a 30-day waiting period between when you sign up and when coverage begins. Keep this in mind if you’re switching from one provider to another. Note: you can renew the policy annually with no waiting period.

Who pays for a home warranty?

Home buyers who want to cover their new home often ask—do sellers pay for a home warranty? The answer is yes more often than not these days. Home sellers often buy a home warranty to cover repairs while their house in on the market. They will then transfer the warranty to the buyers who will be covered for their first year in the house. Sometimes real estate agents will even buy a home warranty for their clients to expedite closing. If you don’t fall into any of these categories—buyer, seller, or realtor—you, as a homeowner, will be responsible for paying for a home warranty should you wish to sign up for coverage.

Home warranty vs. homeowners insurance vs. manufacturer’s warranty

It’s important to know the difference between a home warranty, homeowners insurance, and a manufacturer’s warranty. It can be confusing because the names sound similar. All three are important in helping you deal with unexpected issues that could be costly, but each provides peace of mind in different scenarios.

Home warranty

These optional service contracts are designed to cover repairs or replacement of major appliances or home systems that experience issues from normal wear and tear. A home warranty protects you from having to pay costly repair bills or from having to pay the full cost of replacing a major appliance or covered system. Instead, you will just have to pay the service fee for the repair visit.

Homeowners insurance

A homeowners insurance policy is required by mortgage lenders. It protects your home in cases of perils named in the insurance policy. “Perils” are natural disasters and events like fire, lightning strikes, or a tornado—not normal wear and tear. If your house is hit by lightning and your electrical system is fried, it’s covered by insurance—not your home warranty.

Manufacturer’s warranty

A manufacturer’s warranty is a promise from the manufacturer that its product will perform as advertised for a certain amount of time. Manufacturers require you to fill out a product registration form as soon as your purchase the appliance to activate your warranty. For household appliances, manufacturer’s warranties typically last one or two years. However, some manufacturers—like Samsung—might cover the most expensive components—like the motor—for a longer period of time. Follow the procedures outlined in your owner’s manual to have a covered appliance serviced while it’s under warranty. Note: manufacturer’s warranties are non-transferrable during a home sale.

Is a home warranty worth it?

Anyone who values the peace of mind that comes from knowing they won’t face high, unexpected repair bills when a household appliance or system is on the fritz can see the value in purchasing a home protection plan. It’ll save you money when you need repairs.

However, a home warranty offers an additional benefit you might be overlooking. When you have a home warranty, you also have access to the company’s network of pre-approved service professionals. You might not know who the best person is to fix your heating system, plumbing, or dishwasher, and when you need help fast, you don’t have the time to look for the best option.

The home warranty company has already vetted service providers and selected trusted partners to come to your home and solve your problem. These service people should be bonded and insured. Simply call the warranty company’s customer service line—or submit a claim online—and know a qualified technician will be scheduled to respond. You won’t have to check Yelp reviews or ask for your neighbors’ recommendations.

Can I choose my own technician?

If you have a trusted contractor already, some warranty companies—like America’s 1st Choice Home Club—have the option of having your preferred repair technician enter their network. However, if something breaks down, never call someone who isn’t approved by your home warranty provider to do your repairs because the warranty company will not reimburse you.

Why do you need a home warranty?

If you’ve landed on our guide to home warranties, you’ve likely already asked yourself—should I get a home warranty? While anyone can benefit from a home warranty, the plans are especially beneficial to certain groups of homeowners.

  • First-time buyers–Buying your first home is scary enough without having to worry the water heater is going to flood the crawl space. When you’re purchasing your first home, you’re often stretched for cash, so the cost of a warranty is a small price compared to the cost of replacing the heating system. See if your real estate agent can get the seller to include a warranty before you buy or include it in the negotiations. Some agents even give home warranties to their buyers as a sort of “thank you”’ gift.
  • Owners of older homes–When you buy a new house, the appliances and systems are covered by manufacturer warranties, and possibly by a warranty from your builder too. But as those appliances and systems age, you know they’re eventually going to need repairs, no matter how well you maintain them. You can’t know exactly how long anything will last, but the International Association of Certified Home Inspectors estimates a furnace lasts about 15 years and a refrigerator averages about 10 years. You might want to purchase a warranty before your home nears those estimates.
  • Home sellers–Home warranties are appealing to sellers because the last thing they want is costly repairs after they’ve put the home on the market. Often a seller can purchase a policy that covers the home while it’s listed for sale, then transfer the policy to the buyers. Offering a home warranty with the purchase also helps to entice buyers, especially if the home has a few years on it. A warranty also makes the home more attractive to a first-time buyer, who might not have much experience in dealing with home repairs.
  • Real estate agents—Realtors can use home warranties to expedite the closing process. A home warranty plan can be an incentive to home buyers who are anxious about potential repairs. As a listing agent, it can also ease your mind if the sellers who you’re representing can fix issues that come up while the house is for sale.
  • Rental property owners—Home warranty coverage also lends peace of mind to rental property owners who rent houses to tenants, like college students. You can include a home warranty price in the renters’ overall rental fees to cover the costs. If you lease out multiple properties, you can streamline maintenance by submitting claims through an 800 number that’s usually available 24/7. The warranty provider will send out a licensed contractor for you, saving your small management team time, money, and energy.

