What is a Home Warranty, and do you need one?

If you own a home, or are thinking about buying one, chances are you would benefit from a handy safety net against repair and maintenance costs.

Home ownership is like Murphy's Law in action.  The water heater inevitably breaks at the worst time, like on a cold winter morning.  Just installed new hardwood floors in the kitchen?  Well, it's time for the dishwasher to start leaking.  The first-time home buyer's reflex to call the landlord doesn't work now that the dream of home ownership has come true.  So what to do?

Many home owners don't have the know-how to perform most repairs, even small ones.  The problem is compounded when disaster strikes at inconvenient times.  Some folks are lucky enough to have a handy neighbor or family member who can come to the rescue, but what about the rest of us?

The next best thing to having a landlord when you're a new home owner is a home warranty.

Home Checklist

So what is a home warranty?

A home warranty acts like a mini-insurance policy for the critical appliances and systems in your home.  Much like an extended warranty that you are offered when you purchase a new smart phone or a flat screen T.V., a home warranty is designed to cover the costs of repairing or replacing just about anything that can go wrong with your home.  A home warranty's cost will vary by the extent of the protection it offers you, but it typically costs between $500 to $900 per year.

If you have a home warranty, you are spared from having to call around to get estimates and quotes from contractors when a problem does occur.  You typically don't have to pay out of pocket to get the problem fixed or have the equipment replaced either.

When you have coverage through a home warranty, you just call your provider or hop on their website and report your problem.  The warranty company will call their list of contractors and tradesmen which they've negotiated with ahead of time, and send them out right away to fix or replace the malfunctioning appliance with a new one.  The annual premium you pay should cover the cost, but part of most home warranty plans is a co-payment of $50 to $75 each time you need to use their services.

Who should buy a home warranty?

Home warranties are especially beneficial for younger home buyers and first-timers who've spent most of their life as renters.  These home owners are accustomed to calling their landlord (or sometimes mom and dad) whenever these types of problems occur.  A home warranty is a great stand-in for a landlord.

Younger homeowners are often working long hours and might not have the time or the energy to call and get their quotes or bids.  They're are also far less likely to have the ability to take time away from their work to wait for the time window for the plumber or electrician to show up.  

It only takes one unexpected appliance or system repair -- and the headache associated with it -- to recoup the entire cost of a one-year home warranty.

However, home warranties aren't just for younger homeowners or first time home buyers.  Any owner of any age is able to purchase a home warranty at any time, and for all the same reasons - it can be a great safety net.

If you hired a home inspector when you bought it, you're already one step ahead of the game because you know the condition and life expectancy of just about everything in your home.  Many appliances and systems will start to break down after 15 to 20 years.  If you find yourself in a situation where multiple systems break down at the same time, it can quickly wipe out any sort of savings you had set aside to deal with home repairs!

Home warranties are also great for "accidental landlords," that is, investors who don't necessarily want it to be their job to field repair calls from their tenants.  Investors who don't have a breadth of experience to draw from, and don't have a network of tradesmen to rely on, it is most likely easier to buy a home warranty.  The ramifications of leaving a tenant without heat or hot water can be pretty extreme in a tenant-friendly state like Massachusetts.  If you have a home warranty you are able to act quickly, keep tenants happy, and minimize stress.

The impact of a home warranty on your next real estate transaction.

I strongly encourage each of my home buyers to consider purchasing a home warranty for their new home.  It adds a peace of mind factor even during this historically strong seller's market, when buyers rarely have the ability to negotiate for the same kinds of home repairs they did only a few short years ago.  

Home sellers can also benefit by offering a home warranty to potential buyers.  Homes marketed with a CENTURY 21 Home Protection Plan sell an average 11 days faster, and for more money.  

Ask me about a home warranty as a component of your next real estate transaction, whether you're buying, selling, or both.