Home Warranties: explained

A screenshot of the average home warranty premium in Colorado as of July 2018, $323.94.
image credit https://www.homewarrantyreviews.com
A screenshot of the average home warranty deductible in Colorado as of July 2018, $42.24.
image credit https://www.homewarrantyreviews.com

Disclosure: The information contained in this article applies anywhere in the United States. However, I am a licensed Realtor in the state of Colorado.

What is a Home Warranty?

A home warranty is a residential service contract that provides repair and replacement coverage for appliances and other systems like furnaces and HVAC within the perimeter of your house. When shopping for a home warranty, it is vital to be an informed consumer. Read the pamphlet. Study the charts. Be aware of what is covered and what is not. You don’t want to be angry 6 months from now when you’re on the phone making that claim, or worse, remorseful.

Generally a basic home warranty will cover only things within the perimeter of your house. So don’t expect it to cover your detached garaged, or any other outbuildings. That guest house in the backyard? – nope. It also won’t cover your pool, well pump, pressure regulator, or septic tanks, unless you pay for extended coverage to cover those things.

A home warranty graphic of a hand holding a house with four bubbles coming off it that read systems, plumbing, appliances, and options.

The savvy home buyer may wonder why a home warranty is recommended if their mortgage company is already requiring them to purchase homeowner’s insurance. This distinction is confusing. They sound like the same thing, but they actually cover two different types of emergencies.

A screenshot of a video from a news channel website showing a house severely damaged by hail.
image credit http://www.kktv.com/content/news/El-Paso-County-sees-worst-overnight-hail-storm-in-more-than-20-years-485356811.html

Homeowner’s insurance covers the really big stuff: storms, fires, theft, and some natural disasters. I’m sure much of Fountain was grateful for their homeowners insurance when baseball-sized hail destroyed their roofs and siding on June 12th! In one home the ceiling even came down in two rooms, dropping knee-deep insulation onto the floor.

A screenshot from video on a news channel website showing hail damage. A kitchen ceiling fell down dropping insulation everywhere.
image credit http://www.kktv.com/content/news/El-Paso-County-sees-worst-overnight-hail-storm-in-more-than-20-years-485356811.html

Homeowner’s insurance will probably not cover earthquakes, or floods. If you live in a high or even moderate risk flood zone, or a state like Florida or coastal Georgia prone to hurricanes, you probably want to consider buying flood insurance.

Homeowner’s insurance is required because the mortgage company wants to make sure you can still pay your mortgage even if your house burned down. Because you must. A mortgage is a serious thing. Even total loss of property does not absolve you of a mortgage. So in a way it’s really insurance for them.

Homeowner’s insurance covers a lot, but it does not cover your furnace, water heater, HVAC, central vacuuming, and other appliances.

A home warranty won’t fix that roof, but it will cover all those system details that homeowner’s insurance does not. While homeowner’s insurance won’t repair or replace your refrigerator due to normal wear and tear, or age, a home warranty will! Don’t expect them to upgrade your 1992 Kenmore to a sparkling new 2018 model with all the bells and whistles, but they will repair it if possible and if not possible, make sure before you buy that warranty that they will replace it with a reasonable model.

A Few Things To Keep in Mind

  1. Know what is covered and what is not. Will your home warranty cover improper installation? Roof leaks? A/C?
  2. Know your deductible, your premium, and your liability limit.
  3. It is NOT required by law that you do a home inspection during the home buying process. However, should you choose not to do an inspection, and then buy a home warranty, you may be wasting your money. Home warranty companies won’t like to see claims coming in a month after you’ve moved into your new home. Some may not even allow claims within the first 90 days. Don’t expect a home warranty to protect you in lieu of an inspection. Your claims will be denied.
  4. The biggest mistake home owners make when an emergency happens in or to their home is taking care of the issue prior to making a claim. Having repairs done and then calling your homeowner’s insurance or home warranty company, invoice in hand, to file a claim is a great way to make sure that your claim will be denied. It might be 2am when your basement floods and you just want to call your plumber and Deep Water right away. Don’t. When you pick up the phone, call your home warranty company. (They may not cover floods, but they will cover plumbing!) File the claim FIRST. Then call for repairs. No matter what time of day or night. Most home warranty companies have 24/7 phone lines. Yours should.
  5. Although not as commonly seen in a Seller’s Market, it is common for real estate agents to pay for a basic one year home warranty out of their own commission as an incentive for their client (the seller)’s buyers. These usually come with 180 days of Seller’s Coverage, which can come in handy. It covers the seller’s home during the listing period, and it can even cover issues that come up on a buyer’s inspection objection. The inspection objection means things that the buyer found out about during their home inspection, and is now asking the seller to fix. Inspection objections are the number one deal breaker, so home warranties can literally be deal savers! 

Think About It

85% of real estate agents don’t talk about home warranties with their clients. Maybe because they don’t know much about them. Don’t expect your agent to talk about it with you; it doesn’t meant they are a bad agent. But it’s great if they do! You may even get really lucky and have the seller offer you a one year home warranty as a concession, or maybe their agent already bought one, or maybe your awesome agent is buying one for you! Either way, protect yourself as a homeowner and at least consider looking into a home warranty for your new home.

I really loved the class I took on April 19th from First American Home Warranty. But there are LOTS of home warranty companies out there. Compare them and read the reviews.

 

 

I hope you learned a lot about home warranties today. Please let me know in the comments if you have any other questions that I did not address.

Have you ever had to make a claim with your home warranty company? Your homeowner’s insurance? I’d love to hear stories of real life experiences and how they turned out for you.

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