What is a Home Warranty and Why Should I Care?

The Benefits

A home warranty benefits home buyers, home sellers, and homeowners in a variety of different ways, depending on the beneficiary’s particular needs.  Typically, a home warranty is a yearly service contract that protects specific home infrastructure elements such as HVAC, plumbing, the roof and appliances such as a refrigerators, stoves, dishwashers or other mechanical items.

Home buyers typically receive a twelve-month home warranty from the seller of a home as part of the purchase agreement to cover any major home repairs or appliance failures.  After the first year, the new homeowners may opt to renew the policy annually at their own expense. There is a monthly payment option as well with certain companies.

Sellers often purchase a home warranty plan to cover any major home repairs or appliance failures that may occur while the property is in escrow to ensure a smooth transaction for all parties.  After escrow, the policy may then be transferred to the new owners as an option.  Alternatively, home sellers may choose to end the policy upon the close of escrow at which time the home buyers may obtain their own new home warranty coverage to cover any variety of service needs at any time.

Protection

As a broker and 22-year+ real estate professional, I like to share with my clients that a home warranty is similar to a homeowners insurance policy with one big exception.  If there is ever a claim against homeowners insurance, premiums can increase substantially or the coverage can be dropped. This is NOT the case with a home warranty policy. Home warranty policy premiums and coverage are not affected when there is a claim. For example, I once had a new home owner report a new water leak from the water heater and flooding on her floor.  Fortunately, she took my advice and kept her home warranty policy in place.  Within hours, she had a new water heater and clean-up had begun at her new home.  All repairs and cleanup were promptly and professionally executed with no additional costs or changes to her policy or premium and she saved $800 dollars.

It’s common among inexperienced homeowners, buyers, or sellers to shy away from home warranties because they’ve heard that home warranty plans don’t actually work or are a waste of money.  However, from my personal experience, as long as the policy is kept in good standing and the right coverage is designated on the policy, I’ve seen home warranties truly rescue policy holders from significant expense, loss of time and home-use, and most importantly, considerable stress.  Getting a home warranty is recommended for nearly every one of my transactions and my clients benefit by being ready in case of an emergency and having piece of mind throughout the transaction and going forward.

The Claim Process

What are the exact logistical steps a home warranty policy holder should take when something breaks in the house?  First, stop the problem.  Then, call the home warranty company.  Finally, get repairs, replacement, or reimbursement. 

As an example, for a water heater leak, first turn off the water to prevent further damage and immediately call the home warranty company to schedule service.  A service call is generally around $75 per call and the home warranty company typically opts to repair the problem before replacing it.  When you consider a new water heater can cost $1,000 to $2,000, paying a home warranty company for a service call or two saves the policy holder a lot of cash and resolves the problem.  If an expensive appliance is no longer serviceable, the home warranty company will typically pay the majority of the replacement cost, saving the policy holder hundreds or even thousands of dollars.

Recently, a client of mine installed a used Viking double oven which, over time, kept malfunctioning.  Over several months, he booked four service calls with his home warranty company, who repaired the oven each time at total cost to my client of around $300.  Finally, on the last oven malfunction, the home warranty company decided it was not fixable and wrote him a check for $4,000, which he used to buy a brand new double oven. Now he entertains guests with his new ovens and he added new value to his home.

Sometimes, having a home warranty requires a little persistence and finesse.  Last year, I had a client whose refrigerator stopped working. When they called to schedule a service call from their home warranty company, the technician missed the service appointment and seemed to be uncooperative. I called the home warranty area service manager to resolve my client’s issue and within a couple of days, my clients received a $1,500 check to be used for a new refrigerator. 

Leveraging Home Warranties

The key to leveraging home warranties to your advantage is having a little patience and leaning on your local real estate agent or broker. He or she should have the relationships necessary to get things done efficiently on your behalf. If you have a good realtor on your side then they will be available to you at anytime, even after they’ve gotten paid, to help you with your home or real estate needs.

For more tips and strategies on working with a home warranty company, please feel free to reach out to me at jocelyn@jocelynrealestateteam.com anytime.