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Home warranties are very similar to other types of warranties. They protect against the sale of a "lemon", in legal terms. You can insure your house against electrical system failures, plumbing problems, roof collapses, etc. It is typically a tool of a home seller or real estate agent to attract potential buyers, but it is also useful to first-time home buyers or short sale home buyers to prevent against an unforeseen loss.
First time home buyers are usually unaware or unsure of potential problems with the house they just bought. A home warranty program will keep large, unexpected costs out of the picture. Often times, a home buyer will not even have to pay for home warranty insurance, since the seller or the real estate agent picks up the cost to assure the sale.
Even if you are not selling your home, you may benefit from buying a home warranty plan. Older homes may have problems overlooked by building inspectors or the average homeowner. Small monthly payment is always a better tradeoff than a $20,000 repair bill.
Average Home Warranty Costs
A new home warranty plan is usually purchased by a real estate agent or private seller for a period of time for the new homeowner. This typically costs between $300 and $600, annually. After the initial warranty runs out, you have the option of picking up the coverage yourself for the same price. Keep in mind that this does not give you coverage for everything in and around your house and when something breaks, it will be fixed for no cost. There is usually a deductible of at least $50, sometimes as much as $150 for repairs. Some items are not covered in your homeowners warranty unless specifically named in your policy. Such items include:
- Outdoor systems such as sprinklers and outdoor lighting
- Kitchen and bath faucets typically are not covered
- Pools, spas and Jacuzzis are not covered unless specified
- Future building permit costs
- Aftermarket home appliances such as stoves, refrigerators, washers and dryers, etc.
Some of these items can be added to a policy for an extra cost. Most homeowners' insurance companies will not cover anything in the policy if any of these conditions is true.
- Faulty maintenance and/or installation
- If any code violation is broken by the system or item in question
- Inordinate amount of wear and tear
As long as you have a professional do a thorough inspection of all the appliances and systems of the house beforehand and make sure any aftermarket product in the house does not violate any building, electrical or plumbing codes, you should be in the clear.