We can get warranties on just about anything else we buy these days, so why not on a house? A home warranty is a great option for buyers who are purchasing an older home and might just need some peace of mind when it comes to replacing appliances or materials over the first year of owning the home. We often recommend warranties to first-time homebuyers, especially if those buyers are used to renting and having everything taken care of by a landlord.
Home warranties are also a good incentive for sellers to offer, as they can give peace of mind to potential buyers. It can show that sellers are confident in the construction and the integrity of appliances and other materials that are covered by the warranty.
What are some things to know about a home warranty?
Understand the cost. A basic home warranty can run anywhere from $350-$500 a year. They can be renewed, but typically are used for about the first year of a new home purchase. It will cover kitchen appliances, plumbing, water heaters, heating, and electrical systems, sump pump, whirlpool tub, ceiling and exhaust fans, and maybe a couple of other areas specified in the warranty.
Buyers and sellers can also purchase an enhanced plan for an additional $100-$300, which can add coverage for things like washers and dryers, portable air conditioning systems, garage doors, and refrigerators. Swimming pools, septic systems, and hot tubs can also be added to a home warranty.
Homebuyers can break down the annual cost of a home warranty into monthly payments if it’s more comfortable, but a home warranty is not a one-time purchase. Many warranties require additional service call fees and you may be paying for the privilege of having a professional check it out. Many of these additional fees can be upwards of $85 per visit.
But, for peace of mind, this is a great option for those just-in-case scenarios. This goes a little beyond homeowner’s insurance and if something breaks down, you won’t have thousands of dollars of repairs, but rather a less than $100 service call at most.
Home warranties are ideal for those who don’t have an emergency fund or simply want to protect their reserve and use a home warranty as a buffer. But it’s important to understand what the warranty will cover and what it won’t; not everything is covered. Many warranties do not cover components that have not been properly maintained. This is where a home inspection before purchasing the property is vital. Your home inspector should offer information and suggestions as to the integrity and reliability of the different components of the home.
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Home warranties are often negotiated as part of an offer and paid for by the seller out of closing. It’s a good idea to let your agent know that you’d like to include this as part of the terms of an offer upfront (I try to ask as I go through the closing costs checklist on the purchase agreement).