If you live in a newly built home, recently renovated all new systems and appliances, or you have a hefty emergency fund on-hand to cover repair costs, you might decide a home warranty isn’t necessary for you.

Read before you sign

A home warranty is a contract and, like all contracts, you need to read it closely to see exactly what is – and isn’t – covered. Companies should have sample contracts available on their websites. Some information to look for when you’re reviewing a contract:

  • What appliances and systems are covered? Make sure your older items are covered.
  • Is anything excluded that you would like to see included? If so, ask if you can add coverage for an extra fee.
  • Does the age of the appliances or systems matter? The answer should be no.
  • Will the contract cover full replacement costs or will the amount be based on the depreciated value of the item? Most warranties do not cover the full replacement costs of appliances or systems but they should offer a generous coverage cap.
  • Is there a limit to the amount the company will pay for replacement appliances? Is there a cap on much it will pay for specific items, and there is a cap on how much the warranty covers in a year? Coverage caps for all major appliances and systems should be $500 or more. Watch out for lower premiums because they usually result in stricter coverage.
  • How does the contract define normal wear and tear? This should be front and center at the top of the contract.
  • What reasons could the company use to deny a claim? What recourse do you have if your claim is denied? Improper installation and inadequate maintenance are common reasons for denied claims. Read the fine print the company uses to define each reason.
  • Does the company’s network of service technicians include people in your location? When something breaks, you’ll want the issue resolved as quickly as possible. If the provider doesn’t have any contractors close by, you might not want to risk the wait time. Home warranties near me is a quick Google search that should help customers avoid this issue.

How to get a home warranty

Many companies offer home warranties, so you may have to do a little detective work to find the one that’s right for you. Follow these steps.

  1. Read reviews to find the best home warranty companies. Remember, however, that a five-star rating isn’t everything. If a company only has three reviews, it might not have been in business long enough to have a real track record. Or if the company has been in business for decades—like American Home Shield—they may have started responding better to customer complaints years ago. The Better Business Bureau is another source of information.
  2. Ask your real estate agent about their experience with home warranties companies. It’s likely an agent will have had experience with a number of warranty companies, so they can provide recommendations based on real client experience.
  3. Visit the website of several companies that rate highly and see what’s covered. If the exclusions concern you, ask if you can add items to the coverage list.
  4. Consider costs including the premium and the service fee charged for each visit.
  5. Prioritize customer service by looking for a company with a 24/7 service line and the ability to enter service orders online. Your furnace can stop working at any time of the day or night, and you want to be able to schedule a service call as quickly as you can.

What is the best home warranty company?

House Method reviewed the best home warranty companies based on the criteria above. We chose five with the highest number of reviews to give us a broad overview of the companies and the kind of experiences their customers have had.

The best home warranty company

Our recommendation is Choice Home Warranty. We like its 10 out of 10 service rating, its B- BBB rating, and the 6,800 customer reviews across sites like Consumers Advocate and ConsumerAffairs where you’ll repeatedly see people using phrases like “fast and easy,” “professional,” and “great experience.”

The Basic Plan covers far more items than many others. We also like that you can tailor the home warranty to cover items—like septic tanks—that normally aren’t covered.

Choice covers items regardless of age, as long as they are in good working condition when you sign up, which is why we think it’s the best home warranty for older homes.

Choice Home Warranty also offers a 90-day service callback period, so if the item quits working again within three months, you won’t be charged for an additional service call. That’ll definitely help give you peace of mind.

Add-ons available
After hours service
90-day repair guarantee
Name

Choice Home Warranty

Description

Best home warranty for: Overall coverage
BBB Rating: B-
Availability: All states except CA and WA
Plans: 2 plans + optional add-ons
Premiums: $350–$500 annually—monthly plans also available
Service fee: $60–$75

Score
10 / 10
Name

American Home Shield

Description

Best home warranty for: Appliance coverage
BBB Rating: B
Availability: Nationwide
Plans: 4 plans + optional add-ons
Premiums: $249+ annually—monthly plans also available
Service fee: $75–$125

Score
9.5 / 10
Name

The Home Service Club

Description

Best home warranty for: Fast coverage
BBB Rating: C
Availability: Nationwide
Plans: 2 plans + optional add-ons
Premiums: $400+ annually—monthly plans also available
Service fee: $65–$125

Score
8.5 / 10
Name

First American

Description

Best home warranty for: Limited exclusions
BBB Rating: B +
Availability: Nationwide
Plans: 2 plans + optional add-ons
Premiums: $335–$600 annually—monthly plans also available
Service fee: $75

Score
8 / 10
Name

Advanced Home Warranty

Description

Best home warranty for: Nationwide coverage
BBB Rating: N/A
Availability: Nationwide
Plans: 2 plans + optional add-ons
Premiums: $375–$450 annually—monthly plans also available
Service fee: $60

Score
8 / 10

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