When buying a home, should a buyer purchase a home warranty? It depends on the individual buyer. Some buyers may be more risk averse to bearing the expense of potential repairs that may come up. The age and condition of the property may factor into the buyer’s condition, and also whether or not the seller is helping to pay for it.
A home warranty is a residential service agreement that provides repair or replacement of a home’s covered mechanical systems and major appliances that break down due to normal wear and tear. The plan is good for one year after the purchase of the home, and may be renewed each year.
A home warranty can be a negotiated as part of the purchase contract and paid for by either the buyer or the seller, or split between both parties. They typically cost between $350 and $500 for a basic plan.
Most plans will cover appliances and mechanical repairs, such as water heaters, furnace and air conditioner repairs, with a small deductible (around $50 to $60 per repair, depending on the plan.)
However, it’s important to read the policy information to understand what is covered. Typically, pre-existing conditions are not covered, and homeowners are often surprised to find this out when making a claim.
In addition to the basic coverage, add-ons can be purchased to cover a septic system pump, swimming pool and spa, water softeners, refrigerators, washers and dryers and additional appliances (such as additional refrigerators, beverage refrigerators, and ice makers.) Home warranty companies also charge a premium for homes over 5,000 square feet.
The price can add up. The most expensive home warranty plan I have seen was $1,400. But, typically, most home warranties that have several add-ons run $600 to $800.
When purchasing a home warranty, you will be able to choose from a variety of plan options offered by a variety of different companies. Buyer beware: all home warranty plans are not created equal, so read the fine print, know the terms and then make your decision. If you are working with an experienced real estate agent, they may be able to help you narrow the options down to several choices that have worked well for their clients in the past.
If you are purchasing a new construction home directly from a developer, you don’t typically need to purchase a separate home warranty. Your home will be automatically covered by the builder’s warranty, the length of which varies from builder to builder.
In lieu of purchasing a home warranty, the new home buyer may want to purchase a home inspection at month 10 or 11, providing ample time to notify the builder of any defects before the one-year expiration of the builder warranty.
The bottom line is that the decision to purchase a home warranty will depend on the cost, the individual buyer’s risk aversion when it comes to potential repairs, and the age and condition of the property.
