The Pros and Cons of Buying a Home Warranty

May 11, 2018 by Luis Rojo

Concept of insurance
Whether you’re getting ready to purchase your first home, are moving up in house, or are simply fed up with paying for expensive home repairs, you’ve probably heard about home warranty plans and wondered if they’re right for you.

While there’s no clear-cut answer, this article will attempt to address some of the major pros and cons so that you can make the decision that makes the most sense.

How Do Home Warranties Work? 

For those who are unfamiliar with home warranties, let’s start with the basics. A home warranty plan, also known as a home protection plan, is much like a standard warranty that you’d buy for a product in a store – except that it isn’t limited to a single product.

Depending on the type of coverage you purchase, a home warranty may cover dozens of systems and appliances. 

Generally speaking, most home warranty plans cost just a few hundred dollars per year and are fairly easy to handle. They work like this:

  • A home system or appliance breaks down or has an issue.
  • The homeowner calls the home warranty company.
  • The home warranty company calls one of their approved providers.
  • The provider calls the homeowner and makes an appointment.
  • The provider fixes the problem.
  • The homeowner pays the provider a service fee (generally less than $100).
  • The home warranty company pays the provider the difference.

When you work with a home warranty company that’s known for reliability and customer service, this process is generally pretty smooth. 

The Pros of Home Warranties

When deciding whether or not you want to purchase any sort of home warranty plan, it’s always best to make a list of pros and cons. Let’s start by analyzing some of the benefits:

  1. Comparatively Inexpensive 

“They are fairly inexpensive, typically ranging from $300 to $500, depending on coverage,” real estate expert Elizabeth Weintraub explains. “Home warranty companies sometimes run special sales and either discount policy prices or offer additional coverage for the same price. The policies are prepaid for a year in advance, at which time they expire and can be renewed by the homeowner at a slightly higher fee.”

While $500 might not sound cheap, it’s affordable when you consider what could go wrong. A single problem with one of your home’s main systems could easily cost $1,000 or more. Even if you don’t have a major problem, two or three minor problems over the course of a year could easily exceed the cost of the plan. 

  1. Easy to Manage

Think about what happens when your furnace stops working in the middle of the winter and you don’t have a home warranty plan. You immediately head to Google and start researching. You try to figure out the problem and if you can fix it on your own.

Once you realize that it’s something you probably can’t handle, you begin pricing out the repair. Then you research service providers in your area. Then you call multiple service providers to see who can come out and when. It’s a huge affair that takes an entire afternoon.

With a home warranty, all you have to do is place a single phone call to your provider. They handle the rest and you don’t have to worry about a thing (except trying to stay warm). 

  1. Peace of Mind

It’s hard to put a price tag on peace of mind. Even if you go through a year without needing your home warranty plan, the peace of mind that comes with knowing you’re protected in a worst-case scenario situation is irreplaceable. This, in and of itself, will help you sleep better at night.

The Cons of Home Warranties 

While there are clearly benefits to investing in a home warranty plan, you’ll also hear many people speak poorly about them. With that being said, there are some cons that you must recognize:

  1. You May Not Need it

As is the case with any warranty or insurance plan, you might not need the coverage you’re paying for. If you don’t file a single claim over the course of a year, you essentially flushed hundreds of dollars down the toilet.

If your home is still fairly new – built in the last 5 to 7 years – there’s a good chance that you could go through an entire year without having a big problem. Take this into account and consider self-funding your repairs if you believe your risk level is low. 

  1. No Choice in Service Provider 

One of the biggest issues people have with home warranties is that they have no choice in who services their home. Home warranty providers already have pre-established relationships with service companies in your area and will dispatch accordingly. This might not be a problem for most people, but if you have companies that you like, you probably won’t be able to choose them (at least with 100 percent certainty). 

  1. Big Systems May Cost Extra

The most expensive repairs involve HVAC systems, septic tanks, roofing, and foundation. If you’re purchasing a home warranty plan to prevent major costs associated with these systems, you may be disappointed. Many basic plans don’t cover big-ticket items. To get these things covered, you may have to spend considerably more to upgrade your warranty. At this point, maintaining a plan can be a considerable expense. 

Building an Emergency Fund

If you choose not to go with a home warranty plan, make sure you’re at least building up an emergency fund of cash in a designated checking account. This will serve as “self-insurance” and prevent you from going into debt on home repairs and maintenance.

Contact Green Residential Today 

If you want a trusted name in Houston real estate, look no further than Green Residential. Whether you’re buying, selling, or managing investment properties, we can help you maximize value and peace of mind. Feel free to reach out with any questions you may have!

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