5 Things Homeowners Should Know About Home Warranties

They may be a good deal, especially if you know your home's systems will need a lot of repair work soon. But it may be cheaper to just call the fix-it folks yourself.

Even with a homeowner’s warranty, that repair job will still cost you. Before getting one, you should figure out whether you’re likely to get your money’s worth out of it. | iStock photo by AndreyPopov

With figuring out mortgages, insurance and property taxes, new homeowners already have a lot on their minds. Home warranties are probably somewhere on the back burner. Yet they remain an intriguing concept: a one-year service contract that covers the repair of home system components and appliances.

But they may not be the pain reliever they’re made out to be. “It’s basically a gamble,” said Joseph Giannone, owner of Joseph Giannone Plumbing, Heating and Air Conditioning. It’s only in very specific situations that one gets their money’s worth from a home warranty.

If you’re considering purchasing a home warranty, here is a breakdown of the need-to-know information:

  1. Home warranties aren’t the same as home insurance. Despite their similar names, these two policies are actually very different. Home insurance differs by policy but generally covers damages caused to your home by events like fire, theft, storms and natural disasters. You probably already have a policy; banks usually require you obtain one before issuing a mortgage. Warranties, on the other hand, cover the repair of home systems and appliances from wear-and-tear damage. These usually include kitchen appliances, central air conditioning systems, and plumbing. Unlike home insurance, warranties are totally optional.
  2. Even with a warranty, you’ll still have to pay for repairs. One flat rate for unlimited repairs? If only it were that simple. Each visit will cost a deductible anywhere from $50 to $125, and a separate deductible applies for each appliance that needs a repair. Sometimes you’ll spend that money only to find out that you’ll need to hire an outside contractor because warranties oftentimes do not cover high-efficiency or specialty systems that are found in newer homes.
  3. You may already be covered for some things. If you have recently bought new appliances, the manufacturer’s warranty that comes with them generally covers replacement and repair for about a year. Unless you have a secret love for spending money for services you won’t use, this eliminates the need to pay for a second home warranty to cover repairs. Also, warranties usually cover only appliance repair, not replacement.
  4. You can’t just call your trusty repairman. The warranty will not pay for you to call any repair service; it will only cover services performed by companies the warranty firm has a contract with. So you would have to say goodbye to any repair service you may have used before or already have a relationship with. You also would have to say goodbye to timeliness; a limited number of contractors means a limited number of appointments they can perform. With thousands of members to serve, home warranty repair firms often get backed up for two to four weeks during busy seasons like winter.
  5. Read the fine print. Make sure you know what you’re signing up for. Home warranties often include escape clauses to deny coverage. For example, many warranties give the issuer the right to deny the customer repairs if they can’t show proof that they’ve maintained the appliance or system on a regular basis. “I strongly suggest you play devil’s advocate and read the terms and conditions of the agreement. Their agreements allow the company to pick and chose what they’re covering,” said Giannone.

If you know your systems and appliances are old and fading, you may want to crunch the numbers and see if a home warranty is for you. However, most of the time, it’s better to just get repairs when needed.