Home Warranties Part II: Exploring the costs and benefits of home warranties, and how to shop for one
In Part I of this series, we looked at the basics of home warranties – including what they are, how they work, and what types of homeowners may benefit from having one.
Now that you know the basics of what home warranties are and what they cover, it may be time to decide if you really need one. Here’s a few answers to frequently asked questions regarding the costs and payoffs of purchasing home warranties.
The money side of home warranties
How much do home warranties cost?
Home warranties coverage prices will vary depending on several factors including; the size and number of systems or appliances in your home and how competitive the market is in your geographic region. The best way to get an exact cost is to get quotes based on your needs, but on average homeowners will pay between $350 and $600 per year according to improvenet.com.
If you have a pool, spa or other items you want covered, you’ll pay additional add-on premiums which could increase your annual costs.
Are home warranties worth the cost?
Having a home warranty can provide peace of mind for homeowners when the unexpected appliance goes on the fritz, especially considering the high cost of some repairs or replacements. This is something to consider if you have, or have purchased a home with older appliances and our HVAC systems.
For example, let’s say your AC starts blowing warm air instead of cool air. The most common culprit is a faulty AC Compressor. Home Advisor reports the average cost of replacing your AC Compressor is $1,000 or more in the Frisco and Plano area. If your AC is getting up there in years, it could cost more than $5,000 to replace each unit.
Repair instead? For common repairs on AC units or water heaters, most homeowners without a home warranty plan will spend an average of $549 on repairs, including parts and labor.
Who pays for a home warranty?
If you are buying or selling a home, the topic of a home warranty will often come up in the negotiations. A home warranty can be paid for by either the buyer, the seller, or even the mortgage lender in some cases. Most often, it is paid for by the seller at closing with the buyer choosing the actual home warranty company and coverage plan.
For home sellers, including a home warranty as a deal perk can help alleviate concerns from the prospective home buyer about items that were not discovered in the inspection, but may break down soon. Sometimes, real estate brokers and mortgage lenders include a 1-year complimentary home warranty as part of their service.
If you are looking at buying or selling a home, talk to your real estate professional first about home warranties as they will usually have great insight into how one could benefit you – and the best way to purchase.
Can a home warranty be purchased after closing?
Yes! You don’t have to buy or sell a home to purchase a home warranty. They can be purchased by any property owner (yes, even condos) – at any time.
How long is a home warranty good for usually?
Home warranties are typically purchased for a 1-year term, although some providers may offer savings if you sign up for a multi-year contract. Each year, you will pay the annual premium.
Many home warranty providers will have price increases every so often in both the annual premium and the service call fees to help cover their costs. The benefit of a multi-year contract is the annual premium is capped at the contract rate.
Shopping for a home warranty plan – things you should know before you buy
So, you’ve decided that a home warranty may be worth the investment for you – how should you go about finding the right home warranty company and plan?
How to shop for your home warranty company and plan
Your professional realtor is a great place to start the process for shopping for a home warranty provider. They will usually have excellent insight into the reputations of different companies. And, they can point out other subtle differences such as support through a local field representative or just a national 800#. Some home warranty companies are completely app- driven (think of Uber) with apps that track when drivers are arriving, etc.. While some may love this, others want to know there is someone they can call locally if they need help with a problem.
Once you’ve checked with your realtor, here’s some additional tips for shopping for home warranty companies:
- Check the BBB listing
Check the provider’s reputation and reviews at the Better Business Bureau – there are many disreputable companies out there so take the time to do this important step. The BBB can give you great insight into how many complaints were filed, and if or how the company resolved the issues.
Ask your friends, neighbors and colleagues who they use, and if they are happy with them. These types of referrals are almost always the most genuine and trustworthy source.
- Consumer reviews
Look at online consumer ratings but be careful that the reviews are genuine and from real customers. Many companies still pay for fake reviews and sometimes this can be hard to spot if not careful. Most of the comparisons and companies we see rated on the internet are companies we have never heard of in our area. Be very careful.
- Trusted third-party reviews
Look at trusted review sites such as Consumer Reports. Again, don’t fall for fake review sites that look as if they are providing unbiased reviews, then lure you into clicking on a button to buy.
As an example, this link for homewarrantyreviews.com looks as if it is providing helpful information and a list of top-rated home warranty companies. But, half way down the article the copy says ‘How much does A..… Residential Warranty cost? Bam, and now you are clicking on links that lead you to a sales site for this particular home warranty company. Another clue you’ve been ‘click-baited’ is a big flashing phone number at the top, or a pop-up window that offers special savings.
While this company may actually be a good home warranty provider, they sure don’t win any points for trying to pull the wool over consumer’s eyes — and this is rampant on the internet.
Questions to ask your prospective home warranty provider company
- Is there a waiting period before you can use your warranty plan?
- What specific items are covered, which items are not covered?
- Can you choose your own contractor or are you limited to their list of providers?
- Ask to see the specific denial of payment and exclusion clauses – they all have them in their contract and its much better to read this carefully before you sign
- How much are the annual premiums and service call fees?
- When is the last price increase where you raised your premiums or service call fees?
- How are disputes handled?
- Are there annual limits on what the plan will pay out?
Well there you have it – everything you need to know about home warranties to make an informed decision about what is right for you. Have more questions? Give us a call at any time at 469-634-0932. We know a lot about home warranties and would be glad to walk through any questions you have.
About the Judi Wright Team
Judi Wright/The Judi Wright Team is a real estate group specializing in the suburbs of Frisco, Plano, and surrounding areas. Named the “Best Realtor in Dallas,” by D Magazine thirteen times and a Five Star Realtor with Texas Monthly eight times. Judi is also a Company-Wide Top Performer with Ebby Halliday, a Berkshire Hathaway affiliate.