What You Need to Know About Home WarrantiesOctober 6, 2019
According to some sources, about 80% of home sales include a home warranty purchased by either the previous homeowners or the real estate agency for the benefit of the new homebuyers. A year's worth of protection for home systems and appliances can add value to a home, especially if it's an older one. However, while home warranties can be beneficial in some cases, they're not for everyone, and there are things that homeowners should know before purchasing these types of products.
For starters, home warranties may sound a lot like insurance, but they're actually service contracts. Having a service contract means that you're paying for the upkeep of certain components, in this case, your home appliances and major systems (fridge, washer, dryer, HVAC, furnace, septic tank, etc.). You can typically purchase protection for either one of these or for both, but most homeowners get a better value for their money by purchasing protection for systems as well as appliances.
When a covered system or appliance breaks down, you can call your warranty provider for them to schedule an appointment on your behalf with one of their local contractors, you only have to pay a service fee as long as the claim is covered under your plan. Most warranty companies operate in this way, choosing a contractor for you unless your service contract specifically states you can choose your own. This can be beneficial to homeowners, as home warranty providers tend to have large networks and can get repair services at discounted prices.
Not paying for your home repairs directly can also cause problems in some cases, as independent contractors are not beholden to the values of the warranty company and could try to find additional problems in your home to get you to pay extra. Looking for a company that allows you to choose your own repair professional can solve this issue.
Another thing you should keep in mind about home warranties is that they have exclusions and limitations. For example, your furnace could be covered under the warranty, but if it has been repaired previously and doesn't have all its original parts, the home warranty company will likely deny your claim due to a "pre-existing condition" or "modification" to the original system or component. There are exclusions and limitations to every appliance and system covered under a home warranty, so read your contract carefully and ask as many questions as you need.
One last bit of advice regarding home warranties is to have a home inspection before purchasing one and then keeping a maintenance log that records each time a system or appliance is serviced. Have all your ducks in a row when it comes to the documentation that supports your claim, that way you'll get the most out of your warranty and avoid headaches down the road.
If you're still not convinced if a home warranty is right for you, do the math and read as much as you can about the subject. If you look through online customer reviews, you'll see there is a lot of negative feedback for the industry, particularly revolving around claims being denied. Always remember that both insurance companies and home warranty providers save money by denying claims, but that doesn't mean you can't get value from the products they sell.
If you're selling your home, purchasing a home warranty for the new homebuyers can be a nice extra. These types of service contracts can also be a good investment for those buying an older home who don't have enough cash to finance unexpected repairs. A good suggestion you'll find online is to save 1% of your home's value for annual repairs, so if your home is worth $200,000, it would be wise to put away about $2,000 a year or $167 a month for home repairs.
If you really don't have enough savings for unexpected home repairs, then carefully consider a home warranty, which can cost you around $70+ dollars per month and provide coverage for basic repairs that could cost you thousands. Again, be savvy and follow the general advice so you can get the most out of your investment:
● Understand what your warranty covers
● Schedule a detailed home inspection before purchasing
● Keep an updated maintenance log
Lastly, read up on what your homeowner's insurance policy covers. Homeowners are often in the dark about the scope of their insurance policies and are surprised when their insurers deny claims or even when they could have filed claims but didn't know they had the option. Once you have a clear idea about what your policy covers, you can complement that with a home service contract for added peace of mind.Like 0 0