Home Warranties: Peace of Mind for All

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The home warranty industry is a multibillion-dollar-a-year business in this country. Although they’re referred to as home warranties, they’re really a home service contract covering repair and replacement of major systems, appliances and more. They can bring peace of mind if an appliance goes on the fritz due to wear and tear, saving the homeowners from digging into their nest eggs to pay costs. But you must understand what your plan covers when it comes to repair and replacement.

According to Consumer Affairs, the average cost of a home warranty service contract ranges between $300 to $600 a year, and most companies will bill you monthly, averaging from $25 to $50 per month. The cost varies depending on where you live and the level of coverage you need. Homeowners can purchase home warranty agreements on their own or, in many cases, real estate buyers and sellers can discuss adding a policy into their sell or buy agreement.

“Home warranties can become a negotiating point that Realtors use to their client’s benefit because it can bring people together and close deals. They can calm buyers because a home warranty is something they can rely on in the future. In fact, we recommend them as part of the listing agreement, or we encourage a buyer to ask for them in the negotiation process,” noted Larry Hedenkamp, a commercial and residential real estate investor and contractor for nearly four decades. “If the home is ten years old or less, or a higher-end home or a house that’s set to be renovated, it’s probably not as important. However, for first-time homebuyers, they’re key because some people financially stretch to buy a house, and this gives them extra assurance that they can cover unexpected expenses.”

Normally, a home warranty is a year-to-year service contract covering the mechanical components of systems such as HVAC, plumbing and electrical. Home warranties that cover appliances usually include the refrigerator, dishwasher, washer/dryer and oven. Additional options or higher levels of coverage may include water heaters, pool and spa equipment, septic tanks and fans. Some companies allow you to customize your coverage to fit your housing and maintenance budget.

“I recommend that big tickets items such as the HVAC should be covered under your home warranty. But remember these companies will try to repair your appliances or systems rather than buying a replacement because they need to make a profit,” remarked Larry. “Look for companies with a good track record and one that gives you personal attention and works with solid contractors. Warranties are sold at an annual cost that can be broken down into monthly payments, with deductibles, and many give you a cafeteria list of things you’d want to cover. It comes down to higher coverage or a minimum cost. You have to run the numbers to see what makes sense to you and your budget.”

Larry goes on to advise that a home warranty does not replace your homeowner’s insurance, so damages caused by water, fire or natural disasters would not be considered covered under this type of contract. Also, keep up to date on your maintenance schedules. Appliances and systems that haven’t been properly maintained won’t be covered, and forget about cosmetic changes or simple regular maintenance such as replacing light bulbs.

If you do have an issue that’s covered under your warranty, a phone call or online request to your provider is all that’s necessary, which makes the process fairly simple. Within a set timeframe, the company will send out an approved, licensed tradesperson to evaluate your issue. In most cases, the home warranty company will then commission and pay for the suitable repair according to your agreement. In most cases, the homeowner will be responsible for a copay, deductible or cost of the service call.

The important thing is to read the fine print to understand the limits of the coverage you’re considering to buy. Larry notes that you should keep in mind the age of the house you’re buying and how long the major systems and appliances have been functioning. If your home or appliances are older and you’re not able to focus on home repairs, a home warranty may provide a critically important level of protection. Are you a handyman who can make repairs when something breaks down? Then a home warranty may not be in your best interest.

“You really need to know that warranty companies have to be profitable, and they will repair rather than replace. They have a vested interest in doing a repair versus a replacement because it saves them money,” Larry shared. “The plans are different, and you need to know what’s included in your policy. For the basics, make sure you focus on the big-ticket items so you don’t wind up with huge out-of-pocket costs when you’re finally in that new house.” ■

Source: consumeraffairs.com.