If you’re getting serious about making this the year you buy a Texas home; you’re probably deep enough into the preparation process to be curious about home warranties. Lots of buyers want to know if they need one.
But is a home warranty worth it?
You may also be wondering if your seller is going to provide one.
In truth, it’s complicated because the answers to everything vary by property and market.
It helps to know exactly what a home warranty covers as you weigh how vital this detail is to you.
What Is a Home Warranty?
A home warranty is a “peace of mind” product that can certainly allow new buyers to breathe a little easier.
What a home warranty isn’t is homeowners insurance. This is something that you purchase separately from your homeowner’s insurance policy.
For clarification, homeowners insurance covers fire, water damage, or acts of nature that can damage your home’s structural integrity.
A home warranty specifically covers the costs of repairing broken appliances and systems within a home. A policy is typically good for one year, but terms are negotiable.
Another big difference between insurance and warranties is that homeowners insurance is necessary as a condition of closing with a home loan. Home warranties are optional.
While anyone can technically purchase a home warranty, first-time buyers who have just closed can benefit from this type of plan. The big reason is simply that the last thing you want to happen is for a considerable out-of-pocket expense to pop up after you’ve just finished covering all of your closing and moving expenses.
Are Home Warranties Worth It?
This varies by property. If you’re going for a new build, a home warranty may be wasteful because the appliance roster in your home will probably still be under warranty. The same holds if you’re buying a house that has been renovated from top to bottom with a new appliance roster, heating system, and air conditioner.
Home warranties can be suitable for older homes with either older appliance models or a mix of older and new models. The home warranty will take the place of all of the individual manufacturer warranties that would have covered the older appliance models when they were newer.
You might also consider a home warranty if you’re buying the home sight unseen. That means you don’t physically walk through the home before purchasing. Getting the warranty would give you better peace of mind.
Refrigerators, washing machines, stoves, and other appliance staples typically last about 10 to 15 years on average with regular use. Analyzing appliance ages in a home can help determine if a warranty works for you.
Knowing that there’s a policy to cover home appliance repairs can be a real lifesaver for a new homeowner who wakes up one morning a week after closing to discover that the boiler has stopped working.
Of course, the last thing a buyer here in the Harker Heights, Killeen, and Temple areas wants to deal with is the fridge or air conditioner going out on a high-temp day!
Again, you’re protecting yourself from the need to take on a significant expense. This is especially true when you’ve just made what is probably the biggest purchase you’ve ever made in your life.
For homeowners who need to replace a significant appliance within the first year of owning a home, a policy will pay for itself in most cases.
Generally, the rates are reasonable enough that homeowners don’t feel like they’ve been “taken for a ride.” Even if they don’t need to make a claim during the life of a one-year policy, the peace of mind is comforting.
Like all forms of insurance, you’re taking a chance on paying premiums to avoid incurring a high, unexpected cost.
How Much Is a Home Warranty?
Typically, you’re looking at two main costs when it comes to financing a home warranty. The policyholder is responsible for monthly premiums and service fees.
The premium is the amount paid monthly or annually to keep the policy active. A service fee can be thought of as something akin to the co-pay that’s collected when you visit a doctor’s office. A small amount is paid to the service provider or technician whenever someone has to come out to diagnose or repair an issue.
The average cost of a monthly premium for a home warranty works out to be between $25 and $50. That’s about $300 to $600 a year. The average rate for a service-call fee is between $75 and $125.
Of course, these costs vary from provider to provider and plan to plan. However, they give you a general idea of how much you might have to pay out for a warranty – and a piece of mind.
Who Pays for the Home Warranty?
A home warranty is almost always something that the buyer purchases. In some cases, a home warranty may be attached to a home while it’s still on the market as a way to attract buyers. As a buyer, you can certainly ask a seller to cover the cost of a one-year policy as part of the closing terms.
Keep in mind, you don’t always have to buy a warranty when you first purchase a home. If you’re on the fence, you can purchase one later as well. However, if you’re looking to the seller, you’ll have to negotiate it in the contract before going into a contract or during the option period.
What Is Covered Under a Home Warranty?
While coverage varies by policy, most policies cover three essential points:
- Home systems include your air conditioner, furnace, plumbing system, water heater, ductwork, and electrical panels with wiring.
- Appliance staples like your refrigerator, oven, range, washing machine, dryer, built-in microwave, dishwasher, ceiling fan, and garbage disposal.
- Add-on items like a pool, well pump, wine cooler, central vacuum, ice maker, trash compactor, or special freezer.
Keep in mind that actual policies can include dozens of items. These are just the primary examples of what standard coverage looks like.
While these plans cover some big-ticket issues like plumbing, they don’t typically cover mold, roof problems, and termites. Some companies provide add-on policies for roof problems, mold issues, and termites that charge higher premiums.
If your home inspector finds some areas that might need some repair work in the future, you might consider adding a warranty into the contract.
What Are Some Reputable Home Warranty Companies?
If you give the warranty plan the green light, it’s important to research specific policies.
Both U.S. News & World Report and This Old House rank American Home Shield highly. This company offers three separate plans while also providing coverage for duplicate units within your home. Policies also blend improper installation and repair coverage to help protect you against mistakes made by the previous owner.
Investopedia ranks AFC Home Club as its first pick based on the company’s low cost, low service fees, and option to choose your technician when you make a service call.
Here’s the list of best home warranty companies in Texas based on an analysis from MarketWatch:
- American Home Shield: Best overall
- Choice Home Warranty: Covers the essentials
- Amazon Home Warranty: Trusted by customers
- Select Home Warranty: Budget-friendly
- First American Home Warranty: Affordable with add-ons
Final Thoughts on Home Warranties
The big thing to remember with home warranties is that policyholders aren’t absolved from ever covering appliance or systems costs again. These policies work the same way as other forms of insurance where you’re responsible for a portion of the costs. In this case, the co-pay comes in the form of a service fee that’s usually between $75 and $150.
It’s really up to each buyer to decide if a home warranty is worth it. In truth, most buyers don’t bother with them simply because they’re okay with taking their chances. However, some buyers are undoubtedly left with surprise bills that could have potentially been reduced if they had purchased policies.
An excellent way to help you decide is to ask about the age of every appliance in the home you purchase. Keep in mind that the original manufacturer warranty of an appliance stays with that appliance even if the person who bought it moves out of the house.
In many cases, the systems and appliance setups in homes are either newer or recently updated. That means they’re still under their original warranties with no additional effort required.