When attracting buyers to their homes, sellers will often throw in a home warranty for a year to sweeten the deal. And it’s often an effective incentive.
But over the past decade or so, more current homeowners have been using home warranties year after year, according to Art Chartrand, counsel for the National Home Service Contract Association.
A home warranty is a service contract that commonly covers the repair or replacement of your home’s appliances and systems, including your heating and air conditioning systems.
People use them for the convenience of being able to call one number when an appliance breaks, without having to research service providers, he said. Others like them as a budgeting tool, figuring that the costs of a contract will be well worth it if three appliances die in one year, for example.
Sounds great, but here’s the rub: Home warranty companies are also some of the most complained about companies on Angie’s List, a website where consumers can find reviews of local service providers. Top complaints are regarding what is covered and who is sent out to do the work.
Here’s one horror story: Two days after Heidi Linzt bought a house in Santa Monica, Calif., the water heater went out. The home warranty company sent someone out to fix it, and the repairman ended up damaging the gas line. When someone from the gas company came out to inspect the situation, he confirmed the potentially dangerous situation. “It could have been horrific,” Linzt said.
Still, she has home warranties for the rental properties that she owns in Las Vegas, something that she says saves her time. And she loves the company that she’s working with now.
“It’s really about understanding what you’re getting,” said Angie Hicks, founder and chief marketing officer of Angie’s List. “It’s a personal decision. It can be an alternative to saving up the money [for maintenance and repairs], but you need to know what you’re getting and what is covered.”
Do some math
The cost of a home warranty will vary by company, but often averages about $500 for one year, Chartrand said. When a problem arises with a home component that is covered by the warranty, you’ll also pay a $60 to $75 service fee when a contractor is dispatched to your home, he added.
That’s about the cost of a contract with TotalProtect Home Warranty, which runs $20 to $55 a month [or $240 to $660 a year], said Sandra Finn, president of TotalProtect. There’s also a service charge when a contractor is dispatched; for most plans, that’s $60, she said.
For some homeowners, that could be a good deal, Finn said. About 65% of homeowners had major replacement or repair costs in 2012, according to a recent TotalProtect survey. For the 1,059 respondents who needed to make repairs, they spent an average of $840 on the job; of those who needed to make a replacement, they spent an average of $1,200, Finn said. So for those without emergency savings, but who can afford a monthly payment, a warranty could be helpful, especially in a particularly unlucky year when multiple appliances break down.
It’s also worth noting that some companies will allow you to customize your coverage, so that you’re paying for exactly the appliances and systems that you need it for, Chartrand said.
Of course, a homeowner with ample savings and the discipline to put money aside for rainy days might be better off steering clear from home warranties entirely. To help budget for problems, Hicks recommends doing an assessment of your home each year—just as you did when you first bought the place. That way, you can have a good idea of what will soon need updating.
Check the age of your home’s systems and appliances
Air conditioners typically last between 10 and 15 years; furnaces last between 15 and 20 years, Finn said. Ovens have a lifespan of 10 to 18 years, ranges last between 13 and 17 years, washers and dryers last between 10 and 13 years, refrigerators last between 9 and 13 years, and water heaters last about 10 years, she added. If all of the above are about 10 years old and older, you can probably expect a parade of costs heading your way, she said.
In fact, people with the majority of components in this age category might be the most well suited to purchase a home warranty, Finn said. But you have to do the math for yourself, Hicks said.
And in some ways, age is just a number, Hicks said. Homeowners who maintain their air conditioning systems and furnaces, having them serviced and changing filters on a regular basis, are more likely to get more life out of them, she said. And other easy maintenance, such as cleaning the lint trap every time you use the dryer and vacuuming behind the refrigerator’s bottom vent to keep the coils free of dust will keep things running longer.
Understand what is—and what isn’t—covered
Some of the biggest complaints about these warranties come from customers who may have been unclear about what is covered. You need to read the paperwork very clearly before purchasing—or else you could be surprised, Hicks said. Also, understand that you won’t be the one making the call on whether the item should be repaired or replaced; that will be left up to the company and the providers they employ, she said.
Also keep in mind it isn’t an insurance product, Chartrand pointed out. “By law, we cannot cover events that would be covered by insurance,” such as fire, theft, wind and collision, he said. “If something damages or collides with what you own, it’s insurance; if it quits working, it’s service contract.” Service contract is a more appropriate description to use than home warranty, he said.
Know the providers you’d have to use
Warranty companies most often choose who will be making your repairs and replacements. That’s why when doing your research it’s a good idea to find out the providers that will be used, Hicks said.
“Ask who they’re contracted with,” Linzt said. Go online and see what people say about the contractors. “If they all get 1-star reviews, that’s a red flag,” she said.