Pros and Cons of Home Warranties: Are They Worth the Investment?

A home warranty protects your home’s appliances and major systems against breakdowns. For a few hundred dollars to a couple thousand dollars a year, major appliances — such as your refrigerator, washer, dryer, stove, HVAC, and electrical system — can be quickly repaired within a day or two at pre-negotiated rates.

It’s a good deal if your home might be prone to breakdowns or if you’re looking for peace of mind and financial reassurance. However, a home warranty usually doesn’t cover anything more than your home’s appliances and systems, and even ostensibly covered appliances or systems could be excluded from coverage if certain conditions aren’t met.

If you’re looking to protect your home against risks, such as a fire or burglary, you’ll need homeowners insurance, which is a similar but different type of coverage.

Here are the pros and cons of getting a home warranty.

Pros

Reassurance of knowing you’re protected

One of the main benefits of a home warranty is knowing you’re protected against unexpected breakdowns. If your fridge stops working in the middle of the night or your air conditioning breaks down in the summer, you won’t have to call around in a panic and pay a premium for a repair or replacement. Most home warranty companies will dispatch a repairman within 24-48 hours.

This is especially important in markets where there’s a lot of demand for service technicians. Having a warranty could mean the difference between having a qualified repairman visit the next day or living without useful appliances or systems for a week or more while you wait for a time slot to open up.

A more enticing home sale

If you’re selling a home that’s old or one that’s outfitted with appliances or systems that have a lot of mileage on them, a home warranty can make it easier for prospective buyers to make an offer because they’ll know they don’t have to worry about a catastrophic breakdown once they move in.

In many markets, it’s standard practice for a home seller to pay for a home warranty for the buyer’s first year of ownership as part of the transaction. However, this can be tricky if a home warranty company charges a transfer fee, the payment of which will have to be negotiated between the buyer and the seller. The two parties may also want to negotiate the duration of coverage that the seller will pre-pay.

Overall, a home warranty can be a pretty enticing offer for home buyers.

An easier budget

If you don’t have a home warranty, unforeseen expenses — such as replacing a dishwasher or repairing an HVAC — can blow a massive hole in your budget. However, a home warranty not only guarantees access to repair personnel, it also locks in repair costs at a reasonable rate. For reputable home warranties, repair fees are in the neighborhood of $100, depending on the work being done.

Homeowners who are on a budget can gain a lot of peace of mind from the protection of a home warranty and from the regular, predictable payment of premiums and pre-defined service fees.

Cons

There can be a surprising number of exclusions

A home warranty covers routine, basic breakdowns. It doesn’t cover catastrophic damage, for example, if your kitchen catches fire or if your roof collapses during a storm.

Home warranties also usually don’t cover breakdowns caused by a lack of maintenance. If your refrigerator breaks down and you haven’t been keeping up with its annual checkups, your home warranty won’t likely cover its repair or replacement.

If the breakdown was caused by a manufacturer’s defect, the warranty may not cover that either. You’ll have to seek redress from the manufacturer. If the appliance or system in question is still covered under its original manufacturer’s warranty, it’ll likely be excluded from your home warranty coverage, even if the manufacturer’s warranty is far stingier than your home warranty’s coverage.

Again, a home warranty covers appliances and systems, but it doesn’t cover aspects of your home, such as the foundation, windows, doors, and floors.

They may not be useful for every home

It doesn’t really make sense to buy a home warranty if you have a new home because most newly built homes come with at least a year of warranty coverage from the builder and the new appliances will be covered by the manufacturer’s warranty.

On the other end of the spectrum, old homes with older appliances and systems can be very difficult to repair. Parts could be hard to find, or they may be too old to be eligible for warranty coverage.

Home warranties are best suited for homes that aren’t new, but aren’t very old yet either.

Renters can’t use them

Home warranties are only issued to homeowners, so if you’re renting, you won’t be able to purchase a home warranty. You can buy renter’s insurance, although the coverage isn’t quite the same.

Landlords or owners can purchase home warranties for a rented property, but the tenant will have to coordinate with the owner, landlord, or property manager if they experience breakdowns.

Loss of control

Most home warranty companies have established contracts with specific repair companies. If you need a repair, you’ll have to use the warranty company’s designated repair person, even if you have misgivings.

If you opt to use a different repair company, you’ll have to pay out of pocket. Just like with health insurance, you have to use an “in-network” service provider to take advantage of your coverage.

Your home warranty company should be able to provide a list of their repair partners before you sign your contract, so make sure you do your research before you commit to a warranty.

Similarly, your home warranty company or their repair contractor may opt to repair your appliance or system, even if you’d prefer a replacement. They make their money by keeping costs as low as possible, so repairs are often preferable, even if they know they’ll be back to fix the exact same breakdown in a couple of months.

Read more: How real estate agents navigate the property market

Written by Billy Guteng. October 13, 2024

Billy is a content writer for Kukun. He was born in France, and has lived in multiple cities around the world ever since. He loves art, design and architecture as well as construction and real estate.