What is a home warranty?
I’ve been a big believer in home warranties since I began my career in real estate, which is why it’s surprising to me how many people aren’t aware of exactly what a home warranty is or does. While some, particularly those from other countries, are often completely unfamiliar with the concept, others tend to confuse it with home insurance.
Home insurance is a very different protective mechanism for homeowners than a home warranty!
At it’s most basic level, a home insurance policy protects the homeowners against catastrophic loss, theft, and/or liability arising from injury on or in the premises. Think of it as “big stuff” coverage.
A home warranty, on the other hand, covers breakdowns to major and minor systems and components at the home. A home warranty is designed to bring a level of certainty to the maintenance and repair costs of ownership.
With a home warranty, you pay a set amount (lump sum or payments) for coverage. When a breakdown occurs, such as a water heater leak, you call the home warranty company’s 800-number and file a service request. The service request is sent to the home warranty company repair contractor network and you’ll usually receive a phone call to schedule service within hours.
A home warranty offers distinct benefits:
-Simplified logistics. One call to one phone number for any covered repair.
-Predictable costs. For most repairs, all you’ll pay is a $55-75 trade call fee. Labor and materials are billed to the home warranty company.
-Repair or replacement. If a covered item cannot be repaired, the home warranty company will replace it! (Even heating/cooling systems and water heaters)
-Security. Home warranty companies use licensed, bonded contractors, which offers a degree of security and recourse in the event there’s a problem with the contractor.
-Coverage options. Home warranties offer different levels of core coverage, as well as supplemental coverage for, say, pool equipment or appliances. So you can extend your coverage beyond the basic dwelling with the same “repair or replace” policy.
What are the drawbacks to home warranty protection?
-Coverage varies. There are hundreds of home warranty companies across the country and each offers different levels of coverage, premiums, and deductibles. Old Republic Home Protection is my home warranty company of choice, but your Realtor can offer other options, too. You should compare plans and prices to ensure you select the right choice for your particular situation.
-Service contractors. Try as they might to work with only the best contractor partners, not all service providers are created equal. Since many (most? all?) home warranty companies reimburse contractors at low fixed rates, some contractors with thriving businesses don’t work with home warranty companies. Simply put, the best of the best face enough demand that they don’t have to pay a home warranty company for customers. If you do have a problem with a contractor that a home warranty company sends to your home, contact the home warranty company to discuss your concern. If you don’t feel you’re getting the attention you expect or deserve, contact your Realtor. Home warranty companies have special representatives who interface solely with Realtors and have a vested interest in responding to their concerns.
-Premiums and deductibles. Changing market conditions and dishonest claims have resulted in less coverage, higher premiums, and higher deductibles across the industry as companies struggle to be profitable. In general, however, it’s still the case that one mid-level claim, such as a hot water heater or air conditioner repair, will more than offset the cost of the plan + deductible.
I recommend a home warranty to virtually every buyer, but they’re particularly helpful to vacation owners and out of state landlords who don’t have a developed network of repair people to call when an emergency comes up. One call can resolve just about any problem, and that’s peace of mind for any homeowner!